How Poor Customer Service Kills Businesses (Part II)

By Dr. Gary L. Deel, Ph.D., J.D.
Faculty Director, School of Business, American Public University

This article is the second in a three-part series on customer service strategy.

In the first part of this article series, I told the story of a recent and disappointing experience I had at a local restaurant where they forgot to give me half of my order when I came to pick it up. The manager made the situation worse when his offers to fix it fell short of what should have been proposed to truly make things right. In this second part, I will talk about what he should have offered and why certain customer service principles are so important to the survival of businesses.

Managers Need to Use Creative Solutions to Fix Customer Service Mistakes

Had I been in the restaurant manager’s shoes, I would have acted differently. I noticed when I was at the store picking up my meal that they had flyers on the pick-up counter for a food delivery service partner. It was a company similar to Uber Eats, DoorDash or GrubHub, where customers could pay an additional fee to have their food delivered to their door.

If I were the manager, I would have recognized that my customer just drove home with only half of his order, due to the carelessness of my employees. I would have realized that what the customer probably wants to do at that moment is eat the food that he has while it’s still hot. He does not want to drive back across town to get the rest while the first half gets cold. So I would have offered to have the delivery service bring the other half of the order to the customer — at my expense.

As a customer, I would have loved this option, had it been offered to me. But to be fair, some customers might not want this choice. They might be pressed for time or they simply might not want to wait for the second half of the order to arrive.

So if the customer declined this option, the better choice would have been to issue a full refund. That refund would not be just for the portion that was never given to the customer, but for the entire order.

And in both of these situations, I would have also included a discount coupon or voucher for a future visit. The discount could have been for half off the next meal or something to that effect.

This is the part where short-sighted managers might recoil. They will think that these strategies are excessive and a sure-fire way to bankrupt the business by “giving away the house.”

But they’re 100 percent wrong, because they fail to recognize a second principle of customer service management: lifetime customer value.

Lifetime Customer Value Is an Important Principle in Customer Service Management

Lifetime customer value is the basic concept that businesses must consider the lifetime value of the customer in question and act with that value in mind. It is particularly important when addressing service recovery and fixing mistakes.

When I worked for Rosen Hotels & Resorts in the late 2000s, we taught this lifetime customer value concept to all of our employees through a training video entitled Give ‘Em The Pickle, featuring motivational speaker Bob Farrell. In his video, Bob told the story of an employee in one of his restaurants who refused to give an extra pickle to a long-time repeat customer who requested one, because the restaurant had a stingy policy that extra pickles cost extra money.

As the name implies, Bob’s “Pickle Principle” insists that businesses should carefully consider which hills they want to die on when it comes to making concessions to customers who deserve them. So when in doubt, “give ‘em the pickle” – that extra bit of customer service that wins their lifetime loyalty! In Bob Farrell’s pickle story, he actually sent the customer a handwritten letter of apology with a coupon for a free ice cream sundae on his next return.

So how does this anecdote translate over to my hot wings story? I’m sure that when the manager offered me the options he did, he was thinking about his own perception of fairness and what is appropriate. But he also probably decided against more robust compensation offers because he didn’t want his restaurant to lose money.

If he had to pay the delivery service to deliver the second half of my order to me, that would surely have taken all the margin out of the sale. And if he refunded my entire order, that definitely wouldn’t have helped the bottom line either.

But what the manager myopically failed to consider is that I am a local resident of his community who would have to decide, after that encounter, whether or not to return to his restaurant again. Recent research from the United States Department of Agriculture suggests that modern American families eat out as much as 50 percent of the time.

Now, most people obviously don’t go to the same restaurant every day or even every week. But let’s suppose for the sake of the analysis that the average customer might visit a restaurant they like once per month.

The order that I placed for my wife and I in this story was about $50, including gratuity. I’m 34 years old, which means that, if I continue to eat at this restaurant, I might do so for another 40 or 50 years, based on average current American lifespans.

But let’s take the more conservative 40 years. If I spent $50 a month at this restaurant over the next 40 years, then my lifetime customer value to them would be about $24,000.

Now, reflecting back on the debate about whether this kind of service recovery situation might be worth paying a few dollars to a delivery service or even comping my bill, it seems insane that a business wouldn’t do this for a potential return on investment (ROI) of more than $20,000.

In the last part of this article series, I’ll explain several more reasons why this kind of customer service recovery effort should be a no-brainer.

About the Author

Dr. Gary Deel is a Faculty Director with the School of Business at American Public University. He holds a J.D. in Law and a Ph.D. in Hospitality/Business Management. Gary teaches human resources and employment law classes for American Public University, the University of Central Florida, Colorado State University and others.