Editor's note: John Goodman is vice chairman at TARP Worldwide, an Arlington, Va., research company. Goodman can be reached at 703-284-9253 or at jgoodman@tarp.com. This article appeared in the August 8, 2011, edition of Quirk's e-newsletter.
Some common phrases in the marketing and service sector would be better described as common misconceptions - stated and restated enough times that business professionals have come to accept them as gospel. Some marketing and service myths are based on solid, empirical evidence but have been carried too far. Others are just plain wrong. After enough time has passed, it can be hard to separate conventional wisdom from marketing clichés. But it's never too late to evaluate why you've adopted your marketing and service practices and, if need be, change them! In this article I will debunk 10 common myths and offer a different, backed-by-research approach to your marketing and service efforts.
Myth 1: The key to market success is to exceed customers' expectations, delighting them whenever possible.
Fact: Delight customers only when cost is reasonable cost and payoff is significant.
Everyone wants to exceed customer expectations. While this is a nice general idea, all actions to produce delight do not cost the same and all delight experiences do not produce the same increase in loyalty. TARP has found that many labor-intensive heroics will only result in a 12-to-14 percent increase in the percentage of customers who will definitely recommend a company, while other less labor-intensive actions (i.e., a friendly 90-second conversation, which can create an emotional connection or a hint regarding how to avoid problems) will result in two or three times more customers becoming advocates.
Lesson: Measure the cost and impact of different types of delighters and only exceed expectations where it is cost-effective.
Myth 2: Answer the phone fast - any time on hold makes people mad.
Fact: It is more important what happens after you answer the phone than how fast you answer.
In most environments, you can keep customers on hold or delay answering for more than 30 seconds (and often up to a minute!) if, when you answer the phone, you handle the customer's issue completely. If the problem is handled to the customer's satisfaction there is no discernable impact on satisfaction due to the 30-second delay. Answering in two rings often wastes money.
Lesson: Answer in less than a minute and then make sure you handle the call to completion on first contact.
Myth 3: Everyone wants to talk to a human; Web and automated services are always less satisfactory.
Fact: Web and automated service are preferred in some cases and by some customer segments.
One investment company found a large segment of its wealthy clients never wanted to talk to a human being and always wanted to interact by Web and e-mail. Likewise, customers are often happy to check an account balance online or a package delivery via IVR but, if there is an unpleasant surprise, then they will want to talk to a human.
Whether companies damage customer relationships with self-service depends on who the customer is; what the customer is calling about or looking for; and the effectiveness of the tools and information you provide to use the automated systems.
Lesson: Ask customers about their preferred communications channel for issue category and transactions and offer a range of channels to choose from. Provide good directions, like printing the IVR menu wherever you print the phone number.
Myth 4: The customer is always right - never say no.
Fact: The customer is not always right and you can say no.
Sometimes it is OK to say no to the customer or give bad news as long as you give the customer a clear, reasonable explanation regarding why the request is not possible. For example, explaining that the flight will be delayed due to a leak in the hydraulic system will not make customers happy but will keep them safe - and thankful to be on the ground.
Lesson: Train your staff that it is fine to say no but arm them with clear, believable explanations regarding why the policy is in place or why the situation occurred. Be flexible to take special action for valuable customers.
Myth 5: If complaints are going down, things are getting better.
Fact: Fewer complaints often mean fewer people are complaining because they've given up.
In the last three years, TARP has observed a significant decline in complaint rates due to customers feeling that complaining will do no good.
Lesson: Monitor complaint rates at least every other year. Choose a random sample of customers and ask what problems they've had and if they told you about them.
Myth 6: The best way to improve service is to get frontline employees to do what they are told and to have a better attitude.
Fact: A majority of customer dissatisfaction is caused by other factors that often prevent employees from providing effective service.
TARP has found that more than 90 percent of employees come to work wanting to do a good job but are stymied by product-related unpleasant surprises, incorrect marketing expectations, broken processes and even confusing directions. These types of issues cause 40-to-60 percent of dissatisfaction. Also, customers cause 20 percent of their own dissatisfaction by failing to understand the product limitations, making errors or downright stupid actions (e.g., attempting to whiten teeth with household bleach - true story!).
The solution is to identify customers' key points of pain and, for the major points of pain, determine if the cause is employee error or attitude; a product with built-in problem; a broken process; a marketing overpromise; or a customer error/expectation. Call-monitoring is an excellent source of this diagnostic information and can identify process glitches and customer areas of misunderstanding in addition to evaluating the frontline employee.
You should allocate at least one full-time analyst to identify poorly-executed processes and response rules. Assume one full-time analyst per 50 frontline employees.
Lesson: Execute a true root-cause analysis of dissatisfaction. In most cases, the process, product or customer is at fault and needs to be fixed.
Myth 7: Service is nice but price wins customers - look at Walmart!
Fact: Some customers will always prefer price but most prefer great service and will pay for it.
A majority of customers will pay more for higher quality. In fact, TARP has found, in most markets, including retail banking for example, that sensitivity to price is strongly correlated with problem encounters (Figure 1). Fewer problems result in lower sensitivity to price, as shown with this survey of more than 3,000 retail banking customers. The percent of customers dissatisfied with fees rises with the number of problems.
Less sensitivity to price means that companies with better service can achieve higher margins. Customers may say, "You're expensive but you're worth it because I seldom have problems." This is what we call "the Neiman Marcus effect."
Lesson: Reduce problems to gain flexibility in pricing.
Myth 8: Once we're at 90 percent satisfaction and loyalty, the law of diminishing returns kicks in and we should declare victory.
Fact: Easily-fixed points of pain still exist and damage revenue even at top performance levels.
TARP has worked with financial, catalog and retail clients who have the very highest satisfaction and loyalty scores. But every company identified customer points of pain that were easily resolved and, when fixed, resulted in even higher scores. For example, an East Coast power company asked customers, "Who provides better service than we do?" and gave its customers choices like Amazon and FedEx. This company learned how it could borrow service strategies from different industries to improve service beyond what people expected for "just a power company."
Lesson: Don't stop improving service when you rise to the top of your industry.
Myth 9: All we need to measure is the Net Promoter Score (NPS) and we have all the data we need on customer satisfaction and loyalty.
Fact: NPS scores are a range that do not provide context.
There are two problems. First, you don't receive diagnostics from the NPS. Second, two very different situations can result in the same score. Your customers could all be in the middle with 30 percent advocates and 15 percent detractors (to get a 15) or you could have a very polarized market where 55 percent are very happy and 40 percent are very unhappy. Both yield the same score!
Lesson: You need to understand the diagnostics behind the scores and estimate the revenue at risk for each month the status quo exists.
Myth 10: We have a 100 percent satisfaction guarantee so we hear all the problems and all of our customers are satisfied.
Fact: A majority of customers do not contact you about satisfaction guarantees.
In most cases, even with a high-visibility guarantee, only about 30 percent of customers will avail themselves of it because customers perceive that it will take too much effort to invoke the guarantee. Also, if the customer has encountered any limitations on the guarantee in the past, the rate drops closer to 10 percent. In essence, a 100 percent guarantee does not guarantee that 100 percent of your customers will be satisfied.
Lesson: You must monitor the actual complaint rate by type of problem as well as the success of employees in satisfying customers when they do complain. Further, you must understand that those who invoke the guarantee are only the tip of the iceberg compared to what is happening in the marketplace.