What happened to service?

Your most unhappy customers are your greatest source of learning. – Bill Gates

It’s not the employer who pays the wages. Employers only handle the money. It’s the customer who pays the wages. – Henry Ford

More business is lost every year through neglect, than through any other cause. – Jim Cathcart

There is only one boss – the Customer. And he can fire anybody in the company from the chairman on down, simply by spending his money somewhere else. – Sam Walton

In the early ‘80s, Scandinavian Airlines (SAS) was having a tough time competing. Jan Carlzon, then president of the airline wanted to focus on improving services among other areas he found broken. In 1984 he coined the phrase “moments of truth,” in a book of the same name, to describe those incredibly valuable service interactions customers have with companies. His strategy was to manage, in a unique way, those “never-to-be-repeated opportunities” to distinguish SAS from its competitors. And it worked; SAS was turned around in record time and became one of the best-run airlines around the world. Moments of truth became the mantra of those focused on customer service. Companies like Nordstrom became famous for their fabulous treatment of customers, and their results showed the benefits of service as they were able to generate better than average profit and revenue growth than their competitors.

Nearly two decades later, after Billions of investments in new Customer Relationship Management (CRM) and other service systems, it seems like many of the important lessons learned have been forgotten or ignored. Interactions with companies today feel much more like “moments of denial” than opportunities to win a customer for life. What happened? Was Jan wrong? Is customer service irrelevant in this seemingly impersonal internet era?

In this age of networked customers, more choices are available, and companies performance in price, product capabilities and increasingly service is much more readily visible. Customer services more than ever before has the potential to create (or lose) enormous value to companies and their customers. During the dot boom, much attention was paid to the cost of customer acquisition. The theory was that as long as a company paid less for the acquisition of a customer than the lifetime value of that customer (a complex measure of how much profit can be generated while the customer remains a customer), then the business would be worth a lot. The theory was right, the valuation wrong. These models brought into sharp focus the notion of the value of customers. Where the valuations went awry was in the assumption about how long the customer would remain a customer (an area heavily influenced by customer service). What these companies forgot, was that losing a good customer was much more expensive than winning a new customer. Unfortunately, this lesson still needs to be learnt by many big companies.

Lets explore this dearth of common sense in service by reviewing an experience I had recently buying books. A short while ago, after checking a number of local bookstores for some technical (read expensive) books and not finding any in stock, I took to the Internet. The books could be found similarly priced at Amazon, Barnes and Noble, Borders, and Wal-Mart, while they were significantly cheaper at several other online stores. Eventually, I chose one of the major brands, because it was the only one with all the books in stock and available for delivery in 24 hours (a service differentiator). So I ordered the books forgoing the free shipment offer and instead requesting and paying for expedited overnight delivery.

The books were to be delivered two days later, and to my delight, were truly shipped on time and delivered on time. Two separate boxes were delivered, shipped from separate locations. I eagerly opened the first box to find only one book where the packing slip indicated there should be two. In the second box, to my disappointment, another customers order had been neatly packed. Being an analytical type, I figured the odds of such customer failure to be extremely low (bordering on near impossible). Something must have failed badly. Still, not daunted by the experience, I called the toll free number provided. After listening to an annoying announcement of service options (none of which worked for me), I was connected to a service representative. I explained the situation and suggested that since the other customer was at an address not very far from mine, and given that I really needed these books quickly (why I ordered overnight express), that the retailer might try contacting UPS and have the books, that were meant for me and most likely switched, picked up and rerouted to me. The rep took all of the details and then told me that the case would have to be “escalated” to a different group who will contact me in 1 to 2 days. This was my first clue of a “moment of denial”. I politely suggested that this did not make sense to wait that long for a conversation with a customer rep about what to do with this service failure. She promised to send a note to the relevant department.

Three days later, I called the same toll-free number. I had not been contacted by anyone. Again the same announcement, same story repeated to a new rep. After a long wait I was put through to the “escalated service” department. The rep offered to have UPS pick up my boxes and would get a supervisor to authorize a new shipment. I inquired as to the reason for delay in contacting me and was told that 2 to 3 days is the normal cycle, but that the service department was bogged down with requests due to an upcoming holiday (Valentines day due 10 days away). I told the rep they had lost a customer for life, that I would be sending the books back, and that they should cancel my order. She thanked me!

This was no customer service organization! Was this unusual, an aberration, a statistical blip? Unfortunately, millions of these interactions are taking place across the United States each day, creating a veritable churn in customer loyalties and shifting the preferences consumers demonstrate with their pocket books. Customer’s tolerance for shoddy customer service is being challenged today, more than ever before. At one major phone company, an enormous sum has been spent on call processing information to solve every kind of problem without ever having to connect to an individual. Which is all well and good, until one really wants to speak with a service rep. Call for help, and Silicon Sally, the voice of the phone company, will transfer you around and bring you back in loops so that in the end you may never get through to someone who can really help you. Or how about the major competitor that has a similar menu of options which require you identify yourself with phone number, zip code and social security number, which in and of itself is difficult to get entered without being disconnected on a wireless call, and then when an individual answers asks for a repeat of those numbers.

What should the book store have known, and how could this situation have been resolved to create an even more loyal customer? This example in many ways illustrates what has gone wrong with the large investments in service over the last decade. The impersonality of the systems, lack of common sense empowerment in decision making, and processes and systems that do not adequately segment and distinguish customers for their uniqueness are doomed to fail and will continue to lose more value than they create for the companies implementing them. Lets examine the case. The bookstore should have known I was a first time buyer online. They should have known that I was a customer worth having, as my purchases of nearly $400 in books would be at the high end of typical online book purchases. I used an American Express card and was willing to pay a premium for overnight delivery and did not avoid the sales taxes as I would had I bought these products at a competitor. This bookstore should have known that they paid very little to find a new customer that was probably worth a lot to keep. And upon the first indication of trouble, they should have taken that “moment of truth” to engender loyalty, by demonstrating concern for my needs through a good recovery. After all, customers talk a lot more about bad customer service than good service experiences, with the one exception being high recommendations for exceptional recoveries.

Great service organizations know their customers and differentiate their needs and treat them for what they are worth. They don’t have monolithic processes and systems that strive to confound customers desperately seeking help. Take American Express for example. Why is it that a company that charges its merchants more than Visa or MasterCard continues to be successful? Because they masterfully serve their “members” and those very merchants, more so than the premium they charge. Their service treatment of customers is rarely in doubt. When I lost my wallet in Sydney, Australia, American Express provided me with a replacement card and cash within 24 hours, in Sydney. MasterCard and Visa required I call the banks in the USA that issued the cards and the banks promised to send replacement cards to my home address in Cleveland. Lots of good those cards in the USA did while I was in Sydney for nearly a year using my American Express card exclusively.

Technology can enhance customer service capabilities by allowing a company to know a lot more about their customers at a moment of truth. Sadly, when the technology is not coupled with an organization and processes endowed with “common sense”, the result could be a deliberate destruction of long term customer value. For better results, introduce some basic common sense into the management of your customer interactions!

“Moments of Truth” (Jan Carlzon)

Do you see what you believe, or believe what you see?

My teenage daughter, like most kids her age, loves the look of fast sports cars. She is particularly amused by the fact that she shares the same name with a Lotus sports car, the Elise.

One morning recently, as I was driving her to the school bus stop, she excitedly pointed out the car in front of us. “Look dad, it’s an Elise.” Until then, she had only seen the car in magazines and online. I gently pointed out that the car was not an Elise, but a Corvette. But she was not to be deterred, as she insisted it was an Elise. That is, until we pulled up next to the car and she could clearly see the Corvette badge.

Later I reflected on this incident and wondered what it was that made a teenager who had never seen (or had a live experience with) a Lotus Elise, believe her own mental image of the car more than the feedback from someone three times her age, who has actually seen (had an experience with) the car in question. Was it youthful self confidence, or worse? And, I wondered how often the same phenomena occurred in business settings. I have seen managers reviewing market data and completely disagreeing on the potential opportunities. I have seen financial data which suggested financial deterioration, interpreted in a favorable light. And I wondered, were these people really seeing the same things?

I did not get very far with my exploration of these questions until I came across a piece written by Daniel Levitin:

The word pitch refers to the mental representation an organism has of the fundamental frequency of a sound. That is, pitch is a purely psychological phenomenon related to the frequency of vibrating air molecules. By “psychological,” I mean that it is entirely in our heads, not in the world-out-there; it is the end product of a chain of mental events that gives rise to an entirely subjective, internal mental representation or quality. Sound waves – molecules of air vibrating at various frequencies – do not themselves have pitch. Their motion and oscillations can be measured, but it takes a human (or animal) brain to map them to that internal quality we call pitch.

We perceive color in a similar way, and it was Isaac Newton who first realized this. (Newton, of course is known as the discoverer of the theory of gravity, and the inventor, along with Leibniz, of calculus. Like Einstein, Newton was a very poor student, and his teachers often complained of his inattentiveness.)

Newton was the first to point out that light is colorless, and that consequently color has to occur inside our brains.

Excerpts From This is your Brain on Music by Daniel Levitin

In essence, Daniel is saying that things like color and sound are not absolutes, people hear and see the same thing differently. Thus, some see a glass with some liquid and by focusing one way or the other can see a half-empty or half-filled glass. Several people might be listening to the same CD, but concentrating on different elements of the music and subsequently liking or disliking what they are hearing.

In a business setting, the implications are stunning. If everyone is seeing your markets, customers, performance, numbers the same way, and there are no opportunities for alternate explanations, you very well may be missing important elements. You might be looking at data that shows revenue growth, but nuances such as whether the growth was in line with the rest of the market, with targeted segments, due to lucky wins, or fundamentally based on purposefully managed activities delivering better value to customers are incredibly important distinctions. Management teams that lack diversity of thought, or avoid honest questioning of the facts, will almost always be blind-sided by an alternate reality.

Are there alternate realities or interpretations that can be inferred from the same set of facts? Absolutely! Just examine the optical illusion above. Some people see the young girl, others an old lady. They are both present in the same set of facts. What you choose to see is a matter of where you are looking. You can only see both pictures when you shift your perspective, an activity that might serve you well in your business.

“This Is Your Brain on Music: The Science of a Human Obsession” (Daniel J. Levitin)

Are you obsessed about Quality? Do your products have soul?

The Japanese are particular about things; they understand the “soul” of things.

We aim to develop products with soul. The idea that products have soul is perhaps only understand by the Japanese, the French and the Italians. The reason why the Japanese understand it is, I think, because they have such a long history of tradition. There are Japanese craftsmen who spend years perfecting lacquerware. Others protect the 1,500 year tradition of using red dye from the safflower. Others still are attempting new experiments using 21st century technology with traditional colors. And there are many people who are called “living national treasures”. The Japanese are particular about things. They like to embark on new adventures and think about the next idea while still retaining the soul of things. Of course, not all consumers are “living national treasures”. But this kind of thing is understood at DNA level. The Japanese are sensitive to things. They understand the goodness of our products, beyond their appearance or brand image. And for that reason, I think they are an important market for us.

Let’s say you buy a garment and a thread comes out of it. The French would cut the thread off themselves, then wear the garment. An American would wear the garment without noticing the thread. The Japanese would take the garment back to the shop and complain that it was damaged. Japan is a market that makes such demands.

Richard Collasse, then President of Chanel, Japan addressing the Tokyo International Forum

Japan is roughly the size of Montana in land area, and has about 127 million inhabitants (roughly one-third of the USA). And, the Japanese are obsessed with luxury goods. They consumed 41% of the worlds luxury sales in 2006. Thus, when the Japanese customer is not satisfied with threads hanging from their newly purchased outfits, it makes sense for the luxury goods companies to pay attention.

The Japanese define quality in two ways – atarimae hinshitsu and miryokuteki hinshitsu. The first term atarimae hinshitsu, refers to the expectation that the item works the way it was intended. Miryokuteki hinshitsu means “bewitching” or “enchanting quality” and refers to the desirability or aesthetic appeal of the product. In essence, by focusing on both, you ensure your product works the way a customer wants and is also desirable to have (it has soul).

If your customers won’t tolerate hanging threads, should anyone on your team? Learn from your most demanding customers, and ensure everyone in your organization is focused on exceeding those changing expectations. This is the only way I know to drive long term sustainability.

Reinterpreting Drucker

 

Entrepreneur’s define tomorrow and understand today. They live both forwards and backwards. Entrepreneurs invest themselves in making the tomorrow they care about. They imagine a reality and expect more than others think possible.

From Elizabeth Edersheim Blog

 

How many people do you know could reinterpret Drucker, and make his work relevant again? You would have to be brilliant, and my friend and former partner Elizabeth Edersheim is one such person.

 

I first met Liz when I joined McKinsey in 1986. She was already a storied “thought leader” in Operations. Armed with a Ph.D. in operations research from the Massachusetts Institute of Technology, she was shaking up traditional thinking in the world of operations strategy. I later joined her, as we partnered to build New York Consulting Partners into a world class transformation advisory service. We served some pretty amazing clients such as market leaders Arrow Electronics, Colgate-Palmolive, Clairol, Motorola and Symbol Technologies and the Thomas H. Lee portfolio companies – First Alert, Healthometer and Mr. Coffee, among others.

 

Analysis comes easily to Liz. She is fact-based, hypothesis driven and a brilliant thinker. To top it all off, every word she writes (and she has written several highly acclaimed books) has been honed many times before it gets committed. I know from personal experience working with our then editorial team, through whose hands every client review had to be filtered, that great communication was at the heart of every successful change management program.

If you want a sense of how brilliant people think, check out her blog, or read one of her books:

 

“The Definitive Drucker” (Elizabeth Haas Edersheim)

“McKinsey’s Marvin Bower: Vision, Leadership, and the Creation of Management Consulting” (Elizabeth Haas Edersheim)

Talented Marketing Executive

During my years at Arrow Electronics, I met and became friends with Tom Thorson, an incredibly talented Marketing Communications Executive. He ran some of the most creative meetings (which were especially important when you are trying to Jazz up over 1000 sales people during a merger kick-off).

More than his keen marketing eye though was his sense for music, graphics and an eye for a great photograph. Every few days I get an email from Tom with several shots he had taken recently. They are always beautiful, well composed and worth soaking in. I always look forward to seeing what he has done lately. Here is one he sent me recently:

He can be found at Tom Thorson Marketing and Design Consulting. Salute Tom!