Executives have difficulty investing in customer service and training, but they often
will throw millions of dollars at marketing, advertising and branding campaigns that
create an inconsistent experience to what the
customer actually experiences. And here’s the
kicker: Nearly every market leader has the
highest satisfied customer base and usually
advertises the least amount.
Instead of following the pack, take 50 percent
of your marketing budget and invest in dramatically improving the level of your organization’s customer service. You will see a significantly better return on investment than you
were getting for your marketing and advertising dollars. Better yet, your customer base will
turn into an unpaid sales force.
The customer’s expectations of service are so
low in today’s business world that organizations have a tremendous opportunity to gain a
competitive advantage by focusing on service.
And whatever your business — retail, hospitality or business-to-business — it has never been
easier to exceed the customer’s expectations
by delivering a memorable experience.
Aren’t sold yet? Consider the results of several studies that have been done comparing the
top American Customer Satisfaction Index
companies against the market, with regards to
stock performance for the six-year period from
1997 to 2003, a period where the stock market
was both up and down.
The top customer satisfaction companies
(based on their ASCI scores) outperformed the
Dow Jones by 93 percent, S&P 500 by 201
percent and the NASDAQ by 335 percent, revealing that superior customer
satisfaction pays off in bull and bear markets.
It’s hard to argue with the results. There
are very few actions or strategies that you, as
a CEO, can take that produce this type of
financial return, but customer service is one of
them.
In the accounting world, the economic value
of satisfied customers seems to be systematically undervalued even though these customers generate substantial net cash flows
with low risk. Firms that do better than their
competition in terms of satisfying customers
(as measured by ACSI) generate superior
returns at lower systematic risk.
Every executive should know the correlation
between the level of customer service his or
her company provides and the bottom line. If
customer service is that important, why don’t you represent it on the profit and loss statement or the balance sheet? There are line items
for advertising, marketing, people development and entertainment, but there is usually
nothing for customer service. Financial reporting seems to be in the dark ages with regards
to how it recognizes the value of customer
service and customer satisfaction.
Consider the case of Amazon.com, whose
customer retention rate consistently hovers
around 80 percent. Amazon’s typical customer
is worth about five purchases. Just by Amazon
improving its retention rate to 85 percent, that
typical customer would now average seven
purchases. When you multiply that extra two
purchases by the average purchase price and
then by Amazon’s 29 million users worldwide,
you’re suddenly talking about a very significant
amount of revenue.
It’s pretty conclusive that organizations that
consistently deliver superior customer service
generally enjoy repeat business, lower price
elasticity, higher prices, more cross-selling
opportunities, greater marketing efficiency
and a host of other things that usually lead to
earnings growth. It’s also been found to have a
positive impact on employee loyalty, cost competitiveness, profitable performance and long-term growth.
The level of a company’s satisfaction can typically be an accurate indicator of future success. Author Joe Calloway sums up best: “If
you want to see how a company is doing now,
look at their current sales. If you want to know
how a company will perform in the future, look
at their current customer satisfaction scores.”
Your clients and customers will pay a premium for your product or service when you put
an emphasis on creating relationships rather
than commoditizing your wares. Organizations
that deliver world-class service create loyalty
and build a bank account of emotional capital
with customers. World-class organizations are
less affected by third-party conditions, such as
escalating gasoline prices, mass mortgage fore-closures, real estate crashing, volatile stock
market, what the Fed does with the interest
rate or global events, as are companies who do
not differentiate themselves through superior
customer service.
JOHN R. DIJULIUS III is the author of “Secret Service: Hidden Systems
That Deliver Unforgettable Customer Service” and “What’s The Secret” (due
out April 2008). He is also president of The DiJulius Group, a firm specializing in giving companies a superior competitive advantage by helping them
differentiate on delivering an experience and making price irrelevant. Reach
him at [email protected].
