What is the cost of shoddy customer service?

Research indicates that some businesses may lose 10% - 15 % of their annual volume each year because of poor service. And for every cent spent on improved customer service, companies can see a return on investment of 34% to a staggering 400%¹, according to research published in Management Review. And an article published in Harvard Business Review showed that a tiny 5% increase in customer service capabilities could result in a 25% - 85% increase in the nett present value of a business².

Word of mouth

The bad news is that many customers simply do not complain about a lack of service and so companies don't get a chance to redeem themselves. Consumers take their business elsewhere and, according to traditional word of mouth statistics, tell 10 people about the poor service they received. (Tales of good service only get passed on to approximately six people.) Of course, with the advent of social media networks and the accessibility of technology, this stat is likely to seriously under-emphasise the reach of word of mouth. Think of the amazing reach technologies such as YouTube, MySpace and Facebook have.

Even worse news: when customers do complain, they often have their negative experience reinforced. Studies show that more than half of companies' efforts to respond to customer complaints end up worsening the negative experience. This means the company loses the chance to win back the customer and in fact doubles the negative word of mouth generated around the situation.

Costs more

And if you don't know this already: in some sectors, it costs up to five times more to win a new client than to retain an existing one.

So the challenge is clear: in order for companies to gain a competitive edge by excelling at customer service, two things need to happen. Companies need to encourage their customers to bring their complaints to them, rather than walk away; and when they do complain, businesses need to handle their complaints quickly and effectively. This does not mean you need to let customers get away with unreasonable requests though.

If businesses deal with customer complaints effectively, they win loyalty from their customers irrespective of the outcome. The vast majority, 60 - 75 %, of customers will do business with a company again if it deals with their customer service issue fairly - even if the result is not in their favour. And the complaint is resolved quickly, with minimum fuss on the part of the customer, more than nine out of 10 customers will buy the product or use the service again³.

Do not complain

The fact of the matter is that most consumers do not complain. According to one study, 90% of dissatisfied customers take no action and simply leave the product, brand or supplier. The main reasons why dissatisfied consumers do not complain are that they don't want to cause a fuss, and don't think it is worth the effort, as they won't get a quick, easy and meaningful response. In South Africa, another factor is that many dissatisfied customers do not know how to complain or who to address the complaint to.

The question remains though: what is the quickest, cheapest and easiest way to improve customer service?

Businesses should consider a neutral, third-party customer service to help them facilitate complaints and resolve them satisfactorily. Far from adding an extra layer of complexity to the process, an outsourced service can save businesses and their customers time and money. This means businesses get more efficient complaint resolution, happier customers, and less defection due to bad customer service.

Using the web to collect information about the complaint saves the customer time and means they are more likely to complain. A web-based system also means that the data collected can easily be fed into existing customer service systems, with little development and integration work.

Outsource function

Alternatively, businesses that don't have a customer service system in place can outsource the function entirely. This doesn't have to break the bank, and can be as simple as placing a logo on the company web site directing customers to the third party complaints tool.

Complaints management is a vital component of improving customer service in a business. If companies tackle it head on, using the smart tools available to them, it's a quick route to improving customer service and growing a business.

References

¹Scaglione, Management Review, 1988, Vol 77, 51-3, cited by Richard & Adrian, International Review of Retail, Distribution & Consumer Research, 1995 January, Vol 5 No 1.
²Bain & Co : Reichheld & Sasser, 1990, Harvard Business Review, 105 - 11, cited by Clark, Management Decision, 1997, Vol 35 No 4.
³Crie in Database Marketing & Consumer Strategy Management, 2003, Vol 11, No 1, citing a 1986 study by the Technical Assistance Research Program Institute for the US Office of Consumer Affairs.