Satisfaction NOT Guaranteed
I read an interesting article recently in BusinessWeek (June 19, 06). It talks about how cost-cutting can backfire when it ignites consumer rage. The examples provided are of service shortfalls at Dell, Home Depot, and Northwest Airlines. Back at NBS, a few of us were part of Dr. Peter Keen’s short course during the last term break. Co-sourcing (not out-sourcing) is the key, he said. Dell featured as a prominent example throughout the week… of a company fighting the commoditization of its business by developing higher standards of business processes. The article made more sense because it talks about the possible pitfalls ahead… if the vision stays this way.
These companies operate in disparate industries, but each has fallen victim to a seductive fiction: that customer service and operational efficiency are mutually exclusive. For most corporate managers, numbers are friendly things. They are lucid and unequivocal benchmarks.
Revenues up 3% this quarter: Good
Operating margins down 12 basis points: Bad
But customer dissatisfaction is not so easily measured. How do you account for the damage done by homedepotsucks.org? When a customer is actively marketing against you, where does that show up on a P&L? (something to think about for my accounting friends.)
The outcome is that some companies, in their passion to drive down costs, have mangled their relationships with customers… executives have lost track of the delicate balance between efficiency and service. Trading customer service for profits is a shortsighted view. It inevitably harms customer satisfaction in the long term.
Today’s airlines: No pillows, no peanuts, no dignity, no blanket, no whiskey… not even a friendly flight attendant – just a cold, staring being with no work ethic. In the golden age of the consumers, it is an irony that the feeling of frustration provoked by rude service, long lines, ignored complaints, unanswered questions, and interminable phone delays still exists. Maybe even more.
The costs of short-circuiting the cycle (service, performance) are starting to become clear. Growth in same-store sales at Home Depot Inc. now lags far behind the much better liked Lowe's Cos. Things got so bad at Dell that in November, 3,000 callers a week to the company's helpline had to wait half an hour on hold before reaching a real person. And Northwest has continued to reach subterranean lows in airline service. The company that once left passengers locked in a plane on a runway for eight hours during a 1999 blizzard in Detroit has some customers practically begging competitors to start flying Northwest routes.
Each of the three companies is responding to its problems differently. Home Depot seems finally to realize that it needs to make a change; Dell, whose market share has already slipped, is trying to put the genie back into the bottle; and Northwest is in such a desperate fight for survival that it doesn't seem to care. While this trio struggles, savvy competitors are doing all the little things that make their stuff more fun to buy.
Smart companies -- Southwest Airlines Co. and Costco Wholesale Corp., two standouts mentioned in the article, have it both ways. Well-trained workers equal fewer complaints. That means lower costs, a workforce free to make more sales, and happier customers willing to spend more money and tell their friends about it later.
Clearly – customer experience matters more than short term P&L surges.
These companies operate in disparate industries, but each has fallen victim to a seductive fiction: that customer service and operational efficiency are mutually exclusive. For most corporate managers, numbers are friendly things. They are lucid and unequivocal benchmarks.
Revenues up 3% this quarter: Good
Operating margins down 12 basis points: Bad
But customer dissatisfaction is not so easily measured. How do you account for the damage done by homedepotsucks.org? When a customer is actively marketing against you, where does that show up on a P&L? (something to think about for my accounting friends.)
The outcome is that some companies, in their passion to drive down costs, have mangled their relationships with customers… executives have lost track of the delicate balance between efficiency and service. Trading customer service for profits is a shortsighted view. It inevitably harms customer satisfaction in the long term.
Today’s airlines: No pillows, no peanuts, no dignity, no blanket, no whiskey… not even a friendly flight attendant – just a cold, staring being with no work ethic. In the golden age of the consumers, it is an irony that the feeling of frustration provoked by rude service, long lines, ignored complaints, unanswered questions, and interminable phone delays still exists. Maybe even more.
The costs of short-circuiting the cycle (service, performance) are starting to become clear. Growth in same-store sales at Home Depot Inc. now lags far behind the much better liked Lowe's Cos. Things got so bad at Dell that in November, 3,000 callers a week to the company's helpline had to wait half an hour on hold before reaching a real person. And Northwest has continued to reach subterranean lows in airline service. The company that once left passengers locked in a plane on a runway for eight hours during a 1999 blizzard in Detroit has some customers practically begging competitors to start flying Northwest routes.
Each of the three companies is responding to its problems differently. Home Depot seems finally to realize that it needs to make a change; Dell, whose market share has already slipped, is trying to put the genie back into the bottle; and Northwest is in such a desperate fight for survival that it doesn't seem to care. While this trio struggles, savvy competitors are doing all the little things that make their stuff more fun to buy.
Smart companies -- Southwest Airlines Co. and Costco Wholesale Corp., two standouts mentioned in the article, have it both ways. Well-trained workers equal fewer complaints. That means lower costs, a workforce free to make more sales, and happier customers willing to spend more money and tell their friends about it later.
Clearly – customer experience matters more than short term P&L surges.
posted by Arun Nair at
9:52 AM
2 Comments:
interesting post man...on the subject of cost cutting, check out 'CHAINSAW: The Notorious Career of Al Dunlap in the Era of Profit at Any Price' if you haven't oledi...kind of backs up the essence of this post.
what these number obsessed idiots lack is common sense...it reminds me of a famous quote in the 60s by stephen king. No not the horror book writer, the gentleman who invented the 'T'Plan for JWT, and possibly the father of 'account planning', or whatever the hell its called these days.
The gist of the quote is as under-'marketeers & advertisers tend to use research much like a drunk uses a lamp post- for much needed support rather than to shed light'
the best research you have is the kind you do on your own- by observing, and thinking logically. Of course you need to have an interest and possibly an obsession in consumer behaviour, and maybe pop culture.
i think the guys at NW, Dell etc got hard ons when someone showed them a graph that said sales/ profits blah blah wd rise if they cut prices (and in the case of NW, comfort).
They didnt have the common sense or the research report that said that human beings like to feel special, pampered even and if nothing else, at least comfortable.
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