Deidri-Ann Blackwood | Financial costs of bad customer service

There is an urgent need for businesses in Jamaica to invest in high-quality customer-service training. Consumers generally believe that if they have chosen to spend their money with a particular organisation, then at the very least, the service experience should be pleasant and hassle free - and rightly so.

Often, businesses take a very transactional approach rather than actually trying to build a good relationship with the customer. The latter would clearly have positive outcomes for the business such as loyal customers, which can lead to increased profits.

When customers leave an establishment feeling dissatisfied, they reflect on their overall experience and may vow openly or privately not to patronize them again. If they decide not to return, they are leaving that business with all the potential monies that could have been made from them over the lifetime of their continued patronage.

CUSTOMER LIFETIME VALUE

Let us use a very simple example: John, who is 21 years old, lives in Kingston, and every week, he shops at a corner shop in his neighbourhood and spends approximately $3,000. That is $12,000 per month and $144,000 per year. If he patronises this one corner shop for the next 15 years, all things being equal, at a minimum, this shop will make over $2 million from him.

This is John’s customer lifetime value and is a very important metric for every business to understand. Now, all things being equal, if this shop loses six customers like John on a yearly basis due to bad service such as being unhelpful, not offering solutions, slow response time, and a nonchalant attitude, for the next 15 years, they would have lost approximately $13 million in potential earnings. Unfortunately, many times, it is one unpleasant interaction with one employee that will cause a customer to completely stop doing business with an organisation.

REAL FINANCIAL COSTS

Clearly, if a customer decides to spend their money elsewhere, there are real financial costs for the offending company. According to a consumer study conducted in 2021 by US-based company Qualtrics XM, approximately $4.7 trillion in annual revenue could be lost globally due to poor customer service. The study also found that more than half (53 per cent) of consumers have cut their spending after just one single bad experience with a company.

In another study, it was found that 89 per cent of consumers said that they would spend more than 17 per cent more with the company if it treated them better. Research has also found that the most cited reason for switching companies is not due to product defects or even business processes, but bad customer service. Even though these studies were conducted in the US, their findings can be extrapolated to Jamaica. It is said that customers are grading companies that they choose to patronise, using a simple pass or fail grade. If the latter is true, customers will not hesitate to go where their time and money are appreciated.

LITTLE-KNOWN FACT

Bad customer service makes good and offending organisations look bad. Plain and simple. With the power of social media, online consumer forums and just the digital age altogether, companies must take more care in how they treat customers. Word of mouth is a very powerful tool. Nowadays, consumers place much more value on what their peers say about a company than what the company communicates via its marketing efforts. Customer-facing employees should be made aware that each time a customer leaves an interaction feeling dissatisfied, the organisation may lose money in a significant way.

Sadly, there is a tendency for employees in all industries across Jamaica, from small to large businesses and especially public institutions, to treat customers as though they are doing them a favour. However, it is important to note that had it not been for people’s patronage, there would not be a business in the first place. This seems to be a little-known fact since the attitude exhibited by some employees is usually one of rudeness, nonchalance, and apathy rather than courtesy, helpfulness, and “we know you have a choice” and “we appreciate your business”.

Customer satisfaction and loyalty are not buzzwords in customer service and marketing. They underscore the importance of delivering good customer service and the implications. A recent study found that a 5 per cent increase in customer loyalty can boost profits by approximately 25-90 per cent.

APPRECIATED

Consumers want to feel appreciated, like their needs matter to the company. Organisations should see customer complaints as a gold mine for improvement and as great opportunities to address the service gaps that may exist. Management should aim to resolve issues speedily and amicably so that there are positive outcomes for both parties. Failure to properly resolve complaints are missed opportunities to delight disgruntled customers. This can lower customer retention, and by extension, the organisation’s share of the customers’ wallets.

Studies have shown that it costs an organisation far less to keep existing customers than to find new customers. In fact, studies have shown that just a 5 per cent increase in customer retention can improve a company’s bottom line by 25 per cent to 95 per cent. These statistics and those previously mentioned are astounding and quite telling. They show why it makes sense to consistently provide good customer service. Making sales is important, but having customers who keep coming back is powerful.

Deidri-Ann Blackwood is a lecturer in the College of Business and Management (COBAM), University of Technology, Jamaica. Send feedback to columns@gleanerjm