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Failure is the secret to success at Honda

How Vulnerable Are Your Customers (part 2)

In my previous blog post I described the current situation:  Now more than ever, your customers are being bombarded by competitive offers and even some of your most loyal customers are actually listening to your competitors.

Your customers are vulnerable.  What can you do about it?

First, you have to understand, “Who are your best customers–those that you can’t afford to lose?” Read more »

How Vulnerable Are Your Customers?

How many of your customers are being bombarded by your competitors? How many are now seriously considerkelsey-college-stuffing your competitors’ offers?

Last week alone my daughter received more than 20 solicitations from colleges and universities around the country. Some are creative, some are boring, some are promising a great education and others seem to be promising one long party (that one didn’t make it past the parental filter!). At first my daughter was excited about receiving mail addressed to her (what’s a stamp to a texting fanatic?!). But it quickly became overwhelming.  How many of your customers, like my daughter, are being overwhelmed by your competitors’ efforts to woo them away from you?

Your customers are vulnerable.

For the first time, your loyal customers are listening to your competitors.  They’ve always been bombarded by competitive offerings, but now they are open to exploring options.  As I wrote in a recent newsletter, customers’ value equations are changing.  They are trading downwards to a lower-cost alternative because they’ve realized they no longer need the premium products.  As well, if the service they’ve been enjoying is no longer there, and the relationship is suffering, the barriers to exit are falling fast.

What can you do?  There are five things you need to do now as you update your Customer Strategy to reflect the new reality of the recession:

  1. Determine who your best customers are–those that you must keep at all costs
  2. 2. Discover their core, non-negotiable value drivers and refuse to scrimp on these
  3. Leverage technology to enable you to deliver more with less
  4. Find more prospects trading down into your market
  5. Consider letting go of your most unprofitable customers

In subsequent blog posts I’ll examine each of these five.

“Firing” Customers–the AmEx Way

How do you “fire” your most unprofitable customers?  American Express is offering a$300 prepaid American Express gift card to entice select cardholders to pick up their marbles and go home.  Cardholders with high balances and little to no spending or payment activity have been identified as high risks, particularly now as card issuers prepare to deal with increasing defaults.

I’ve written in the past that not all customers are created equal.  One research study found that 20% of customers created 220% of profits, and Booz Allen Hamilton suggests that as many as 25% of your customers may actually be destroying value.   Customer Value

In the case of AmEx, customers that don’t use the cards aren’t generating value in that they aren’t incurring fees and therefore aren’t generating revenue for AmEx.  This alone wouldn’t be so bad and might be tolerated in better times.  Promotions might be created to entice the low-value customer to dust off the card and use it more frequently.

However, cardholders with large balances may be an increasingly significant liability in these economic times.  AmEx is choosing to spend $300 to entice them to pay off their balances and leave in lieu of significantly more they may have to write down at a later date if the cardholder goes bankrupt.

One of my clients did a basic analysis of the cost to serve of a number of his clients and found that a number of them were abusing the call center.  One client called technical support 37 times in one day!  While this may be indicative of other product and service deficiencies that warrant so many calls to technical support, it is clear that very few support plans can provide a profit when subjected to 37 calls per day.  He was horrified to find that so many of his customers were consuming huge resources–destroying his profitability in ways he never imagined.

As part of your customer strategy, you need to model customer value and include measures of profitability so you know which customers to pay more attention to.  Some of your bottom-tier customers could perhaps be migrated into at least a neutral tier.  Those that can’t should be shed.  Run the numbers.  You may find that your profits rise dramatically simply by firing a few customers.

Are You Sacrificing Loyalty for Short-Term Profits?

How often do you make a change that you’re just sure that customers are going to love and are met with dead silence?  Or worse, vociferous complaints?  Today’s Wall Street Journal reports that US Airways is reversing its decision to charge for water and soda, saying that the customer backlash is overshadowing efforts to highlight ontime service and baggage handling improvements.  The airline had started charging fliers $2 for bottled water & sodas, and $1 for teas and coffees.  Many airlines have increased fees for extra baggage, meals, preferred seating, and more to counter sharp increases in fuel costs.  All these fees are expected to generate an additional $400-500 million during 2009.  However, US Airways simply went too far.  No other airline joined them in their fee increase, leaving them at a clear competitive disadvantage.  Starting next week, they’ll be offering free beverages, but the customer backlash is going to have painful consequences for much longer. Read more »

Here’s a Quarter, Call Someone Who Cares

Heres a quarter, call someone who cares

Here's a quarter, call someone who cares

Some time ago there was a Country & Western song entitled, “Here’s a quarter, call someone who cares.”  I don’t remember the lyrics or even who sang it, but this is the new catchphrase for United Airlines.

In last week’s Wall Street Journal it was announced that United is dropping an Indian customer-call center that took compliments or complaints, telling customers to write or email instead.  All customer communications will now be devoid of any customer relations phone numbers.

United claims they’ve done the research and “people who email or write us are more satisfied with our responses.”  Come on.  That’s just plain stupid.  It is either a blatantly bad cover-up for cost-reduction, or a gross misreading of customer data.  So many companies I’ve spoken with recently are reversing their offshoring decisions.  They’re finding that the overseas costs are soaring, the strong accents are off-putting for angry customers, and the results no longer justify the expense and hassle.

In this case, I’ve got to believe that United’s higher satisfaction scores are due to the fact that written English is far more easily understood than spoken as a second language.

There is a ton of research to prove that disgruntled customers want to speak with real humans, right now to gain resolution and closure.  To force someone to write a letter only forces them to sit and stew on the issue.  More research proves that they’ll tell anywhere from 2-30 other people about their bad experience.  Is the cost cutting in this area truly worth it?  This is a great example of what happens when you lose sight of your customer strategy and make decisions based on costs alone rather than on a detailed understanding and appreciation of long-term customer value.

United had a Chief Customer Officer, Graham Atkinson, but in October of last year, he was put out to pasture and Dennis Cary, the CMO took over the CCO role.  This bald-faced cost-cutting move sounds like what happens when nobody is truly accountable to the customer.

Sued because of a bad customer experience


This morning I had a rare opportunity to sit down at the breakfast table with my 17 year old daughter and catch up, just the two of us before anyone else awoke.  She surprised me with her perception of what makes a good customer experience!

She told me of her experience in trying to find an outdoor guide service willing to take a group of teenage Venturers ice climbing in the White Mountains of New Hampshire. Together we’d identified a handful of guide services and she’d called them to find out which ones were capable and qualified to take a large group of youth. She told me, “Dad, those that were positive and encouraging about my interest in doing something new and exciting were the ones that I wanted to sign up with right away.  Those that I felt looked down at me… I didn’t want to have anything to do with them.”

In just a few moments on the phone, she instinctually knew which companies might get her business and very clearly which ones would NOT make her short list.

I’m reminded of Malcolm Gladwell’s book, “Blink” where he described the research of Wendy Levinson & Nalini Ambady that discovered accurate predictors of physicians that were more likely to be sued.  The researchers recorded hundreds of conversations between physicians and their patients.  Roughly half of the doctors in the sample had never been sued and the other half had been sued at least twice.  The researchers filtered the high-frequency sounds from audio clips of doctor-patient interaction so the words were unintelligible. Independent judges listened to a mere 40 seconds of audio and rated them according to four factors:

  1. Warmth
  2. Hostility
  3. Dominance
  4. Anxiousness

These judges knew nothing about the doctor’s skill levels, yet by listening for these factors they could identify with uncanny accuracy which surgeons in the study had been sued and which ones hadn’t.

The differences between the two groups were astonishingly simple, yet the consequences painful and dramatic.  The surgeons who had never been sued spent on average a mere three minutes longer with each patient.  They were more likely to make “orienting” comments such as, “First I’ll examine you, and then we’ll talk the problem over” or “I will leave time for your questions.”  They were more likely to engage in active listening.  There was no difference in the amount or quality of information provided.  The difference was nearly entirely in how they talked to their patients.

It is fascinating that these surgeons were sued not because of malpractice or incompetence, but by and large they were sued because of their demeanor.

They were sued because of a bad experience.

Think about all the interactions that a customer has with your business. What is the difference between a superb customer experience, and a customer ready to leave or worse yet, ready to sue your company?

Assuming that your products and services are roughly equivalent to your competitors, I postulate that the driver of your sales or your latest customer satisfaction scores is less about whether not you have a customer self service line, technologically superior products or other technology.  It is more about the demeanor of your call center reps, your salesperson, or even perhaps your own demeanor in dealing with customer issues.

Listen to your customer facing conversations-those between your sales, service, marketing, and even your billing departments and your customers.  Which of these do you hear?

  1. Warmth
  2. Hostility
  3. Dominance
  4. Anxiousness

Ensure that customers aren’t lost because someone on the phone is trying to prove something.  Listen for “orienting” language used to set customer expectations, minimize surprises, and prevent failed assumptions.

Is it worth spending an extra three minutes to ensure the customer is taken care of properly?  Is three minutes worth it to you if you can solidify a relationship and avoid a lost customer or even a lawsuit?

Like my daughter, your customers are unconsciously making emotional judgments about you every time they interact with you.  They make purchase decisions based on these sometimes irrational emotions, not on logic.  For many it won’t matter one whit that your product is technologically superior.  It WILL matter, however, how they feel they’ve been treated after they hang up the phone or shoo the salesperson out of their office.  Sometimes a better customer experience can even be had for free.

Google’s New Latitude Has Some Scratching their Heads–Brilliant I say!

This week, Google announced their new Latitude software that finds and tracks people by using GPS systems and cell tower triangulation. It also uses Google’s mapping software for mobile phones.

Map of Littleton

Map of Littleton

It is billed as a way to keep track of your friends and to let your friends keep track of you, ala the twitter microblogs where everyone “tweets” throughout the day to update their friends on what their doing or the interesting websites/articles they’ve stumbled across.  For some this is a natural extension of Twitter and the bare-it-all-on-Facebook mindset. Others see it as a huge invasion of privacy.

While this may be true, the strategy is brilliant sly.  Remember how Google makes money?  By sending contextually relevant advertisements to you, wherever you happen to be.  Initially it was on their search engine and then began to expand to other websites and blogs.  They offered gmail so they could capture more of your attention and provide very contextually relevant advertisements. Now they’re offering docs and apps, all to capture a greater share of your attention.

What is the next frontier?  Mobile advertisements.  To make them contextually relevant, they need to either use speech recognition or mobile tracking.  Enter Latitude and voila, they have mobile tracking.  If they had said they were going to be doing mobile tracking to serve ads, everyone would be in an uproar right now.  However, by disguising it as the next logical extension of social networks, they have all but bypassed people’s privacy concerns.  They’ve reached a younger, profitable audience that doesn’t care about privacy.

As a customer strategy, this move is incredibly brilliant.  They’ve hit upon a couple of major value drivers for their segment: the need to be connected with their peers, and the voyeuristic desires that make the reality TV shows so popular.  They’ve positioned the product perfectly so their customers WANT to sign up and give away their privacy.

Just wait.  Google is going to dominate the mobile advertising market within the year.

To use Latitude, people has to sign up for the service. Through the Google account, one can enable the software and set the level of privacy by allowing or not allowing people to see your location.

Consumers are Trading Downwards

As I’ve mentioned before, there are a number of indicators that during this recession customers are trading downwards.  What can you do to align yourself with this trend?  If you look closely, you’ll see how you can take advantage of it so that you do two things:  keep your low-end customers from trading down to a competitor, and capture new customers trading down from a high-end competitor. Read more »

If you scare customers away, will they ever return?

I was reading some research conducted by Harris in 2007 and published by RightNow that said that, “ 80% of respondents said they would never return to an organization after a poor customer experience.” Clearly those surveyed were consumers with a plethora of options available to them such that they could afford to be so cavalier in their attitudes towards an organization.  Or are B2B organizations also affected? Read more »