guest article by Moshe Davidow, editor of the Journal of Creating Value (Sage). JCV inspires executives and business leaders to generate increased value for customers driving success for the organization and its stakeholders. Check our the first issue here.
I blame Coca Cola for where I am today. Their pamphlet on the “Bottom Line Benefits of Consumer Education” changed my life and focused me on the benefits of Customer Centricity thirty-odd years ago. Soon after, I set up and managed Israel’s first complaint handling department (1989) and was able to measure and show an ROI of 177%.
Listening to my customers and analyzing the data, I was able to point out some production line flaws before anyone from the plant QA could, as well as realize that you can’t buy customer satisfaction with higher compensation. Other things were more important to the complainers. Customers wanted to be listened to and acknowledged, and even get an apology for their troubles. Clearly, there was a lot more going on than was originally thought.
My experiences as a manager formed the basis for my dissertation, and set me up for a long stream of research issues to be tackled. Doing my PhD at Texas A&M gave me a strong foundation in Service Quality, allowing me to tie the two fields together. Service Recovery was the final frontier, where customers who cared enough to complain were waiting and willing to give the company a second chance to save the relationship.
“I have met the enemy and he is us” said the comic strip Pogo, and sure enough, half the complainers said that the offending organization did not even answer their complaint. Of those who responded, very few respond well. This is costing organizations billions of dollars a year in lost revenue, for those of you keeping score. Where is our focus? The Customer Care Alliance calls this the billion dollar sinkhole. We have spent all this money on Service Recovery and have nothing to really show for it, except a gaping hole in our budget. Where did we go wrong?
Einstein said it best, the definition of insanity is to continue to do the same thing and expect different results. Blame it on the silo mentality, blame it on the employees, but I blame the managers (I even said so at the Frontiers conference in DC back in 2003). On the other hand, perhaps we academics are at fault as gatekeepers of knowledge, for not educating the managers better. I am not looking for whom to blame, as much as I am looking for a solution.
The solution has two parts, correctly handle the complaint, and make sure to remove the root cause of the complaint to prevent further complaints.
Managers need to realize that putting underpaid employees to handle complaining customers is a terrible idea, guaranteed to cost them a lot of lost customers. It is the ultimate value destroyer. Let’s do the math. The only thing keeping a complainer loyal to your business is how you handle their complaint. This is the real “Moment of Truth”. We need to WOW the customer. This is not the time to look for “efficient” complaint handling (a real oxymoron, almost as bad as “doing more with less”). There is no efficiency in handling complaints, by definition. This is not the time to do the minimum necessary. According to the 8/80 rule (managers think they are giving the customers a lot more than the customers feel they are getting, according to Meyer and Schweger 2007), the minimum will guarantee you dissatisfied customers. If you really want to save money, don’t handle complaints at all (of course you will lose more customers…). If we handle complainers well, we just may keep their future stream of profits in our company. Of course, this means we need to be able to calculate the value of lost customers, we need to be able to measure the ROI of complaint handling and we need to look at complaint handling as a potential profit center. We need more research into how best to handle complaints from the organizational perspective.
Complaint Handling is the ultimate case of co-production (I am a big Service Dominant Logic fan). We are working with the customer to solve their problem, and prevent future problems. This is a major source of value creation for the organization. We are providing value added to customers, increasing our profits, and making it easier and more convenient for customers to do business with us. Yes, it costs some money. Do the math. What is the cost/benefit of the investment? Not only do we keep more customers, but they will actively act as advocates and bring us plenty of referrals. This will in turn allow us to cut back on our advertising (thus increasing our profits even more), and still increase our loyal customers.
The only question is where are all the researchers? How can we prove this, and how can we convince managers to make the change? I would love to hear from you.
Moshe Davidow is the editor of the Journal of Creating Value (Sage), a managerial journal dedicated to making managers lose as much sleep over value creation (and destruction) as they do over financials. Moshe currently teaches at the Carmel Academic Center in Haifa Israel, and is an adjunct lecturer at the Technion.
