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Tag Archive: customer service

1. The Curse of Churn … time to put the plug in!

   August 29, 2020 5:22 pm Leave a Comment

   

   When businesses want to grow, their first instinct is often to advertise. But there’s an easier, equally effective and longer lasting way of increasing sales.

   Most owners of small to medium sized enterprises/businesses (SMEs) have an underlying desire to grow their businesses. It’s born of a material wish to make more profit, but possibly reinforced by an emotional wish to nurture something they can be proud of.

   If you were to ask them how they’re going to achieve that, the answer invariably will be to sell more of what they do. Ask them how they expect to sell more, and the answer will usually be by advertising. Ask them what else they will do to help them sell more, and the answer will be to advertise even more (hence the abundance of people offering to help you grow your business by marketing and/or advertising through Google Ads, or Facebook, or Twitter, or LinkedIn, or some other social media platform these days).

   This is all well and good, and may indeed bring your business a temporary boost in sales. But there is a part of your business that could also bring you more sales, and not just for the length of the advertising campaign(s), but for months and years to come. And, even better, there won’t be a need to hand over your hard-earned cash to advertising agencies or whichever platform you choose to use, because it’s within your own business.

   And what is this often-overlooked source of sales, you ask? It’s using good, old-fashioned customer service for growth, or rather, adopting a customer focus.

   Customer Service – A Hidden Source Of Growth

   You see, a successful advertising campaign (and let’s not forget not all campaigns are ridiculously successful), could bring a flood of enquiries into your business, but then it has served its purpose. You then have to convert them into actual customers, during which a fair portion will fall by the wayside.

   Having a customer focus will not bring in the volume of enquiries that an advertising campaign possibly will, but good customer service will lead to growth in the business. You see, when a new customer deals with a business for the first time what they have done, at its simplest, is given the business an opportunity to show what it can do.

   The business can then: a) disappoint the customer by falling short of the customer’s expectations; b) satisfy the customer, by simply meeting their expectations; or c) delight them, by exceeding their expectations.

   Needless to say, the failure to adopt a customer focussed approach will leave the business struggling in type “a” or at best type “b”, while adopting a genuine customer focussed approach will lift the business into type “c”. In fact, a customer focussed business is one that will, by definition, delight their customers.

   A type “a” business, having disappointed its customer, is unlikely to get a second chance, meaning that customer is lost, possibly forever depending on the availability of alternatives, and the benefit from advertising ceases there and then. To bring in another new customer the business must rely on more advertising, with its associated cost.

   A type “b” business, having satisfied its customer, may get a second chance, but could just as easily lose the customer who is open to trying an alternative supplier to see if they can do better.

   This constant flow of bringing in new customers only to lose them and then have to replace them with more new ones is often referred to as “churn”.

   In contrast, a type “c” business, having delighted its customer, will likely keep the customer should there be a need for a subsequent, similar purchase. We all know how difficult it is to find good, reliable suppliers and once one is found, there’s often a reluctance to try someone else, even if they are cheaper. And even if they are significantly cheaper the customer is still more likely to give a type “c” business the opportunity to improve their offer rather than risk using an unknown party.

   Once the customer makes a repeat purchase, customer focus has played its role in keeping the customer and bringing in additional sales, and there should be no reason (as long as the customer focussed approach is maintained) for that customer to look elsewhere in the future. So not only is your customer focus and good customer service leading to growth through repeat business, it is (based on common estimates of the costs involved) doing so at something like a sixth to a twelfth the cost of running advertising campaigns.

   But even if you are providing goods or services that rarely give rise to a second purchase, or only a handful in a lifetime, customer focus can still play its part in bringing in sales through a different channel.

   A Growing Reputation

   In marketing one of the most compelling tools in convincing someone to make a purchase is that of a recommendation from a trusted source. If a customer has dealt with a business and been ‘delighted’ they are likely to tell three of their friends or acquaintances of their experience (as opposed to ten friends or acquaintances when they’ve been disappointed).

   These three will then tell three more each and so it continues, causing word to spread quite quickly. Before too long you have the equivalent of a minor advertising campaign in terms of ‘contacts’ made, but one that is backed by personal recommendations (i.e. more likely to turn into sales) and has cost little more than caring for your customers.

   However, while this illustrates how powerful a force a good reputation can be there unfortunately isn’t an equal and opposite impact when disappointing customers; it’s actually far worse than that!

   When customers are disappointed, they tell more of their friends and acquaintances (around ten) of their experiences, which means that word of a poor level of service spreads considerably faster and more widely than word of a good level of service.

   The outcome of this is that there’s a good chance a type “a” business will lose most of the new clients their advertising campaigns bring in, and consequently they have to run a new advertising campaign to bring in the next period’s sales; and this is just to stand still, let alone grow! So now they’re on the treadmill of continual advertising with its recurring cost(s), constantly having to advertise to bring in new customers to replace those lost. I think I can best describe this situation as equivalent to trying to fill a bath without putting the plug in.

   Plugging The Hole

   So, how do we put the plug in the hole? This is the role customer service plays. When done properly, customer service leads to growth by helping you keep most of the new customers you bring in for repeat business, and/or bring new customers in through very effective word of mouth recommendations. While there is no harm continuing to advertise occasionally to boost your sales and growth, it does mean you’ll be getting the best ‘bang for your buck’ each time you do so. And it does translate into securing a ratchet-type growth, where the movement in sales is always one way, i.e. steadily increasing.

   The challenge, of course, is in the phrase “when done properly”. As I’ve mentioned in other articles, many businesses profess to be customer focussed, but when it comes to actually delivering against that implied promise, most of them fall sadly short. In most cases it appears while they are quite happily using the term ‘customer focussed’, they rarely give the impression of understanding what exactly it truly means.

   But that, I feel, warrants a separate article of its own ….

2. The Efficiency Fallacy

   May 19, 2020 11:50 am Leave a Comment

   

   Businesses have been trying to improve their efficiencies for over a hundred years, but few have actually reaped the full benefit from it. Here’s why …

   The pursuit of efficiency has been one of the major objectives businesses have adopted over the last hundred years or more. In fact, you could argue that this has been a regular aim of management ever since F. W. Taylor determined to improve industrial efficiency at the turn of the 20^th century in what came to be known as the “Scientific Management” movement.

   Taylor’s “Scientific Management”

   Prior to Taylor, work was generally carried out by skilled craftsmen responsible for completing the whole range of tasks involved in the production of things. Taylor broadly broke down these production processes into a series of simpler, inter-related tasks, one feeding into the next. Management then designed the quickest, most efficient way of executing each task and trained a less skilled worker to do it.

   The major benefit of this approach was that as each unskilled worker became more proficient at their task, it took them less time to carry it out (i.e. their productivity increased). Add to this the fact that lower rates were paid to the unskilled workers, and the result was that the overall cost per unit produced was reduced, even though the earnings of the individual unskilled workers (now based on piece-meal rates) were increasing.

   With such an incentive this idea was eagerly taken up by industrialists of the time, most notably Henry Ford whose early adoption of the method, together with his introduction of the moving production line, played no small part in enabling his company to produce a motor vehicle cheaply enough to be within financial reach of ‘the masses’.

   However, by the mid-20^th century arguments were being raised against this approach, centring around the ideas at the very core of Taylor’s reasoning.

   Efficiency at all costs

   Taylor had broken down a start-to-finish process into a series of subprocesses and focussed on each one to improve its efficiency, focussing on the ‘cost per unit of production’ as its measure. The underlying assumption was that the sum of the efficiency gains over all subprocesses in the total process would equate to the gain in efficiency over the whole.

   The later views, however, believed this often not to be the case as some improvements in efficiencies in subprocesses could have adverse effects elsewhere either in, or outside of, the overall process. And the eager pursuit of efficiency purely in cost terms had similarly adverse impacts beyond Scientific Management. So, for example: –

   • In production runs, the less frequently you change setup, the less time is wasted in non-productive activities (i.e. setups), which leads to longer production runs being used whenever possible. This was often leading to over production, over stocking and ultimately writing off obsolescent stock (with larger than necessary storage facilities used as a side effect).
   • Executing relatively mindless tasks with an emphasis on number of units produced can lead to a lack of focus and attention on the part of the worker who, while producing more units, produces units of lower and less consistent quality. The impact was being felt later in the process or, worse still, by the customer.
   • Reductions are made in resources needed to service the customer (without a redesign of the process – the reduced resources are simply required to “work harder”), resulting in inferior customer service. (If you’re unsure what this means, think back to the last time you called a business and were left on hold, listening to a looped message telling you how important your call was to them!).
   • When the push for efficiency extends to the purchasing function, the search for the lowest unit price often leads to purchasing in bulk, and over stocking (similar to over production), with wastage due to obsolescence and storage facilities.
   • Likewise, the search for the lowest unit price also can lead to a compromise in quality (not always avoidable through specifications), again causing issues either later in the production process or in the hands of the customer.

   So, while each individual subprocess is improving its measures of efficiency, the wastage generated in the business as a whole, together with poorer service to the customer, is offsetting these gains, quite possibly completely.

   While this can be managed by exercising stronger control over the process in its entirety, this very rarely happens effectively in practice. When each supervisor/manager of each subprocess is concerned primarily, if not solely, with their own subprocess and is measured on the results within their subprocess (and quite possibly is rewarded on that basis), this encourages a very blinkered, self-centred approach. Plus, it’s easier to manage in this isolationist way in practice as coordination over several functions requires greater thought and effort.

   As a consequence, the way improving efficiency has been carried out in practice over the past decades (and to this day, in most circumstances) has had an adverse impact on business profitability, both through inferior customer service and lost customers, and through additional waste, which is exactly the opposite to what the business originally set out to achieve.

   A better approach to efficiency

   So, how can you increase efficiency and raise profitability? First you must ensure you put the satisfaction of your customer ahead of your efficiency drive, accepting that otherwise what you gain in efficiencies (and probably more) could easily be lost through losing customers and/or your reputation. By all means you should look for efficiencies, because a lower operating cost will help you compete with alternative suppliers and/or boost your profitability, but only look for these efficiencies after your customer service has been safeguarded.

   Once this priority has been established and customer service has been retained, you then have to ensure that the ‘silo’ approach to subprocesses is kept in check by taking a more holistic view of the total process. This can be achieved by introducing a mechanism that evaluates any proposed improvements to subprocesses in the context of the whole process prior to them being implemented. This will ensure any adverse consequences that would be felt elsewhere are addressed and avoided before any damage is done.

   If you can manage to do this (no mean feat, which is why many are not up to the challenge and take the lazy way out) you’ll be providing a better service all round, and at a lower cost … something very few can achieve, but by no means impossible … and worth its weight in gold!