January 5, 2009
Smart Customer Service Cutbacks
By Tom Ryan
While companies may be
forced to reduce spending in customer-centric areas during difficult times,
there are ways to cut costs without reducing customer service levels, asserts
an article in The McKinsey Quarterly. In many cases, the cuts can
be made in areas of
"over-investing," in which the incremental payoff to consumers
is negligible.
For example, authors,
Adam Braff and John DeVine, noted that "average time-to-answer" is
a common metric used in call centers, and measuring "breakpoints" is
one way companies are saving money without degrading customer service levels.
For instance, a wireless
telecommunications services provider found that its customers had two breakpoints
at X and Y seconds on a call; answering the phone immediately (less than
X seconds) produced delight, while leaving customers on hold for longer
(more than Y seconds) produced strong dissatisfaction. At the same time,
customers were fairly indifferent to service levels between X and Y. While
the company considered raising service levels to the "delight breakpoint," customer-lifetime-value
economics pointed to reducing them to just above the "patience threshold."
"The drop in customer
satisfaction was negligible, but the savings in staffing were significant,
and the company ended up saving more than $7 million annually
— much of which was reinvested in improvements to its problem-resolution
process," the authors wrote.
The same principles can
be applied to setting up a new account, scheduling an appointment, answering
a non-urgent e-mail, or having customers wait in line.
"In our experience,
most companies that analyze their service levels carefully find that some
wait times have become more important to customers than others and that
overstaffing to hit service targets that customers don’t care about is
costing them money," the authors wrote.
Other areas of "overinvestment" include
technology applications. For instance, a bank considered investing in a
costly ATM overhaul to add barriers to enhance user privacy. Instead, it
found that increasing the net number of ATMs provided significantly greater
customer satisfaction.
Other places to look
for potential overinvestment include marketing campaigns that offer to
move a customer to a cheaper rate plan regardless of whether the customer
says cost is a problem as well as excessive use of bill credits and adjustments.
The authors said the
business case for these "customer delight treatments" often include
unrealistic assumptions about their ROI on customer referrals and retention.
The authors concluded, "Finding
these savings requires rigor in customer experience analytics: the collection
of customer-level data, matching survey responses to actual behavior, and
statistical analysis that differentiates to the extent possible between
correlation and causation. It also requires a willingness to question long-held
internal beliefs reinforced through repetition by upper management."
Discussion Questions:
Do you find brands and retailers guilty of "over-investing" in
some areas of customer service? How can cost savings be found in customer-centric
areas without impairing overall customer service levels?
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If you sell high-involvement products vs. low-involvement products, then service is part of the interaction cycle. Products and services have a tangible and intangible side as well and winning in this business is as much an art as it is a science.
Success at dispensing knowledge also has a critical thinking threshold–I think I’m hanging up on this white paper. Click.
Consumer behaviorist Noriake Kano introduced the concept of “Attractive and Must Be Quality” in a 1984 paper. Briefly stated, his idea is that there are some minimum quality thresholds that must be met in order for consumers to feel a product or service is acceptable. But raising quality higher on those offerings does not result in higher satisfaction. This is “must-be” quality–the price to play.
There are other quality attributes where absence is no detriment, but higher performance can lead beyond satisfaction, to shopper delight. These possess what Kano called “attractive” quality.
Reading into the McKinsey article, it would seem to advocate that cash-strapped service providers learn where the “must-be” and “attractive” thresholds lie for their offerings, then manage quality to fall just on the right side of those break points.
Compelling reasoning. My main concern: Does this type of management result in the phenomenon called “regression toward the mean”? In other words, would service standards sink into mediocrity?
One of the keys to fulfilling the customer service commitment is consistently meeting and exceeding the customer’s expectations. When a retailer builds those expectations only to cut back during tough times it sends the wrong message to the customer. Cutbacks nearly always create disappointed customers.
The airlines have consistently cut back on their frequent flier programs to the point few customers have confidence in the airlines and their programs. This has been particularly true for very frequent fliers (Their best customers.)
Savvy retailers will do everything they can to build and enhance the relationships they have with their customers during these challenging economic times. Cutbacks may be a necessity, but anything that negatively impacts or influences customer relationships will result in unhappy and lost customers. Can any business afford such a mistake in this economic climate?
There’s a simple answer here that is better than a broad research study like McKinsey’s. Try changing service levels in a structured way–treating certain calls in a new way and other (like) calls the old way. Then measure the results for your specific customers. The answer just might differ between, for example, a mortgage service call center filled with inbound calls from folks on the brink of foreclosure versus a Mercedes service hotline.
Is there such a thing as “Smart Customer Service Cutbacks”? Just the idea that an operator is dealing with the “PAIN” level of the scale would be my concern. It highlights a mindset that that is the antithesis of any business that relies on an intimate relationship with the consumer.
Beyond that, satisfaction is a multidimensional measure. Is it painful to wait in a 5 minute queue for tech support and have the problem solved quickly versus having no wait time and less than adequate solutions? Referencing the discussion on Dell’s up charge for dealing with American Tech Support, would Dell be better off offering a caller the option of immediate response from overseas versus a 12 minute wait for American service?
Consider the choice consumers make as to where to purchase their groceries. At Costco you bag and box yourself; at Publix you never wait and your groceries are carried to your car.
If there is a continuum scale of customer satisfaction, the companies that try to find the point of inflection for dissatisfaction are on the road to failure.
Unfortunately, if current consumer surveys are accurate, few retailers or manufacturers can be accused of over-investing in customer service. Rather there seems to be a strong need to invest wisely in this area.
Before investing to determine what is the maximum level of pain a consumer is willing to accept before being able to voice a concern, companies should be focused on meeting or exceeding consumer expectations. Exceeding expectations generates positive word of mouth, which is contributes to increased sales. It doesn’t take an expensive study from a consultant to realize that.
I agree, and disagree, with the McKinsey premise. While it is true that there are some areas where the marginal cost yields no additional return and therefore is not worth investing in, you have to be very careful about the cumulative impact of such changes. Consumers form a general “big picture” view of companies, and dissecting each and every metric down to its marginal return without looking at their interactions and inter-dependencies may backfire. Here are two examples to get at what I mean.
First example: Last Christmas we made the big leap to HD. We called DirecTV, scheduled the appointment for them to come in and upgrade us. They gave us a 4-hour window, which was fine because we were going to be home that day. No one called, no one showed. We called them back and complained. They immediately gave us a credit. Well, OK, but that’s not what we really wanted. And, in fact, they gave us that credit so fast that it seemed like this was a common problem. Not encouraging.
This example supports the McKinsey idea–they gave money away that they might not have had to. Certainly, I would have been just as “satisfied” as a customer with a $50 credit vs. the $100 they gave me–because it didn’t make me feel any better about the fact that now I had to specifically stay home for another 4-hour window. I would’ve been happier with an actual appointment time the next time around and they could have kept the $100. That is customer service money just chucked out the window–not well spent.
Example 2: Comcast must die. I am a member of the Comcast must die tribe, for reasons too numerous to go into. Never once have they delighted me. Have they subscribed to the McKinsey idea of customer breakpoints? I don’t know. But while they haven’t done anything to set me off in awhile, they still get no quarter from me because they have not ever done anything that comes close to making up for the things they did to me before. That’s what “average customer time to impatience” and things like that get you–especially if you don’t keep the big picture customer experience in mind.
I guess the lesson is, find out what does delight your customers, don’t just throw things at them that you hope delight them. That way you can eliminate the things they don’t want (saving money), while still getting a big return on the customer investment.
The McKinsey report missed one of the key components for customer service and customer loyalty. Especially in retail, knowing your business model and consistently delivering on that model creates brand value. To the consumer the point of a brand is that when they see your sign they know what to expect. I can have a delightful shopping experience at both Whole Foods and Walmart because I know what to expect when I walk in the door and because both companies are good at consistently delivering on their business model. I would be cautious altering service delivery without a VERY clear understanding of what customers expect and what customers think of your current level of customer service.
The trick is to clearly define your business model and then deliver it at every location, every day.
How about charging more for good/extra service? As Gene referenced earlier, Dell’s trying it, charging extra to let customers talk to American tech experts rather than those in India. Interesting approach, don’t you think–create a problem and charge customers to avoid it?
To quote an old and true retail chestnut, “You can’t control your way to growth. You can only sell your way to growth.” Controlling customer service is definitely contrary to this rule.
It’s all about meeting or, better yet, exceeding customer expectations about WHAT IS ACTUALLY IMPORTANT TO THE CUSTOMER, not necessarily what’s important to you, the retailer.
I’ve never spoken to a real live person at Amazon. When I have had a question or comment I never got a very quick (e.g. within a few hours), let alone a real-time (‘3 rings’) response. Yet, several hundreds of transactions later, I’m wildly enthusiastic about the entire Amazon system.
Too many retailers decide that more folks on the floor is, for example, a ‘service oriented’ approach as opposed to better signage, adjacencies that make sense, a logical ‘flow’ through the store, better in-stock position (even though the latter strategies reduce the need for people on the floor and/or free up those on the floor to actually practice customer engagement vice problem resolution).
The note about the COSTCO vs. PUBLIX experience struck a particularly responsive chord. Both companies have very well-defined, albeit different, business models. Both companies have been successful for a long time because they walk the talk for those business models.
As a Northern Virginia resident (and recovering Store Ops type) I’ve literally seen the same people who are in Bloomingdale’s or Nordstrom’s in the Tysons Mall in the morning at a nearby COSTCO that same afternoon. They were spending lots of money and seemed to be having a good experience in both places if smiles and body language mean anything. The key–clear customer expectations and then meeting/exceeding them.
Yep, the McKinsey rationale can be inappropriately applied or carried to its logical absurdity. That said, the basic premise makes sense (unless, of course your a retailer with virtually infinite resources).
I honestly think it’s impossible to ‘over invest’ in customer-centric areas. I think you can invest poorly, as is the case with things like flat screen TVs showing mindless commercials all over the store, or electronic price signs (they’re awful! stop it!). But if you do it wisely, like Apple does with all their staff and Genius Bar, there is no wiser investment than in that ‘last mile’–where the customer meets your brand.
Besides, why would you want to cut back anything that starts with “customer”??? In these dark times for retailers, I would think you’d be thinking something dramatically different.
Over the years, great companies focus mainly on growing their business, poorer companies focus more on cost control. Trying to manage to the level of dissatisfaction that your customers will put up with just seems completely wrong.
I love when these big reports come out giving specific stats like you can save 7 million dollars when you only irritate your customer X amount of times. I am pretty sure that savings of 7 millions is costing them sales in some other way, shape or form. There is no way that annoying your customer, even to the slightest degree, will not have an impact on the business.
Any business that handles customers must invest in customer service! The word of mouth marketing that goes on can be a missile either working for you or headed right for you. Many retailers really underestimate the power of their own customers. We need to remember that there is no business without customers and most if not all customers are indeed aware of what is going on around them. Can anyone afford to lose one customer in this selling environment? The answer is no and it applies to everyone.
Keeping up service levels is achieved through leadership and understanding. When your staff understands why they are doing something, it is easier to motivate them. I have seen some chains really step up service and are seeing decent baskets even in this post Christmas season. Service is what sells and builds loyalty.
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If you sell high-involvement products vs. low-involvement products, then service is part of the interaction cycle. Products and services have a tangible and intangible side as well and winning in this business is as much an art as it is a science.
Success at dispensing knowledge also has a critical thinking threshold–I think I’m hanging up on this white paper. Click.
Consumer behaviorist Noriake Kano introduced the concept of “Attractive and Must Be Quality” in a 1984 paper. Briefly stated, his idea is that there are some minimum quality thresholds that must be met in order for consumers to feel a product or service is acceptable. But raising quality higher on those offerings does not result in higher satisfaction. This is “must-be” quality–the price to play.
There are other quality attributes where absence is no detriment, but higher performance can lead beyond satisfaction, to shopper delight. These possess what Kano called “attractive” quality.
Reading into the McKinsey article, it would seem to advocate that cash-strapped service providers learn where the “must-be” and “attractive” thresholds lie for their offerings, then manage quality to fall just on the right side of those break points.
Compelling reasoning. My main concern: Does this type of management result in the phenomenon called “regression toward the mean”? In other words, would service standards sink into mediocrity?
One of the keys to fulfilling the customer service commitment is consistently meeting and exceeding the customer’s expectations. When a retailer builds those expectations only to cut back during tough times it sends the wrong message to the customer. Cutbacks nearly always create disappointed customers.
The airlines have consistently cut back on their frequent flier programs to the point few customers have confidence in the airlines and their programs. This has been particularly true for very frequent fliers (Their best customers.)
Savvy retailers will do everything they can to build and enhance the relationships they have with their customers during these challenging economic times. Cutbacks may be a necessity, but anything that negatively impacts or influences customer relationships will result in unhappy and lost customers. Can any business afford such a mistake in this economic climate?
There’s a simple answer here that is better than a broad research study like McKinsey’s. Try changing service levels in a structured way–treating certain calls in a new way and other (like) calls the old way. Then measure the results for your specific customers. The answer just might differ between, for example, a mortgage service call center filled with inbound calls from folks on the brink of foreclosure versus a Mercedes service hotline.
Is there such a thing as “Smart Customer Service Cutbacks”? Just the idea that an operator is dealing with the “PAIN” level of the scale would be my concern. It highlights a mindset that that is the antithesis of any business that relies on an intimate relationship with the consumer.
Beyond that, satisfaction is a multidimensional measure. Is it painful to wait in a 5 minute queue for tech support and have the problem solved quickly versus having no wait time and less than adequate solutions? Referencing the discussion on Dell’s up charge for dealing with American Tech Support, would Dell be better off offering a caller the option of immediate response from overseas versus a 12 minute wait for American service?
Consider the choice consumers make as to where to purchase their groceries. At Costco you bag and box yourself; at Publix you never wait and your groceries are carried to your car.
If there is a continuum scale of customer satisfaction, the companies that try to find the point of inflection for dissatisfaction are on the road to failure.
Unfortunately, if current consumer surveys are accurate, few retailers or manufacturers can be accused of over-investing in customer service. Rather there seems to be a strong need to invest wisely in this area.
Before investing to determine what is the maximum level of pain a consumer is willing to accept before being able to voice a concern, companies should be focused on meeting or exceeding consumer expectations. Exceeding expectations generates positive word of mouth, which is contributes to increased sales. It doesn’t take an expensive study from a consultant to realize that.
I agree, and disagree, with the McKinsey premise. While it is true that there are some areas where the marginal cost yields no additional return and therefore is not worth investing in, you have to be very careful about the cumulative impact of such changes. Consumers form a general “big picture” view of companies, and dissecting each and every metric down to its marginal return without looking at their interactions and inter-dependencies may backfire. Here are two examples to get at what I mean.
First example: Last Christmas we made the big leap to HD. We called DirecTV, scheduled the appointment for them to come in and upgrade us. They gave us a 4-hour window, which was fine because we were going to be home that day. No one called, no one showed. We called them back and complained. They immediately gave us a credit. Well, OK, but that’s not what we really wanted. And, in fact, they gave us that credit so fast that it seemed like this was a common problem. Not encouraging.
This example supports the McKinsey idea–they gave money away that they might not have had to. Certainly, I would have been just as “satisfied” as a customer with a $50 credit vs. the $100 they gave me–because it didn’t make me feel any better about the fact that now I had to specifically stay home for another 4-hour window. I would’ve been happier with an actual appointment time the next time around and they could have kept the $100. That is customer service money just chucked out the window–not well spent.
Example 2: Comcast must die. I am a member of the Comcast must die tribe, for reasons too numerous to go into. Never once have they delighted me. Have they subscribed to the McKinsey idea of customer breakpoints? I don’t know. But while they haven’t done anything to set me off in awhile, they still get no quarter from me because they have not ever done anything that comes close to making up for the things they did to me before. That’s what “average customer time to impatience” and things like that get you–especially if you don’t keep the big picture customer experience in mind.
I guess the lesson is, find out what does delight your customers, don’t just throw things at them that you hope delight them. That way you can eliminate the things they don’t want (saving money), while still getting a big return on the customer investment.
The McKinsey report missed one of the key components for customer service and customer loyalty. Especially in retail, knowing your business model and consistently delivering on that model creates brand value. To the consumer the point of a brand is that when they see your sign they know what to expect. I can have a delightful shopping experience at both Whole Foods and Walmart because I know what to expect when I walk in the door and because both companies are good at consistently delivering on their business model. I would be cautious altering service delivery without a VERY clear understanding of what customers expect and what customers think of your current level of customer service.
The trick is to clearly define your business model and then deliver it at every location, every day.
How about charging more for good/extra service? As Gene referenced earlier, Dell’s trying it, charging extra to let customers talk to American tech experts rather than those in India. Interesting approach, don’t you think–create a problem and charge customers to avoid it?
To quote an old and true retail chestnut, “You can’t control your way to growth. You can only sell your way to growth.” Controlling customer service is definitely contrary to this rule.
It’s all about meeting or, better yet, exceeding customer expectations about WHAT IS ACTUALLY IMPORTANT TO THE CUSTOMER, not necessarily what’s important to you, the retailer.
I’ve never spoken to a real live person at Amazon. When I have had a question or comment I never got a very quick (e.g. within a few hours), let alone a real-time (‘3 rings’) response. Yet, several hundreds of transactions later, I’m wildly enthusiastic about the entire Amazon system.
Too many retailers decide that more folks on the floor is, for example, a ‘service oriented’ approach as opposed to better signage, adjacencies that make sense, a logical ‘flow’ through the store, better in-stock position (even though the latter strategies reduce the need for people on the floor and/or free up those on the floor to actually practice customer engagement vice problem resolution).
The note about the COSTCO vs. PUBLIX experience struck a particularly responsive chord. Both companies have very well-defined, albeit different, business models. Both companies have been successful for a long time because they walk the talk for those business models.
As a Northern Virginia resident (and recovering Store Ops type) I’ve literally seen the same people who are in Bloomingdale’s or Nordstrom’s in the Tysons Mall in the morning at a nearby COSTCO that same afternoon. They were spending lots of money and seemed to be having a good experience in both places if smiles and body language mean anything. The key–clear customer expectations and then meeting/exceeding them.
Yep, the McKinsey rationale can be inappropriately applied or carried to its logical absurdity. That said, the basic premise makes sense (unless, of course your a retailer with virtually infinite resources).
I honestly think it’s impossible to ‘over invest’ in customer-centric areas. I think you can invest poorly, as is the case with things like flat screen TVs showing mindless commercials all over the store, or electronic price signs (they’re awful! stop it!). But if you do it wisely, like Apple does with all their staff and Genius Bar, there is no wiser investment than in that ‘last mile’–where the customer meets your brand.
Besides, why would you want to cut back anything that starts with “customer”??? In these dark times for retailers, I would think you’d be thinking something dramatically different.
Over the years, great companies focus mainly on growing their business, poorer companies focus more on cost control. Trying to manage to the level of dissatisfaction that your customers will put up with just seems completely wrong.
I love when these big reports come out giving specific stats like you can save 7 million dollars when you only irritate your customer X amount of times. I am pretty sure that savings of 7 millions is costing them sales in some other way, shape or form. There is no way that annoying your customer, even to the slightest degree, will not have an impact on the business.
Any business that handles customers must invest in customer service! The word of mouth marketing that goes on can be a missile either working for you or headed right for you. Many retailers really underestimate the power of their own customers. We need to remember that there is no business without customers and most if not all customers are indeed aware of what is going on around them. Can anyone afford to lose one customer in this selling environment? The answer is no and it applies to everyone.
Keeping up service levels is achieved through leadership and understanding. When your staff understands why they are doing something, it is easier to motivate them. I have seen some chains really step up service and are seeing decent baskets even in this post Christmas season. Service is what sells and builds loyalty.