Learning from Consumer Complaints

By Dr. Marilyn Helms, the Sesquicentennial Endowed Chair and Professor of Management at Dalton State College (DSC) in Dalton, GA. Former director of the Institute for Women as Entrepreneurs at the University of Tennessee at Chattanooga, Dr. Helms currently directs the Center for Applied Business Studies at DSC and works with small businesses and start-ups.

Considering the cost, time and effort required to obtain new customers, it makes financial sense to consider growing your business by focusing on the needs and wants of existing clients.

The relationship between customer retention and profitability is well known. Customer loyalty or retention results from delivering and replicating good customer service. Services, whether poor or excellent, have a strong impact on customers and create intense, often emotional feelings and perceptions about organizations and their staff.

Customer retention over the long-term is also based on a company's attention to detail and recovery when things go wrong in the service delivery process. When customers are dissatisfied, they may do nothing, complain to the service provider, take action with a third party (like the Better Business Bureau, for example) or they may simply leave and never return. When they leave, customers often engage in negative word-of-mouth, sharing the experience with their friends.

Understanding service failures is important and research has found it is possible to recover from failures and thus regain customer confidence. If the recovery is successful, customers will engage in future purchases from the company.

Some of the reasons for poor service quality include industry cutbacks in services, lack of employee supervision and managerial disregard for quality. Services, unlike most manufactured products, lack clearly defined quality standards. It is the details that distinguish average service businesses from superior ones and the customer's loyalty is determined mostly by attention to details.

If you are a retailer or service provider, you may want to investigate your complaint and problem-resolution process. As research confirms that it is cheaper to keep a current customer than to attract a new one, these resolutions become extremely important to customer relationship management. Customers remain loyal to a product or service provider after the problem is successfully and promptly resolved. Often managers establish and follow standardized processes and procedures for resolving complaints — like giving a free coupon for a return visit, credit for the product or a gift card for a future purchase.

Many have quantified the cost of attracting new customers as five times more expensive as retaining existing ones. Costs include advertising, promotion, marketing and even time and energy to meet and search for new customers.

Knowing that keeping or retaining customers is so vital for businesses, the question becomes, do companies know your customer loyalty percentage? Are they aware of trends in customer retention rates?

On average, U.S. companies lose half their customers every five years. Is this true for the company? Is their percentage below average? Does management want to know why customers are leaving? They should. Their current and future business leaves with the customer. For example, if a typical grocery shopper who spends $100 each week at the grocery store leaves, you lose only a modest $100 this week, which may not be noticeable to the grocery store.

However, if the customer lives in the area and would have shopped at the store for 20 years, the store's loss would be $104,000 in sales (not counting adjustments for cost increases and inflation).

Assessing Customers

It is important to understand what is turning customers away from a business. How could the service or product be made easier, faster or cheaper and how would these changes affect retention? First one needs simply to ask the customers themselves. What do current customers like and dislike about your business, your products or your services? Find out by asking questions.

Gather a group of customers together in a focus group, perhaps over a meal, and record their thoughts and brainstorm improvement ideas. Tell them their business is valued and that the company wants to serve them better. Ask what can be done to increase their satisfaction and retain their business.

In a brief one or two-hour session, with a representative cross-section of customers, it is possible to find clues to their retention. Adding these to the top of the manager's "to do" list for immediate and ongoing attention may be all that is needed.

What can be learned from current customers? Perhaps a firm can determine if:

• Quality is less than competitors
• Prices are too high
• Service staff is unprofessional or slow
• Employees aren't knowledgeable or have a less than courteous, caring attitude
• Store hours are limiting, your voicemail system is confusing, or your facility is dirty and untidy
• There is enough outside lighting or security for evening visits
• The customer service department is effective

Two other focus groups are needed to round out an understanding of retention issues. While we typically do a human resource exit interview with employees who leave a company, we seldom do an exit interview with customers. Why did they choose a competitor? If you follow-up with customers as soon as possible after they leave, you will not only gather current information but may be given an opportunity to correct the customer's problem and reverse the situation.

Finally, interviewing individuals who are not currently your customers can give you a different kind of information that is a benchmark of your competitors. What are competitors doing better? Can you adopt or emulate these practices, policies or procedures?

In truth, few organizations gather such information or even track retention rates. Most software can readily print a customer list and details of customer sales activity by date. Sales representatives can also identify patterns for customers in their region or territories. Shopper or affinity cards that customers present each time they make a purchase easily track buying trends. Such cards or key ring fobs are now available at most retailers and are almost a requirement to shop at some establishments. Web site information of purchases by customers also points to buying habits. Use this data to learn what may be driving customers away.

Most consumers too seldom complain or congratulate a company. If you like a company's product or service, why not help them improve it? Take time to express your concerns and assist area businesses. Having a comment letter saved on your computer often makes the process easier to initiate. If the manager is smart, he or she will thank you for your help.