Does Good Customer Service Hurt Profitability?

Executives frequently express fears that good customer service will cost them money. They fear that their service employees will forgive fees, fail to enforce policies, and spend too much time with their customers.

Rob Markey of Bain & Company, notes that, without a proper strategy, they’re usually right:

If all you do is “empower the front line” — grant your employees more freedom to wow customers — they will almost certainly strike the wrong balance between customer delight and shareholder returns. We know of one retail bank that gave their call center representatives the edict to “delight” customers and permission to waive up to $150 in fees for any customer without seeking any additional authorization. The result? Customer satisfaction rose a little, but fee revenue declined. A lot.

The Dilemma of Empowerment: The dilemma is that frontline employees need more latitude to earn their customers’ trust and need to be empowered to do what’s right for customers. Yet, employees often lack the experience, judgment, and discipline necessary to achieve this in feasible ways.

A Framework for Accountable Empowerment: Markey finds that the key to success in empowering frontline employees lies in helping them Help them become self-directing and self-correcting as they work toward a clear, understandable outcome. This is done by giving them:

  1. A framework within which to operate
  2. Feedback about how they are performing within that framework.

Best Practice 1: TD Bank

Click here to see the video: Turning Wow! Into a Science at TD Bank.

Background: TD Bank is a loyalty leader among major retail banks in North America. Continued retail deposit growth has funded continued expansion and new branch openings.

Strategy: Empowering Employees to Wow Customers: The bank has established a clear framework within which every employee understands the business objectives of earning customer loyalty, and every business practice is designed to encourage both systematic and spontaneous attempts to wow customers.

Strategy: Holding them Accountable for Business Outcomes: The bank has established a culture in which every employee:

  1. Knows the business outcomes TD Bank is trying to achieve
  2. Has clear rules about how to do that
  3. Is provided frequent feedback on how they are contributing to the bank’s success.

Tactics: The “1 to say Yes, 2 to say No” rule Customer-facing employees are taught that their job is to satisfy customer requests if at all possible using these guidelines:

  1. As long as they stay within the bank’s policies, finding a way to say “yes” is something they are expected to do independently.
  2. If a policy does prevent them from satisfying the customer’s request, they are expected to not simply tell the customer “no” but to seek the advice and support of a supervisor.

Principle: Inertia Leads to Customer Dissatisfaction: It is often easier for an employee to rely on the letter of a policy and move on to the next customer than to take time to seek a creative solution — making it easier to say “no” than “yes.” Requiring employees to seek additional advice in these situations makes it harder to say “no.”

Results: Of 16 banks included in the 2012 Temkin Experience Ratings, TD bank ranked #2 with an overall score of 77%, second only to PNC, which scored slightly higer at 80%. By contrast, larger banks scored considerably lower: Citibank – 51%, Bank of America – 55% and Chase – 65%.

Best Practice 2: American Express

Background and Strategy: Jim Bush, who leads American Express service operations globally, set up a similar system. Instead of focusing on traditional productivity measures largely aimed at controlling call center costs, he made it a key success measure to earn the enthusiastic recommendations of card members.

Tactics: To empower customer service employees to do the right thing profitably, he:

  • Removed call center scripts.
  • Ended traditional behavior-based quality monitoring metrics
  • Eliminated limits on average handling time.
  •  Substituted guidelines for hard limits, judgment for scripts, and coaching for monitoring.

Because employees are deeply involved in figuring out how to meet fundamental business objectives, management doesn’t dictate how employees achieve those outcomes, but still makes sure they receive abundant feedback on how well they are doing.

Principle: Operating in a highly regulated industry and in a business where it’s possible to be defrauded by unscrupulous customers, American Express has elaborate rules and policies. But it found that it can also give far greater latitude to customer care professionals armed with a more sophisticated understanding of how they help the company achieve its business objectives.

Results: Service expenses actually went down under the new system as employees devised and shared solutions to common customer issues. Better yet, among customers who are promoters, American Express sees a 10-15% increase in spending and far better retention rates.

The 2010 U.S. Credit Card Satisfaction Study by JD Power, based on responses from more than 8,500 credit card customers showed that for the 4th consecutive year, American won out over Discover, US Bank, Wells Fargo, and the other competitors.   According to the report:

American Express ranks highest in customer satisfaction for a fourth consecutive year with a score of 769 and performs well across all six factors that drive satisfaction. Discover Card follows with a score of 757 and performs particularly well in the interaction factor. U.S. Bank ranks third with a score of 727.  The common denominators of performance among the highest-ranked issuers are exceptional rewards and benefits offerings; superior service experiences across phone and online channels; and a focus on reducing problems and resolving those that do occur with minimum time and effort for customers.

This is all the more significant considering that American Express charges the highest transactional fees of any credit card company, are harder to qualified for, and charge  high annual fees, which discourage many merchants from accepting them. However,  they have better customer service.  They are better at fraud protection and card replacement, have the best rewards program in the industry, and carry a sense of prestige for their cardholders.  You are not just a cardholder…you are a “member”…and “membership has privileges.” Millions worldwide are willing to pay for “better”.

The 3 Components of Accountable Empowerment

Strategy and Execution: If you want to earn the loyalty of your customers without losing your shirt, don’t just set your employees free to do “whatever it takes” to delight customers, but implement a framework within which your employees can succeed. Such a framework needs 3 componants

Expected Results: Assuring that your employees have the freedom within a framework to become self-correcting and self-directing has tangible business benefits:

  • Increases your customers’ loyalty.
  • Helps your company grow profitably and sustainably.
  • Lowers employee attrition
  • Lowers costs.