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@example.com.