Can One Profit From Poor Customer Service?

I promised my wonderful editor, Ben, two things about this week's article.  I would try to keep it shorter than some of my recent articles, and I would disguise the names of the guilty parties, so we won't have to pretend we don't speak English when the attorneys call. 

I have wanted to write about the subject of bad customer service for many months, but the obstacle is always the same.  Other than ranting on ad infinitum about a subject that everyone can agree is a problem, is there a way to make money from customer service, whether bad or good?

Let's find out!

Where do I even begin on the subject of bad customer service?  The incompetence, the rudeness, the lack of caring about one's job or the customer -- it's just rampant, and getting worse all the time in America.  It stems from so many factors, such as minimal employee training, job dissatisfaction, corporations taking desperate measures to save money, a lack of loyalty and morale between management and employees, a declining education system, and even poor parenting!

You see it on your trip to the local fast food joint, where the young "workers" are too busy discussing their social lives with each other to pay attention to what the boring old customer needs.  So they forget your drink, or give you a hamburger when you ask for chicken, or hand you back the wrong change.  Then when you point out the mistake, you get a blank stare instead of an apology. 

So you decide to eat in better restaurants, but even then your food is cold, overcooked, or too salty, or you sit there waiting for service that never comes.  One time in the popular breakfast joint, Danny's (Hey Ben, notice how I changed the name there?), my wife and I sat at a table for 25 minutes without getting so much as a glass of water.  Then the manager sashayed over, smiled, and said, "How is everything?"  She was sorry she asked.

Recently I visited the big department store that's in every mall.  Hint:  This store has been in business over 100 years and has a famous catalog.  I went there to buy a weed whacker for my yard.  I find the one I want, take it to the cashier, and everything so far is cool.  But then as she is ringing up the sale, the cashier asks me for my phone number.  Uh oh.  I politely tell her that I NEVER give out my phone number to stores.  She snarls, "Well without a phone number, I can't complete this transaction!" 

So I suggest that she put HER phone number into the computer.  Well, she is not particularly fond of that idea and becomes even more surly with me.  So now the fun starts.  I tell her the store has no right to my private information.  That falls on deaf ears.   I tell her that I no longer have a telephone, but she is undaunted.  Finally, I hint that I will be glad to wait (while holding up the line) while she calls the manager, so we can really discuss this problem at length.  Somehow she then finds a way to complete the transaction without having to put my phone number into her computer.  I leave the store steaming, vowing to never return.  But where will I buy my lawn equipment?

Ever had this experience?  You open your mail and discover there's a $37 error on your phone bill.  So you call BT&T, and the automated system takes over:

"Welcome to BT&T, where you are highly valued as a customer." "Press one for English".  "Press one for phone service, two for billing, three for Internet".  "Enter your 10 digit phone number" (of course, when you finally get a rep, they will again ask for your phone number). 

Then you wait on hold for at least 10 minutes.  After 10 minutes, you get a very pleasant woman, but with a foreign accent so thick, you can't understand what she is saying.  You explain your problem, and you finally realize that she is saying it is not her department and she will have to transfer you.  You start to protest, but it is too late, she is already gone.  After 30 seconds of insipid music you hear a click, and you realize that you have been cut off. 

It's a daily battle.  You know the company that delivers the nice packages in less than 24 hours?  My wife tells me that twice she has ordered labels from that company, and twice the labels have arrived with mistakes in the printing.  Incompetence destroys company profits!

Last night I walked out of the well known store that sounds a lot like "Office Cheapo", having returned there for the third time to resolve an order for business checks that they screwed up.  First they entered my order for a check register as "light bulbs" in the computer, then the guy who wrote my order put it on the wrong form, then the manager delivered my order to the wrong address, and finally the binder that was supposed to come free with the order wasn't free.  But the final straw was the salesman saying that he would not charge me to re-order what I had already paid for, but had never received.  

I walk out, determined to never go back there again either.  Good Lord, I'm running out of places to shop!  So I ask myself, if my family and I are having these customer snafus so often, are others having similar experiences? 

The answer of course, is YES, and all you have to do to see how bad it's become is do a web search for complaints against any major company.  You will be amazed at the number of disgruntled customers in America today.  One web site asked readers to detail their worst customer service experiences, and received over 3,000 responses in less than 24 hours.

And the number one reason that people post their stories on these consumer complaint web sites is because nobody in the company is willing to resolve the complaint after the error is made. Nobody listens, and nobody cares. 

Whatever happened to "The Customer Is Always Right?"

In Fred Reichheld's book, "The Ultimate Question: Driving Good Profits and True Growth", he calls these transactions "Bad Profits", meaning that the company makes or saves money, but simultaneously loses any future relationship with the customer.  In the past, the unhappy customer could hurt the company's reputation by telling maybe 6-10 friends, relatives, or colleagues about his experience.  But these days with dozens of Internet sites flourishing about bad customer service, the unhappy customer can detail their nightmare transactions to tens of thousands of people.  If even a third of them decide to not do business with that company after hearing the complaint, that's a lot of business to lose.  Reichheld says that just a five percent increase in customer retention will yield a 25-100 percent improvement in profits.

To be fair to people who work in customer service, it is true that there are customers who will try to deceive a company, in order to get something for which they are not entitled.  But I think the large majority of complaints are valid, and certainly the people who go to all the trouble to detail their story or post warnings on the Internet must believe they are in the right.

Does bad service = poor long term stock performance?

Since bad service is always felt as a subjective experience, I don't think there has ever been, or could ever be an objective study done on this question.  But let me tell you about two electronics stores.  One I will call "Circus Town" and the other "Great Buy".  When you walk into my local "Circus Town", nobody greets you at the door.  There are about 50 televisions turned on and they are blasting so loud, you have to shout to talk to the person next to you.  The lighting in the store is very poor.  It's a large store and you wander around, looking for what you need, but nobody ever approaches to ask if they can help you.  You just feel like you want to leave as quickly as possible.

By contrast, when you walk into "Great Buy", the store is well lit.  A polite young man or woman welcomes you at the door.  There are sales personnel in each section of the store, and they ask you how they can be of help.  They are friendly and explain things that you need to know in simple terms.  The sound level in the store is normal, and you feel like you can think about what you're purchasing in a calm, relaxed atmosphere.

The stock of the "Circus Town" store sold for about $60 per share in 2000.  Today it sells for $2.17.  By contrast, the stock price at "Great Buy" recently closed above $39.  They routinely beat earnings expectations.  So what happens to stores like "Circus Town"?  Why do they crash and burn?

It's simple.  Poor management. 

Does upper management even visit their own stores?  Do they ever hire mystery shoppers to give them feedback about the buying experience?  Do they train their staff in customer relations skills?  I seriously doubt it.  Instead, I have read that "Circus Town" is even cutting its experienced sales staff, and replacing them with cheaper new workers, as if that is going to fix their problems!

 

 

Upper Management at "Circus Town"

Ok, the point is, when you are considering buying stock in a company for the long term, after you check out their fundamental and/or technical analysis, take the time to investigate their customer service, as well as the customer service of their competitors.  Chances are good that whatever your experience, it will be similar to what others feel about the company.  Declining customer service can ultimately lead to poor earnings and a mediocre to dismal performance by the stock.

Another good example of this is the performance of the large Home Improvement Store that IS NOT Lowes (LOW).  A $65 stock in 2000, today it sells for about $23.  Ask a couple of contractors if this major home store is as good as it was a decade ago, and after they stop laughing, listen to what they say.  Then ask a couple of long term employees of the store for their views.  In the meantime, Lowes stock has outperformed this main rival with the declining customer service by over 100% in the past 10 years.  No wonder most of the people with whom I speak say the customer service is far superior at Lowes.

Caveat:  An exception to the bad service = bad stock price rule is where there is a monopoly.  My cable company, whom I will call "Comcrud" has had dismal customer service and excessively rising prices for years, but until recently there was nobody else in my area as an alternative.  From 2002 to 2006, their stock even doubled.  However, welcome competition may now be on the way with Verizon FIOS. 

Poor customer service can be a major cause of declining sales, or it can also be the result of a company in decline where worker morale is suffering.  Either way, when you see it repeatedly in the same company, you know that is a company whose stock is best avoided, or even shorted!

If readers would like to (briefly) share their worst customer service experience, feel free.  It may help others to think twice about their investments.  Meanwhile, the next time you have a really bad customer service event, don't yell, don't scream, and don't cry.  Simply remember that we have total power as the American consumer.  We can make a company, and we can break a company.  Just stop conducting all business with that company, tell everyone you know about your bad customer service experience, and seriously consider shorting their stock!

The consumer has the final say!

Comments

[Brisco:]

Circus Town is a JOKE. I COMPLETELY agree with your correlation about Customer Service and well, porfitability. It's SUCH a mystery how upper management can be SO blind to such an obvious and fairly EASY thing to change! Great article... I'm right there with you.

2008 Jul 27 09:21 AM

[kinger:]

Don't think your editor will be too impressed ....but readers will enjoy it. Great article. Why do dollar stores have better service than some of these great american companies?....and you didn't even get to the airlines.Now that would have been a long article.
Cheers

2008 Jul 27 10:32 AM

[jackooo:]

Everything you talk about is right on the money.
This time I took my TWX dvr to the office and received my 5th replacement. Hooked it up and it does not record. They gave me a bad one. Gas and time wasted.
Etrade, TD Amertrade and Scottrade the same results. Not a nickels worth of difference between them. Running out of options.
Management is non existant. They just collect paychecks. Don't stir the water...

2008 Jul 27 10:47 AM

[Randi Busse:]

There are many reasons why service is less than stellar, and while it might be an employee that provides us with a poor experience, we have to hold management accountable for allowing it to happen. Is management monitoring the employees to see what kind of service they are providing? And if the service isn't good, what are they doing about it? How to treat customers should be lesson number one for any new employee. Until that happens, we the consumer will continue to suffer.

Most businesses have plenty of competition, and I won't think twice about staying with a company that doesn't treat me right. Are you listening managers??

2008 Jul 27 12:45 PM

[Mike Winkler:]

The problem here is that national chains don't care. You have to com back to them for something or another. I read an article that actually stated that they really don't care what you think, because uts not any better any where else. Were thats where they are wrong. Try you local stores or office suppliers or local retailers. They are the ones that care because they are the ones that need you more that any of the big box stores.

2008 Jul 27 02:45 PM

[cz:]

7-27-08

Ethan,
Current ‘usury laws’ (100% [or more] interest is legal) and bankruptcy laws (have to pay all credit card debts) alone, pad the bottom line for all businesses like never before. Profits in the last 7.5 years have never been higher for businesses in the history of accounting.

Include preferential taxation for corporations and their executives along with uninforced regulations of all kinds (consumer, fraud, tax, etc…) and it’s no wonder that executives and managers don’t give a shit about their customers; they don’t have to be concerned.

They’re ‘earning’ more money than they could have ever imagined and no number of complaints or law suits will change that behavior towards their customers. They own the politicians (who let them write their own laws) and the politicians own the courts (if a complaint ever gets that far).

Even the companies that are near bankruptcy are still more viable and able to treat their customers with contempt longer than normal because of the current ‘business friendly’ environment. And, there’s nothing we can do about it…at least until the time we can elect more law abiding, consumer friendly politicians.

So, when you go to vote, just remember who made corporate loan sharking and ‘tax evasion’ legal. That’s right; it’s the same bunch that’s on the verge of putting the world markets into a global depression by allowing other ‘innovative financial instruments’ to flourish (see current ‘banking crises’).

It’s the same guys that have already turned this country into a ‘Big Brother’ (see current privacy laws) and Socialist (see ‘loan shark’ bail out) nation. It’s the same guys that have intentionally caused a ‘supply destruction’ of oil (for the past half decade) in Iraq, which has pushed the price of oil, gas, food, etc… to ‘usury’ like levels.

Yes, it’s the same guys that think the general public (both, socialist democrats and socialist republicans) haven’t wised up after eight years of being under their thumb.

It’s the same guys that will tell you everything’s ok as they cash in (Enron style) on one of the boldest US consumer and US Treasury heists in our nation’s history.

It’s the same guys that will tell you we’re the greatest nation on the face of the earth while we quickly back step into something that resembles more of a third rate, worthless currency (pending double digit inflation rate), no world respect, socialist kinda’ country.

So, let’s not just piss and moan about the snotty assed kids that are probably spittin’ on our burgers while text messaging on their cell phones and short changing us after we hand them a near worthless twenty dollar bill, lets go right to the root cause of the problem and vote for the people who won’t make it so easy for the corporate bosses to create and nurture a culture that thrives on treating the consumer with disdain while robbing them blind.

Here’s another guy that feels the same way:

online.wsj.com/public/...

2008 Jul 27 03:45 PM

[FredO:]

I wonder if your "Great Buy is the company I call "Worst Buy". This outfit insults their customers by insisting they submit to a search when they leave the store, even 'tho the searcher had been watching the checkout transaction. The store is also a noisy barn, albeit well-lit.

I recently bought an external hard drive (the one that looks like a book). Worst Buy had a sale advertised. Nextdoor was an office supply store (let's call it paper clip). I asked if they would match the price. While I did have to wait for the manager's approval, I bought the item and wasn't accused of shoplifting.

Then there's US Scare, which wanted to charge an extra $250 to move up an airline filght (which is doing them a favor -- gives them more time to sell the seat on the original flight). Next time, I'll book on South-North instead. They are not so greedy.

2008 Jul 27 04:08 PM

[Urbane Gori...:]

Thank you.... I've been pulling my hair out!

"Where do I even begin on the subject of bad customer service? The incompetence, the rudeness, the lack of caring about one's job or the customer -- it's just rampant, and getting worse all the time tin America."

I cannot believe how screwed up Bank of America, Wells Fargo, Etrade, and TDAmeritrade are! Each of these companies have cost me money and each is supposedly above reproach when it comes to protecting my finances. Each company just stonewalls me.

Further, I've had a running battle over the last two years with the Post Office here in Grass Valley, Ca. The mailman will not come up the driveway for me to sign registered mail. He just throws a 'Sorry I missed you' note in the box and I have to drive to town and stand in line to get my mail. Furthermore, he looks like a bum. He dresses in cutoffs and has an untrimmed greying beard and long hair. I'm not sure if returning to a uniform is acceptable these days, but if it wasn't for the mail-truck, I'd be calling the cops.

I don't even buy GE products any longer. I got tired of returning them to the store for as they didn't work right out of the box. Guarantees are worthless. All they seem to function as is a means of getting you to pay a differential to buy the same product that just failed. (Think car batteries with a 6 year pro-rata warranty.)

Insurance companies (and I worked in the industry for 21 years) are a joke. The methods they use to evaluate the replacement cost of your home is not reasonable and it is left to the consumer to fight them for an adjustment. Don't even get me started on health insurance ... Or even worse, 'Workers Comp'. Thanks Schwartzenegger!

The local 'Lyman Gilmore Elementary' and its associated school district didn't even call me to tell me that my son had not been turning in his homework and was failing his classes 3 weeks before he was supposed to graduate! They sure called me fix their screwed up book-keeping associated with missed days though!

I could go on.... But I think that's enough.

jegan ;-(

2008 Jul 27 04:19 PM

[brynmetler:]

Man, are you on target!! As a homebuilder, I've continued to tell "Home De-pot" how to keep their customers coming and reasonably satisfied. The local employees seem to understand, but after stupid Nardelli almost ruined the company (so much for "professional executives"), that company hasn't learned much. And, dumb me, I just bought 600 shares of their stock, but I bought 1,640 shares of Lowe's stock. Both hopefully, will survive and flourish, but "Home De-pot" doesn't have their own delivery trucks, try to do everything, and does nothing well.

Lowe's thankfully, is a very good company to deal with, while Home De-pot is the new K-Mart, ala Sears.

Check the parking lots of these companies.

Poor management, especially at the top, and middle, and overpaid nincompoops on the Boards of Directors.

I've seen major failures at Home De-pot in the past 15 years as they've failed to run a tight ship and deliver as they did in their heyday.

2008 Jul 27 07:40 PM

[rummuser:]

I write from India. I have spent a life time battling with poor customer service on the one hand and have met with some spectacular success in installing good customer service in some organizations with proper training and systems.
I have tried to put some of my experiences on my blog and you may wish to check them out.

2008 Jul 28 02:53 AM

[Rudeman:]

Ethan, it is apparent you know nothing of retail.

In a brief nutshell: Sales = Payroll = Better Customer Service.
Best Buy is at the top of their game. And their game is to get as big a sale as they can from each customer. Make no mistake, they are a cut throat operation. You paid extra for those folks to be there. They damn well better provide Customer Service.

That aside. Did you not hear about Best Buy 54 million dollar lawsuit?
redtape.msnbc.com/2008...
Is that the Customer Service you want?

Better Customer Service does not equal sales. Check out Wal-MArt or Target. Both are doing great and offer no real Customer Service.

2008 Jul 28 06:46 AM

[vintagefun:]

There are many easons companies can't or won't improve customer service. Contary to a point you tried to make, that no matter how many people you tell about your bad experience, people will continue to shop there as there probly isn't any where else to go or they choices are equally as bad. Second is there realy isnt a fiscal return in profits for good customer service. The notion that a 5% improvement in service will yield a 25% - 100% improvements in profits is pure fiction. I worked for a company that measured its customer retantion (a key metric for the company's performance), they actually managed a 20%+ improvement in customer retention, and guess what, their stock price went down.
As one one of the people responding pointed out, stores that offer little in terms of customer service actually do quite well. They set up their value proposition in a way that lowers the service expectation bar.
I think what gets people rightfully bent out of shape is the lack of interest, caring, empathy and truthfullness we get when a problem does occur with a shopping experience or purchase.
All of this is exacerbated by the fact consumers want a 'deal' or lower prices. If you want to pay less you will get less. ANd getting less means retailers have to pay minimal wage for help. The people waiting on you or I have not the means or maturity to know what customer service is, heck they cant affored to shop there themselves.

2008 Jul 28 08:15 AM

[aussusan:]

I went against my usual practice of saying NO to the sales pitches and purchased a "Performance Protection Plan" from Office Depot for a printer/copier/fax machine. After two weeks and multiple phone calls trying to get a technician to come to the office to take a look, I was actually told by a supervisor (after 30 minutes on hold waiting to speak to her) "if you would have talked to a supervisor sooner you could have gotten this taken care of". My response - "you mean I have to talk to a supervisor before you will honor my protection plan ?!?!" But I know any threats of not shopping at their stores etc. will fall on deaf ears...they just don't get the big picture of losing one customer at a time adding up to lost profits. So here I sit at their mercy, $140.00 poorer but wiser.

2008 Jul 28 11:43 AM

[InStl:]

As a former "Great Buy" store manager for over 17 years (I left over 3 years ago), I can tell you that the level of service you get from any chain retailer is dependent upon the store management staff. Upper mgmt. is constantly preaching outstanding customer service with most retailers but the bottom line result is at the store level.
"Rudeman" uses an example of a lawsuit asking for a ridiculous amount of money for a lost laptop to question the quality of customer service of an entire company based on customer service at one store out of 700 US locations. The level of service and communication was lacking at this particular location but to condemn all because of one is not a practical logic. I hope his moniker is not his normal customer attitude. I will also tell you that yelling, screaming, namecalling, or being rude is not the way to get a problem resolved. I always tried to be courteus to every customer but when the person became personal or abusive, it was time to shut the converstion down until they could become reasonable again.
As far as WalMart and Target excelling with little to no level of customer service, that is the basis of their business and I love shopping at Target. I also know that I am not going to get educated about their products when I am shopping for a higher dollar item. With my experience, that is what most customers who are investing hundreds and thousands of dollars are looking for, someone who can teach them and make them feel comfortable with their product. If you are an individual who can educate yourself adn feel confident with your product choice, by all means shop the discounters. It is all dependent upon the level of service you require.

2008 Jul 28 04:31 PM

[te:]

I was fortunate enough to work for a company that was high on Customer Service, and I carry that philosophy with me still. I agree that it's really lacking, and getting worse.

Recently I've taken a few trips to Japan and I was blown away at the level of service I received EVERYWHERE...and it's provided because it's their culture (one which we used to have but have fast lost) and people take pride in doing the best job possible. On top of that, it's a 'no tip' society.

But also I think Consumers share some responsibility because they "reward" shops with the lowest price. Shoppers will tell you before their purchase that they don't care about service, they just want the best price. It's not until after something goes wrong that they expect the service that you would expect, had you not purchased from a deep discounter or a shady, fly by night store. But those stores that sincerely want to provide service find themselves having to cut back to compete with the low price stores that do not provide service - and guess what? They have to cutback somewhere, and eventually service is one of those places (can no longer afford to have a longer return/exchange, can no longer pay for quality employees, etc).

If people stop supporting stores that provide lousy service, they will either have to start providing better service or go out of business. But that's the catch...most people aren't willing to pay for service anymore, and they show it by supporting the shops with the lowest price, regardless of service (then complain later).

The way it's headed now, we might reach that point, because I agree that service in America has become almost unbearable at many places, and seems to be getting worse. Hopefully people will get tired enough to stop supporting those shops and business will once again demand excellence from their employees, and back up their services/products as they should.

2008 Jul 28 06:13 PM

[Joshua F Co...:]

I found this company and they even train the government on these services.. check out their press release send2press.com/newswir...



This company educates large companies and government on telecom and telephone billing errors and fraud. Their website is really informative too. Check it out at auditelinc.com.


Joshua

2008 Jul 29 05:26 PM

[missplaced ...:]

In all fairness to your poor customer service.
If the cashier can not count change, it is not the store it is the local school.
If the sails person is rude, that person is in most cases a neighbor with in ten miles of the store.
If the sails person is not trained in the product. That was the first thing years ago that all stores did to cut costs was cut the knowledge the people that have the know-how want paid to use it. Most workers now are paid at or around fast food $ and that is what you get. If you want better then pay better.

I (worked) for Lowe’s in the 80s and 90s. I got a job there because I knew more about what I wanted than the sails person. (I worked in construction in the military for twenty years).
When I started it and most stores was all about customer service but most customers when were civil. Most people that came in that some idea of that whey wanted or needed to get, but in the late 90s the customers (the things that come through the door) changed.
If you asked one if you could help?
Most would not act as if you were there. Or continue talking on there phone for ten minuets or if you started to the next person they would NOT put down the phone BUT course you out in a loud voice
If you ask them what they want/ needed most had no idea but if you tried to asked any question to steer them to the right section of the store for what they needed all hell would go off.
In all most ten years of working there I was hit, punched, spit on, and threaten.
Some people seem to come into a store ready for a fight and if given a chance they will start one, just to show off to the people (MOB) with them.
As most home owners know what they want a project to look like when finished, but not how to get there. This is where the problem starts
If you ask some questions, you are talking down to them.
If you try to steer them to the things they need to do the project, then you are trying to sail them stuff they do not need.
If you do not ask the questions and let them get what they think they need and take it home and try to make something most will break it the return it saying that it is what the sails person told them to get.

At the end just remember the most people in may store makes in a year what you make in a mouth

2008 Jul 31 02:24 PM

[billddrummer:]

Good article, and I agree that local store management is the first line of defense against poor customer service. I work for a "Worst Buy" store that opened about 18 months ago, and people have been fired for delivering poor customer service. Imagine that!

We try to make our store look like it did the day it opened. So you see people cleaning, straightening shelf displays, and generally taking care of things throughout the store--even outside their normal departments.

But when customers are in the building, that's where we shine. Some customers claim that we're too attentive--they'd rather be left alone to shop. But we'd rather err on the side of overkill than ignore a customer.

There's a metric in retail called 'lifetime value.' In other words, what will that customer spend in their lifetime in your store? If you give a poor experience, the customer will take their dollars elsewhere. And give that lifetime value to someone else.

We at Worst Buy take that seriously. And with nearly 1000 stores in the US now, it's getting more and more challenging to keep everyone focused on the customer. But after all, that's the only thing worth focusing on--meeting customer needs quickly, efficiently, and completely.

2008 Jul 31 08:02 PM

[jackfetch:]

I work for the company to spoke of when purchasing your trimmer. The girl behind the counter was wrong in the way she handled the transaction. When a customer refuses to give a phone number, we explain that we cannot guarantee that the warrenty will be covered. The phone number is how the company keeps track of warrenties, and that should have been explained. The correct way, if a customer still refuses to give out a number, is to type in all zeros or type in the phone number to that store. From there the corporation's name and the stores address will be displayed and should be selected.

Jan 19 11:38 PM