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From Service to Sales

Taking your customer service from cost center to profit center.

How many times has one of your customers approached you with an issue or a problem?

Often, we find ourselves threatened or at least uncomfortable when a customer approaches us with a complaint or some other form of problem. Our lack of comfort can be exacerbated if the customer is temperamental or distressed in some way.

In spite of this, I have found that how you handle these types of situations can have a very significant impact on the strength of your customer relationships. Stated somewhat differently, customer problems are opportunities in disguise. Allow me to explain this in more detail.

When I conduct focus groups or individual interviews with highly loyal customers across a broad spectrum of different industries (e.g., retail, restaurants, medical devices, chemicals), I consistently find that what creates loyalty is the absence of perceived risk. When I speak with a client’s truly loyal customers, I find they are completely confident that every time they deal with our client they will have a great experience, and – in those rare cases when they do not – they have absolutely no doubt the company will take whatever steps are necessary to immediately rectify the situation.

When I speak with customers who do not consider themselves loyal to a client, I get a completely different impression. These customers speak about inconsistency – sometimes they have a very good experience, other times they do not. “You never know what you are going to get,” is a comment we hear often.

These conversations with customers highlight a key point. Loyalty does not come by “delighting” them or “exceeding their expectations.” Rather, it comes by on a 24/7 basis. In this context, problem resolution is really an opportunity in disguise; a way to build trust with your customers when inconsistency of execution inevitably raises its ugly head.

Let me illustrate this with some analysis we did a few years ago for an internet retailer:

I surveyed approximately 1000 respondents who had placed an order with our client in January 2014. I then divided these respondents into three separate groups:

  1. Those who reported no problem with their purchase
  2. Those who had a problem with their purchase that was resolved to their satisfaction when they first reported it to our client
  3. Those that had a problem that was not resolved to their satisfaction when they first reported it to our client

For each group of customers, I monitored their subsequent purchases from our client over the next three months. So, what did I find out?

Those customers (as a group) who did not experience a problem spent on average about $100 with our client in the following three month period. Those customers who experienced a problem and did not have a satisfactory experience with customer service when they reported it did not just sit around and moan. They substantially reduced their expenditures to an average of $20 over the subsequent three months – an 80 percent reduction. Interestingly, those customers in the third group, those whose problem was handled satisfactorily by customer service, actually spent $106 over the same subsequent period – 6 percent more than the customers who did not have a problem at all (and 430 percent more than the customers whose problems were not resolved satisfactorily).

The tendency in this country over the last 10 to 15 years has been to regard customer service as a cost center. What do profit-maximizing companies do with cost centers? They try everything they can to reduce their costs. This has become increasingly easy to do with the substantial reductions in the cost of communications that have occurred over this time period.

What I have argued here is that far from being a cost center, customer service is actually a profit center. Customers whose problems are satisfactorily resolved subsequently spend more than those who did not have a problem and quantumly more than those whose problems are not properly handled.

Here is another way to think about this. Virtually everyone I know has a “Nordstrom’s story.” The story never goes like, “I bought this red tie at Nordstrom’s and when I went to my meeting everyone liked it.” Far from it, actually. The typical person’s “Nordstrom’s story” involves some sort of purchase issue and how Nordstrom’s was able to quickly and effectively handle their particular problem for them.

The choice is yours. What kind of stories do you want your customers telling about you?

John Larson is the senior partner at John Larson & Company, a pioneer in the field of customer loyalty and the author of Capturing Loyalty. Prior to starting his own firm, John held positions at McKinsey & Co., Monitor Company, Lieberman Research Worldwide, and J.D. Power and Associates, specializing in the areas of strategic analysis, organizational effectiveness, and customer satisfaction and loyalty. John uses survey research techniques to help clients develop a better understanding of the needs of their customers, assess how well these are currently being met in the marketplace, and then target opportunities to create long term competitive advantage. He has worked with clients to address the specific organizational barriers that can impede effective implementation.