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How Poor Customer Service Kills Businesses (Part III)

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

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

In the first part of this article series, I told the story of a recent service failure I experienced at a restaurant and explained how adequate customer service recovery requires consideration of the pain and aggravation that mistakes cause customers. In the second article, I explained how the lifetime value of customers can be tens of thousands of dollars or more, so making grand concessions should be an easy decision in light of the potential for a good return on investment.

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This kind of customer service recovery strategy isn’t a tough gamble, either. Interestingly, research actually suggests that if a customer experiences a service failure but the business resolves it effectively, the customer’s satisfaction can be higher than if the same customer had experienced no service failures at all.

This way of thinking makes intuitive sense if you think about it. If you go to a restaurant and the staff are friendly, the food is hot, the bathrooms are clean, and the bill is correct, then you will probably leave thinking “Yeah, that went about as expected.” In other words, it was a good experience.

But then again, that is exactly what you expected when you went in, right? You didn’t expect things to go wrong. If you did, you probably wouldn’t have gone there in the first place.

But if a problem arises — say, the server screws up your order and brings out the wrong food — that is obviously not what you expect. However, it is an opportunity for the restaurant to show how much they care about customer satisfaction. It is what hospitality experts call a “moment of truth,” an instance where the business’s behavior will create a lasting impression in the eyes of the customer, which may in turn affect that customer’s future purchasing decisions from your business.

Good Customer Service Is More than Just Going through the Motions

If the business goes above and beyond to fix the mistake and make it right — perhaps they bring you the correct food and they take it off the bill for the trouble — then you might leave thinking they really value and appreciate your business. But if they simply go through the motions — maybe by just swapping out your food for what you originally ordered without any additional consideration — then you might alternatively leave thinking they don’t really care about you.

Here’s another reason to back up the argument that you should be pulling out all the stops on customer service. As human beings, we are wired for interest and attention toward negativity. This is why your nightly television news networks focus on negative news (murders, rapes, natural disasters and deadly car accidents), instead of the positive events happening in your community.

The networks know that your mind is geared to look for and engage with negative stimuli as part of our natural danger awareness and avoidance programming. As a result, they leverage that programming to boost their ratings.

How does this translate over to businesses and customer service failures? When we have a positive experience with a business, we will on average tell about 11 other people. But if we have a negative experience, we will tell 15 people. Again, this is all to do with our focus on negative stimuli.

If you need any evidence of this focus on negative stimuli in business, just go online to sites like Yelp and look at reviews for business products and services. Most reasonably well-managed businesses should have a fair number of short and simple positive reviews (e.g. “nice spot” or “good food”).

But customers who had negative experiences with a business often go off the rails. It’s not uncommon to find negative customer reviews that are longer than this article, with paragraph after paragraph of unflattering testimony about an unpleasant customer service experience they had. Those customers are willing to spend what is sometimes hours of their own time, pro bono, just to tell other people all about it.

Good Customer Service Means That a Small, Costly Gesture Can Have Long-Term Financial Benefits

So what does this all mean for service recovery efforts? It means that if you do customer service right and wow your customer, it might cost you a bit more in the short term.

But in the long run, chances are your satisfied customer will return again and again to bring far more value to your business than you could ever give away in service recovery efforts. By making sure your customers leave satisfied, you avoid the kind of negative word-of-mouth that can destroy the reputation (and consequently the profitability) of businesses.

And the reality is that even lavish customer service recovery efforts generally don’t cost all that much anyway. Going back to my restaurant story from Part I, I wasn’t expecting the manager to hand me the keys to his car or give me a certificate for a lifetime’s worth of free hot wings. I just wanted him to acknowledge that my business was valuable to him and make reasonable efforts to square things with me.

The examples of service recovery that I suggested previously were not even remotely cost-prohibitive. If he had paid the delivery company to bring me my meal, I’m sure he could have negotiated his cost, given their partnership. If he comped my bill, he wouldn’t really have been out the full $50 that I originally agreed to pay him for the wings.

In actuality, he would have only been out the cost of the wings and the cost of the labor to produce them. In other words, the profit margin isn’t really a loss in the sense that there was no cost offset.

In either of these cases, he could have also written this transaction off to reduce his tax liability. But through that manager being cheap and shortsighted, he has now permanently lost my business, and his actions will likely cost him thousands of dollars in food purchases that I will make elsewhere over the coming years and decades.

This situation will repeat itself for every other customer that restaurant manager allows to leave dissatisfied as well. The magnitude of this compounding loss over time is astounding.

The Final Customer Service Lessons for Business Owners and Managers

So the simple takeaway lessons for business owners and managers are several. Stop shooting yourselves in the foot by being stingy or stubborn with service recovery. Think about what justice requires in each instance. Consider the lifetime value of your customers and do whatever is necessary to make things right.

These tenets are critical to business sustainability, but are particularly applicable during the current COVID-19 pandemic, wherein many businesses — particularly in service industries — are already struggling to stay afloat. They certainly don’t need any help off the cliff from poor customer service. The good news is if business managers follow these customer service principles, their customers will reward their efforts over and over.

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.

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