Improving Customer Service

Customer satisfaction has always been important, but there is now a growing school of thought that it can make the difference between a company's survival and its failure.

This is especially given the slowing global economy, apart from a couple of exceptions such as Australia and Ireland.

The reason for the importance of customer satisfaction, apart from the obvious fact that if customers aren't satisfied they will desert a company in droves, is its uniqueness.

Competitors can quickly duplicate a company's price, product and distribution strategies, but not its customer relationships.

This duplication has been made even quicker with the advent of email and the Internet, which mean that a company's offerings can be duplicated in a fraction of the time that would have been needed just a decade ago.

"As long as repeat business is important, and as long as customers have a choice to go somewhere else, companies must deliver the highest levels of customer satisfaction in order to stay in business" says the guru of customer satisfaction and director of the National Quality Research Center at the University of Michigan, Professor Claes Fornell.

Losing customers is much more costly than a company may initially realize.

Not only is the revenue from their repeat business lost; there is also the additional cost of obtaining a replacement customer.

Vic Hunter, author of "Business to Business Marketing", says it can be 30 to 40 times more expensive to acquire new customers than it is to manage existing customers.

And companies appear to be losing their customers in vast numbers.

US businesses are now losing half their customers in five years (as well as half their employees in four years, and half their investors in less than one year) according to Frederick F Reichheld, author of "The Loyalty Effect".

A growing body of research has attempted to quantify the link between a company's financial performance and the satisfaction of its customers.

The leading expert in this field is the above-mentioned Professor Fornell.

He has calculated that for large, public companies, a 1 percent increase in customer satisfaction relates to a 3 percent increase in market capitalization. For a large capitalization company, a five percent increase in customer satisfaction amounts to an average US$3.25 billion increase in market capitalization.

By examining Swedish data, he also calculated that a business that improves its customer satisfaction by 1 percent a year over five successive years will on average achieve a cumulative increase of 11.5 percent in return on investment over that period.

Although Fornell is talking about large public companies, the same principles apply to the average small and medium-sized enterprise (SME). As does the reporting by the Harvard Business Review that just a 5 percent increase in customer retention can increase a company's profitability by 25 percent to 100 percent.

Not only has Professor Fornell quantified the link between customer satisfaction and a company's financial performance, he is also a proponent of improved customer service using the Internet.

In order to compare the levels of customer service given by traditional retailers with that given by online retailers, he has developed the American Customer Satisfaction Index (ACSI), a national economic indicator of customer satisfaction with the quality of goods and services available to household consumers in the US.

In keeping with Fornell's beliefs, it is the only American cross-industry indicator that links customer satisfaction to financial returns.

In November 2000, ACSI's first-ever comparison between online and offline customer satisfaction levels in the US showed that "e-tailers" (i.e. online retailers) are succeeding in meeting shoppers' demands. The satisfaction index for online retail was 78 out of 100.

The customer service model adopted by Fornell is very much based on e-commerce.

His e-commerce model establishes the processes necessary to measure and monitor company satisfaction.

It can result in increased revenue from such factors as making more selling time available to sales personnel, higher than normal order sizes, and improved close rate for new leads.

It can also dramatically reduce the burden on a company's call center, allowing it to dedicate service agents for higher value transactions.

e-Commerce makes it possible to manage and synchronize customer interactions across all touch points - face to face, the call center, the web, retail outlets, partner and dealer networks trough a unified e-commerce system.

But good old-fashioned customer service is still important, and maybe more suitable for SMEs. Although it is carried out in a different way, it will still increase customer satisfaction, and therefore their loyalty and company profits.

But it has gone beyond just smiling at customers. It might be "old fashioned" but the bar has constantly been raised, and what was exceptional 10 years ago is expected as a matter of course these days.

What SMEs must do is make customer service a core value. They can do this by hiring the right people; empower their employees, soliciting and using feedback and targeting their customers.

Examples of customer service include giving customers something unexpected, (like a free glass of wine with their meal), or extending the warranty on your product from one year to 18 months.

With the global economy heading for a slowdown, it is more important than ever that companies do everything in their power to deliver excellent customer service.

Not only can it make the difference between a company's life or death in times of a sluggish economy, even in good times it can make a significant difference to a company's profitability.

The following websites give some more information on customer satisfaction.

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