Do Your Customers Really Matter?

Michael LeBoeuf claims, "A satisfied customer is the best business strategy of all." ["Business Strategies of Companies," by Michael Kerr, Houston Chronicle] That may be true, but you wouldn't know it by looking at the customer service strategies being pursued by many companies. Kerr states that before you can achieve the goal of creating customer satisfaction "you'll need to decide who, exactly, that customer is." Established companies may have passed that hurdle; but start-ups may take some time figuring out exactly who their customers are. There are two kinds of "customers" with whom companies may need to be concerned. The first type is the commercial customer (i.e., retailers who sell manufacturers' product or use it to produce a good or service) and the second type is the ultimate user (i.e., the consumer). When you discuss customer service, you really need to keep that distinction in mind because they are likely to require two different customer service strategies. Let's start the discussion with the commercial customer.

COMMERCIAL CUSTOMERS

Even if you think you know who your customers are, the folks at SupplyChainBrain assert that "All Customers Aren't Created Equal." [3 January 2011] They cite Juan Rubio, managing partner of Logistics Resources International Inc., who claims that customer service can be improved by segmenting "customers based on their importance to the organization." The article continues:

"The absence of a policy, or one that treats all products and customers alike, 'means the customer is basically dictating terms.' Rubio urges companies to develop a document that lays out terms, conditions, stipulations, price bracketing and discounting ratings, among other things. The customer needs to know from the start what kind of discounts to which it is entitled. Most companies provide a level of customer service that is based on a standard inventory policy, largely driven by the cost of capital. Such an approach raises customer expectations unnecessarily. Instead, companies need to be segmenting their customer base according to the contribution each account makes to revenues and the bottom line. Dividing lines can be borrowed from inventory-management techniques of 'A, B and C' designations. The first group will comprise 80 percent of a company's revenue, the second 15 percent and the third 5 percent. In addition to top-line revenue, companies should factor in volume, cost to serve and overall profitability."

Generally, all customers deserve to be treated with respect and consideration; but, clearly your "A" customers deserve special attention. Rubio is not sure that "all" customers do deserve respect and consideration. According to the article, he believes there is "a fourth class of customer and product, called the 'C-minus' group." The article concludes:

"Accounting for just 1 percent of revenue, these are often unprofitable to serve. Because the number is so small, companies shouldn’t balk at restricting their access to discounts, or cutting them off altogether. 'In most cases you're probably a second, third or fourth supplier to them,' Rubio says. 'The cost of serving that [C-minus] segment is usually far more expensive than the other categories, and they don't have the revenue to offset it.' Despite the old adage that 'the customer is king,' companies need to be realistic about which ones are making the strongest contribution to the bottom line. Those attempting to treat everyone like an 'A' customer end up treating all customers like 'Bs,' and degrading service across the board. 'That's good news for "B" and "C" customers,' Rubio says, 'but bad news for "A" customers.'"

Robert J. Bowman, from SupplyChainBrain, indicates that he is wary of any company that promotes itself as "customer-centric." He asks, "Is there anything in the business world more hackneyed than the CEO who claims to put the customer first?" ["At Cisco, 'The Customer Is Everything.' No, Really," 28 February 2011] He continues:

"As a top executive, the first constituency you answer to is your shareholders. After that comes a hodgepodge of interests: The board of directors. The CFO. Banks. Wall Street analysts. The big-box retailer who stocks your product. The supplier who can't deliver the parts you need. The cost of fuel and raw materials. Your compensation agreement. And somewhere in there, the customer. Occasionally, though, a company that talks about its 'laser-like' customer focus really means it – or at least it's trying to make good on that vow. Cisco Systems, Inc. might be one of those."

Bowman reports that Cisco's "laser-like customer focus" began "back in 2001 when it was forced to write off $2.25bn in inventory because it misread market demand just prior to the bursting of the dot-com bubble." Not wanting to repeat that fiasco, "Cisco has almost no finished product on the shelf; it configures to order virtually everything it ships." One would think that customer satisfaction would be high if orders are all customized. Cisco, however, feels that it has been forced into that position because it simply can't forecast market conditions with any certainty. That's not because Cisco's forecasting process is flawed, it's because its customers really don't know what they want. Bowman reports, "One of Cisco's biggest customers has a forecast accuracy of just 12 percent, and the number isn't atypical." When forecasting fails you, the best fallback position is what Cisco calls "customer intimacy." The company achieves this by establishing "cross-functional 'customer value teams' that service the biggest accounts. The idea is to build flexibility into every stage of a product's lifecycle, with constant customer input and strict performance metrics for suppliers." That sounds like Cisco uses a prioritization system very much like the one recommended by Rubio. It's certainly something to think about.

CONSUMERS

When most people hear the term "customer service," they picture individual consumers trying to deal with companies from which they have purchased goods or services. According to several studies, "satisfaction with customer service has plummeted. Since 2009, all 11 of the customer service measures tracked by consultancy Accenture — including how long you wait on hold for a customer service rep and whether reps are available at 'convenient' hours — have declined. Ratings for web retailers are down 3.6% compared with last year, while airlines hit a record low this year, according to the National American Customer Satisfaction Index." ["Get Better Customer Service — Fast," by Kelli B. Grant, Pay Dirt, 14 June 2011] Randall Stross writes, "Phone trees that lead nowhere. Customer service drones chained to a script. The modern corporation has invented a thousand ways to tell customers with a grievance: You're out of luck. And, no, contrary to our dulcet recording, your call is not important to us." ["Consumer Complaints Made Easy. Maybe Too Easy." New York Times, 28 May 2011]

Stross indicates that large companies may have believed that a little customer inconvenience was no big deal in years past. Today, because of numerous social media outlets, there is no such thing as a "lonely" consumer voice. Stross continues:

"Today unhappy consumers have Facebook and Twitter on their side. The new social media provide free megaphones that carry a customer's complaint around the world. Perhaps a little too easily. Gripe, a company that describes itself as a 'better Better Business Bureau for the Twitter age,' is devoted to spreading word of a problem quickly. It provides a mobile app for iPhone and Android that makes posting a complaint simultaneously to one's Facebook friends and Twitter followers effortless. 'The B.B.B. has a bureaucracy in the middle,' says Farhad Mohit, the company's chief executive. You have to fill out a form, you have to put up with some hassle. 'There's a high degree of friction,' he says. Gripe, which was started last year, removes the friction. With a little typing, its users can send off a gripe, which goes to Facebook, Twitter and the named company's customer service department. The company is invited to remedy the problem and remove the stain of the publicized gripe, earning a 'cheer.' Users can also send out a 'cheer' in the first place, to applaud customer service well done."

My guess, based on personal experience with so-call customer service sections, is that jeers outnumber cheers. Stross recalls an incident I discussed in a previous post [Improving Customer Service] concerning "Heather P. Armstrong, the proprietress of Dooce, a widely read blog." Having had a bad experience with Maytag, she used her Twitter account to tell her considerable following about her bad experiences. As a result, "Ms. Armstrong heard from an executive at Whirlpool, the parent company of the Maytag brand, and her machine was soon fixed." That is not the kind of publicity a company wants to endure. Although some companies see this kind of action as social bullying, decades of decreasing customer service has resulted in a reservoir of consumer discontent yearning to be unleashed. Kelli Grant indicates that companies could learn a lesson from DisneyStore.com, which "sets a bar for its staff." It wants them to answer "calls within 30 seconds, and emails within 24 hours, says Paul Gainer, the senior vice president of Disney Store North America."

I think it would be fair to say that most customers want to talk directly to someone who is empowered to help them solve their problem. But, in another article, Grant writes, "Companies are increasingly replacing their human operators with automated phone menus and other high-tech systems. A few firms, including eBay, have scaled back or eliminated customer phone service altogether, while some younger companies like Facebook have never provided the service." ["Beating the Customer Service Robots," by Kelli B. Grant, Wall Street Journal, 23 June 2011] Grant indicates that "companies say new high-tech customer service methods serve clients better." While that may bring a sneering smile to your face or make you LOL, companies claim that "by using online chat, Twitter accounts and Facebook pages … [they] can have customer services reps available for more hours of the day." Grant indicates that some companies are listening. "Sites like SierraTradingPost.com and Zappos.com say they are empowering reps to handle more problems without a supervisor."

Companies are reluctant to invest too heavily in customer service because it tends to reduce rather than increase the bottom line. Nothing, however, reduces a company's bottom line faster than a lost reputation or lost customers.

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