Saturday, August 15, 2009

Can Customers Be Too Satisfied?

I have often preached that you can't have too much customer service since it is customers that make paydays possible. Based on a new study I may want to re-think my philosophy.

Researchers at the Chartered Institute of Management Accountants have uncovered some very interesting findings. They have found the financial benefits of keeping customers generally happy start to drop once you hit satisfaction levels of 90 to 95% They also found that good customer service is expensive and that companies can overspend on satisfaction. They also found that customer service can cost up to 60% of the costs in high-tech companies.

The bottom line is that you can sometimes overdo a good thing. We all generally believe that the better you are at customer service, the more money your company will make and the more loyal your customers will become. We all know that eating food is good is good for you but overeating is bad. It is difficult to draw the same conclusion about customer service, however once customer service is viewed from the point of profitability, the business model changes from never providing enough customer service to providing the most profitable amount. This should not be interpreted to mean that the most profitable amount of customer service is NO customer service. No customer service is a short term strategy with very little likelihood of long term success.

There is an Edelman Award paper that showed that a company with an inbound call center that took orders for product could improve profits by increasing the number of personnel. However, even this scenario has a limit. The company found that customers were not willing to wait on the phone to place an order so by increasing the number of personnel taking orders their sales increased more than the cost of the increased number of personnel in the call center. However, there was a point of diminishing returns. The solution was to find the number the maximized profit.

I once had a client who clearly understood that he could provide too much service. My assignment from him was to effectively create a business model that would provide the relationship between customer satisfaction and cost. In this way he could determine how much more an increment of improved service would cost. His insight was ahead of his time. I think industry now has the tools to build a similar model.

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