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May 15, 2008

New Perspectives

Customer Service Revisited

by Professors Larry Chonko and Buddy LaForge

Our May 2007 Direct Selling News article titled “Championship Customer Service” presented key findings from the first-ever BusinessWeek rankings of the best customer service companies. The second ranking of the best customer service companies appeared in the March 3, 2008, issue of BusinessWeek. Since providing excellent customer service is a hallmark of many direct selling companies, we thought direct selling executives would be interested in the results from the latest rankings and important changes during the past year.

The evidence from the latest rankings is clear: Customer service is declining. Most of the customer service scores for companies were lower in 2008 than 2007. The rankings are based on a process grade and a people grade that are then translated into an overall customer service index. Many of the 15 companies that made the Top 25 List for both years had lower scores in 2008. For example, the drop in Nordstrom’s customer service index from 947.1 in 2007 to 900.5 in 2008 is typical. But a few companies increased their score, as evidenced by Edward Jones’ move from 938.2 in 2007 to 952.6 in 2008.

Although some of the lower customer service scores are due to unique developments at a specific company, it appears that the tough economic climate has led many firms to cut back on customer service personnel and expenses. These cuts have reduced expenses in the short-run, but have had a negative impact on customer service and may limit long-term sales and profits. Such short-term decisions are often justified on the basis of cost savings, but far too little attention is given to the possible long-term impacts on revenue generation and customer good will. Therefore, companies avoid the reality of examining the potential negative returns on their disinvestment in customer service. Customers are also more demanding and use various types of customer-generated media to vent their anger at companies that do not provide the desired levels of customer service.

But there is also some good news. Many firms receive rave reviews from their customers, especially for innovative approaches to customer service. USAA is a good example, as it was ranked as the top customer service company in 2007 and 2008. The company offers insurance and banking services to military personnel and their families. It has used technology to create innovative customer services that meet the special needs of military personnel stationed around the world in various situations. Some examples include a mobile Web service that loads pages faster on hand-held devices and customers scanning checks on their home computer for electronic deposit, as well as sending and receiving text messages to check account balances. Customer service reps also have technology upgrades at their disposal, solving customer problems quicker. These changes also reduced representative training costs significantly. The use of technology to meet the unique needs of their customers and to reduce costs is a major strength of the USAA approach to customer service. Many firms find ways to lower costs, usually at the expense of customer service. USAA focused on providing better customer service first and then determined the most cost-effective way to do so.

Another innovative approach to increasing customer service without adding cost is the customer coordinator program implemented by Ace Hardware. Their approach was created by 12 employees who spent a year generating ideas for better serving customers without adding staff to their 4,600 stores in the United States. When store traffic is heavy, the “customer quarterback” talks to incoming customers to determine if they are just browsing, want to buy a specific thing quickly or need some help with a project. She then directs them to the proper aisle in the store and radios the right sales associate, who is waiting for the customer in the aisle and knows how to best serve them. This innovative approach provides customers with the exact type of service desired and utilizes the sales associates in a productive manner.

The USAA and Ace Hardware examples represent effective customer service programs executed in a cost-effective manner. What happens when customers do not receive the level of service expected? The most obvious impact in the short-term is losing customers and reducing profits. But in today’s world, with a proliferation of customer-generated media, the negative effect could be more widespread and last longer. Companies still struggle with quantifying the answer to the question, “How much does it cost to produce a poor product or service?” The answer is often “a lot.”

Sprint Nextel offers a good example of how poor customer service can reduce customer retention and profits. Sprint and Nextel merged three years ago. Customer service was not much of a concern, as there were many pressing issues in trying to integrate the two companies. This lack of attention to customer service is a major reason that customer turnover is up, the stock price is down, and customers have filed two high-profile lawsuits. The new CEO is focusing on improved customer service to turn things around. The company currently ranks last in customer service among the five major wireless carriers. A zero-tolerance policy for shoddy customer service has been implemented. Customer service reps now focus on answering calls as soon as possible, solving customer problems during the first contact and increasing customer retention. The latest results are encouraging, but it will take time to reverse the customer service problems of the past.

Customer-generated media can have a big impact on any company, even those that typically provide excellent customer service. The increasing use of video cameras, computer keyboards and mobile devices to send e-mail to company executives and post comments on blogs as well as videos on the Web is a recently new development. One disgruntled customer can reach millions of consumers through customer-generated media. For example, The Consumerist is a blog that gets more than 2 million unique visitors month. So the bad experience of one customer can be communicated broadly and have far-reaching effects.

Many companies are using this feedback to engage these consumers and improve their customer service. For instance, Dell was blasted on the BuzzMachine blog because of a “lemon” laptop received by a customer. Although this situation received a lot of attention, Dell has responded and is trying to fix problems communicated on blogs and by organizing customers to provide the company with advice. For example, customers can rate its products on the Dell Web site. Dell has also created Idea-Storm, where customers can offer suggestions to the company and vote on the suggestions of others as well as leave comments. Idea-Storm has produced over 8,600 suggestions, 600,000 votes on suggestions, 64,000 comments and more than a dozen ideas that Dell has implemented. Thus, consumer-generated media can be used in a positive way.

We encourage direct selling executives to do two things. First, read the March 3, 2008, “Customer Service Champs” article in BusinessWeek. There is more detailed information about each of the 25 top-service companies than we could present in this article. Although none of these are direct selling companies, some of the customer service innovations reported are appropriate for or can be adapted to direct selling companies. Innovative customer service approaches can create competitive advantages, as many firms respond to the economic slowdown by reducing customer service expenses and activities.

Second, go to Google, enter your company or brand name followed by the word “sucks.” See what comes up. Depending upon what you get from this search, think about how you can use this feedback to improve your customer service and how you might proactively employ customer-generated media to help develop innovative customer service approaches in the future. Customer-generated media are certain to increase in the future, so companies that can engage customers and use this feedback to improve customer service can turn what could be a nightmare into an opportunity to strengthen relationships with customers.

Raymond (Buddy) LaForge is the Brown-Forman Professor of Marketing at the University of Louisville. Larry Chonko is the Thomas McMahon Professor in Business Ethics at the University of Texas at Arlington. E-mail your questions and comments to