SEEING CUSTOMER SERVICE STRATEGICALLY

My wife met a friend for dinner at a high-end Italian restaurant in Washington, DC, on the Georgetown waterfront. She ordered the Dover sole, which is expensive but my wife's favorite, based on previous visits. After an inordinate wait for the entrées, the server announced that the kitchen had prepared branzino rather than the sole. With little apology, the server basically asked if she would accept the wrong dish now or wait for the correct dish to be prepared.

My wife did not accept the wrong dish but felt bad that her friend's meal may have sat around, waiting to be served while the sole was prepared. A free dessert was provided (despite my wife and her friend declining any dessert), but this attempt at a positive fix was negated when the restaurant mistakenly charged for the more expensive branzino entrée. The error and poor customer service were compounded by the added insult of the higher bill and lack of an empathetic apology for the whole mix-up.

Compare this to an experience at another Washington, DC, restaurant. When we arrived at Rasika for our reservation and a table was not ready, Santosh Bodke, the manager, seamlessly seated us in the bar area and provided complimentary drinks, appetizers, and a sincere apology. At both restaurants, the food was very good and quite pricey. In the first case, the memorably bad service guaranteed a poor rating and negative word-of-mouth (WOM). The second experience cemented loyalty and a positive recommendation.

As an executive, you cannot personally deliver excellent service to all customers. You must depend on the staff and the overall culture created by the entire service team. In some companies a customer-experience advocate looks across the whole company, but in most companies, this concern still resides with the service executive, who should view delivering consistently great service as a career opportunity. The strategic view of customer service is not to look at the function as a cost to be minimized, but as a competitive differentiator that generates revenue and positive WOM and justifies premium margins.

This view begins when you see the true role that service plays in your business and the broad impact of customer service on the company's financial performance. Furthermore, customer expectations created via technology — such as proactive communication and personalization — in companies such as Amazon, Lyft, and Intuit now make such technology critical to enabling a competitive service level. Therefore, the chief information officer (CIO) should be your new best friend.

This chapter will help you see the customer service function in strategic terms and grasp its true potential. First, we examine ways in which customer service and customer responses to service can affect an organization for better or worse. Next is a discussion of how financial decisions about customer service can be made strategically better to enhance the bottom line. After defining several key terms that arise in most customer service discussions, the chapter presents a model for a customer service function that can play a strategic role in any organization. Finally, initial steps are suggested to establish strategic customer service in your organization. At the end of each chapter, key takeaway points are summarized.

HOW CUSTOMER SERVICE AFFECTS A BUSINESS

The idea that poor customer service harms a business is intuitively correct, but the concept cannot be incorporated into decision making unless it can be quantified. Here are some of the basic, quantifiable findings from our research over the past four decades. First, the bad news, and then the good news.

The Bad News

Most customers do not complain, and noncomplaining customers hurt your business. With consumer-packaged goods and other small-ticket items, only 5 to 15 percent of dissatisfied customers complain, and usually only to the retailer. For serious problems with big-ticket items, the complaint rate rises to 20 to 50 percent of customers who report the problem to a frontline representative, but only one out of ten of these customers (2 to 5 percent of all complainants) escalate the issue to the local manager or the corporate office. This means that at the manufacturer or headquarters level, for each complaint received, about twenty to fifty other customers have problems you don't hear about. Finally, for business-to-business (B2B) customers, at least 25 percent do not complain, and often this figure can be as high as 75 percent.

Why do customers not complain, including business customers who are paying you thousands, or tens of thousands, of dollars per month?

Customers don't complain for four main reasons:

* Customers think it will do no good. Either they have complained in the past and nothing was done, or they believe standard industry practice causes the problem.

* Fear of damaging a long-term relationship. Customers are often dependent on a particular employee, or they fear conflict/retribution from the person they are complaining about. To put this in context, think of your trepidation about complaining to a restaurant manager about your server before he or she brings your entrée to the table, which raises the stakes considerably.

* The problem is aggravating but not critical. Customers therefore feel the problem is not worth the hassle of complaining. Think of discovering a mile after you left the drive-through that the French fries are missing from your takeout order. You will likely feel it isn't worth driving back to complain or rectify the situation.

* Customers do not know where to complain. Many customers are at a loss to determine how to escalate a complaint beyond the staff member with whom they are dealing. Often, general requests for a manager result in an interminable wait and/or someone not empowered to fix the situation.

When dissatisfied customers do not tell the company about a problem, the problem cannot be resolved. We see the same behaviors and even worse problem-complaint ratios in nonprofit organizations (museums, health clinics, etc.) and government agencies (where expectations are lower). For example, at a major New York...