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For every year customers are retained, they represent more in profits because marketing expenses can be amortized against long-term sales results. Consider credit card customers, for example. If it costs $100 for a company to acquire a new account, then over ten years the cost is $10 per year. Banks also report that the longer credit card customers stay with them, the more likely they are to pay their bills. As well as lower per-unit marketing costs, loss and delinquency ratios improve with customer retention.
Robert LaBant, senior vice president of IBM's North American sales and marketing, indicates that for IBM, "...every percentage-point variation in customer satisfaction scores translates into a gain or loss of $500 million in sales over five years." He says that developing new business costs IBM three to five times as much as selling to their existing customers.
Noncomplainers Must Be Factored Into Complaint Statistics
Even though complaints can tell a business how it is performing in the marketplace, many companies hide the bad news of complaining customers from themselves. They do not factor the noncomplainers into their statistics. If the frequently cited statistic that 26 out of 27 service customers do not complain when things go wrong is correct, then to get an accurate count of dissatisfied customers, service companies should multiply the number of complaints they receive by 27. One hundred formal complaints equals a potential 2,700 dissatisfied customers in the service industry.
One of our clients, a major bank, bragged to us it had received only 100 complaints during a particular month. This bank is probably only looking at the tip of the iceberg. Most people will rarely complain about bad bank service. They will stand in long lines and grumble to other bank patrons but say nothing to the tellers. They will sigh and get back in their cars to find another ATM to make a cash withdrawal when the machine is out of service, but the bank will probably never learn of the bad feelings generated. Customers may feel uncomfortable with the way the bank teller inspects their identification but most likely will not say anything to a bank manager. And they may not like the way they receive their charge card bills in the mail so late there is barely time enough to pay them before incurring late charges. But most customers will not say a word to their bank, even when they cancel their card. Complaining customers are giving us a gift; we must remember that most dissatisfied customers don't leave us with anything--including their patronage.
The Danger In Setting Goals To Reduce Customer Complaints
Rather than trying to reduce the number of complaints, organizations need to encourage staff to seek out complaints because this will define what customers want. A group of American automobile executives visited a Toyota plant in Japan and began to discuss the Deming quality program in place at Toyota. A plant manager reportedly told the visiting Americans, "The problem with you Americans is that you treat complaints as a problem. You discourage complaints. We encourage them. You try to set your systems up so there are no complaints. We try to get as many as we can. How else can you learn from your customers?" he asked the bewildered auto executives.
If a company's goal is to have fewer complaints this year than last, it is a very easy goal to accomplish. Staff will get the message and simply not report complaints to management. How many times have you delivered a written complaint to the front desk staff of a hotel and wondered if your complaint was passed on to the general manager? Both authors have gone to the trouble to fill out response forms in hotels on a number of occasions, checked the box indicating that they would like a response to their complaint, and then received nothing. Either this is extremely poor complaint handling, or the complaint was never passed on in the first place.
Companies should be very careful in setting goals to reduce complaints. Doing so can be costly. Because a hotel chain was receiving a large number of call-in complaints about cleanliness, the CEO suggested a comment card be made readily available in the hotels to control the call-in complaints that were tying up toll-free reservation lines. The filled-in comment cards were to be collected by each hotel manager, batched, and then sent on to headquarters each month. This approach would both enable the hotel managers to take immediate action to solve the cleanliness problems and would save postage. Reduction in complaints was tied to a bonus plan. After the system was in place for a period of time, the manager who had had one of the dirtiest units received one of the lowest complaint ratings. When asked how he did it, he responded, "I'm the one who mails in the cards, but I screen them first. Why cut off your own legs?" Sometime later, this hotel, which also won bonuses for the least number of complaints, was shut down by the health department. In the meantime, other hotels in this chain had followed the lead of this clever manager who knew what to do with complaints.
An elevator company asked that its clients call a toll-free number to arrange for servicing rather than call a local technician. This would enable the corporate headquarters to track service and, hopefully, result in fewer complaints. Local technicians quickly figured out a way around this system. They told their major customers that calling the toll-free number would actually slow down the service that would be provided and encouraged their customers to call the technicians directly. Very quickly, the corporate office had a completely inaccurate picture of service and complaint levels.
In some cases, a reduction in complaints can signal a positive trend. In such instances, the company is comparing the number of complaints it receives about specific issues. For example, Brooks Brothers, Inc., used to enjoy a positive reputation for producing high-quality clothing until the 1980s. Then management changed hands three times. The latest owners, Marks and Spencer, instituted new quality improvement measures and saw specific complaints about quality of the goods reduced from 25 to 5 percent. That's significant. Still, Brooks Brothers only knows that complaints are dropping; these figures do not tell the company exactly how customers evaluate its products overall.
Southern Pacific Transportation Co. provides another positive example of measuring the details around complaints. It has measured response time on handling customer complaints and now reports a response rate of 96.5 percent for handling customer complaints within 24 hours. Manufacturer Avery Dennison has reduced its response time to process customer complaints from 20 days to just one week. These companies are not running away from their complaining customers by trying to reduce complaints; they are becoming more accurate in measuring their response to complaining customers.
Responsive Companies Create Opportunities For Customers To Complaint
Because of the reluctance of customers to complain (discussed in detail in the next chapter), companies have to go way out of their way to find out what the marketplace is saying about them. Motorola, one of the first winners of the Malcolm Baldrige National Quality Award, holds monthly, all-day (frequently from seven in the morning to midnight) meetings to discuss technical action requests (TARS), or what most of us would call problems. In these meetings, nothing positive is allowed to be discussed--only problems.
Motorola customers are also invited to these meetings and are encouraged to voice complaints. Sometimes they have to be encouraged to "lay it on." Motorola's Vice President of Quality Assurance and Customer Satisfaction says that the presence of customers certainly livens up these TAR meetings. Customers will bring up complaints at these meetings that they will not tell Motorola field service personnel or salespeople. No one at Motorola is allowed to offer excuses or alibis at the TAR meetings. Even with this enormous push to learn from the customer, Motorola will admit, with frustration, that it does not "hear" enough from its customers.
Sometimes complaints are hidden from companies because of the structure of their businesses. As a result, companies have to be creative in how they "hear" about customer complaints. Some amusement parks, for example, outsource critical aspects of their business, many subcontracting their food services, allowing park owners to concentrate on park management. Subsequently, food complaints decrease, or at least, complaints reported by the food services to park management decrease. From the perspective of those who attend the amusement park, however, that bad hot dog or surly treatment by a vendor is not the responsibility of the subcontracted restaurant, but of the park. Park attendees probably do not know that the restaurant is not directly managed by the park. The park, in turn, may know nothing of the bad service and, thus, be unable to fix it.
Some companies conduct customer satisfaction surveys to learn more about hidden complaints. This is a good idea, to a point. But who normally participates in such surveys? Existing customers. Unless the company makes a point to ask everyone who used to buy, it is polling only those people who are still buying. These customers are still sufficiently satisfied that they are staying with the company. "Customer satisfaction surveys are generally not a representative survey of dissatisfied customers." They may give you some ideas, but you need to go after the ones who have left and find out why they left. Then the company can find some real gifts.
(This excerpt ends on page 29 of the paperback edition.)
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