Friday, September 5, 2008

The Dollars and Sense of Good Customer Service

I recently read an article published by the Database Marketing Institute dated August 30th that gives specific financial evidence that good customer service pays off. The point of the article is that all customers are not alike. The article starts out by identifying several factors that are driving changes in the market place. The four factors they note are:
1. Loyal customers buy more, buy more often, are cheaper to serve, have higher retention rates, and are more profitable than newly acquired customers.
2. Two of the better ways to influence the level of customer loyalty is recruit the right kind of customers to begin with and treat them very well once acquired.
3. Excellent customer care is the most important method for improving customer loyalty.
4. to provide excellent customer service the customer contact personnel have to be empowered with information and authority to make decisions and to act in the customer's behalf.

Here is where the Dollars show up.

Example #1
A large bank divided up their customers every month based on actual profitability. They discovered 16% of their customers contributed 105% of the bank's profit and the bottom 84% reduced the bank's profit by 5%. The bottom 20% of their customers eroded profits by a total of 22%.

The lesson the bank learned was that they should not be treating all customers the same because all customers are not alike. In other words, you cannot afford to give the bottom 84% of your customers the same level of service as you give the top 16%.

Example #2
A company that manufactures building products has 45,000 large building contractors as customers. Their standard procedure was to publish an annual catalog, mail it out and wait for the phone to ring. The company was very profitable.

They tried an experiment by taking the top 1,200 customers and dived ed them into two exactly equal groups: 600 in a test group and 600 in a control group. The control group would be treated exactly as we treat all of other customers.

For the test group they did outbound relationship building. The assigned one customer service specialist and one building products engineer for a 6 months test. These two people called every decision maker, influencer, and product user they could find in the 600 test companies. They did not try to sell. They did not offer discounts. They tried friendship and providing information. they provided the following:
1. Ask about customer needs
2. Follow up on bids and quotes
3. Schedule product training
4. Remind them of pricing specials
5. Give product comparison information
6. Give new product information & samples.

The results from this 6 month test are as follows:
1. The test group made 12% more orders than they had in the previous 6 months
2. The control group made 18% fewer orders
3. The test group placed 14% larger orders and the control group 14% smaller orders than before.
4. The test group bought products worth $2.6 million more than the control group during the 6 month period.
5. The total cost of the test was about $50,000.

The bottom line is that good customer service is a great investment. This is not rocket science.

1 comment:

scrapboo said...

That's a nice article - thanks for sharing. For completeness, can you post a link to the original source?

Kind regards
Adam

 

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