The competitive advantage of good customer service [Opinion]

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It should be self-evident. Good customer service increases revenues and decreases costs. (Image via

Inadequate or non-existent focus on customer satisfaction in some countries of the MENA region has practically become part of the culture.

This applies to a good proportion of the products and services industry, both private and public, from shops to department stores, small to large businesses, and also government agencies and public service organizations.

Examples abound, ranging from bad customer support, to reluctance to return or refund purchases, and include a lack of honesty and transparency when dealing with customers, like hidden fees, broken promises, slow response and more.

The need to provide proper customer service is not altruistic: customer satisfaction increases loyalty, expands the customer base, and decreases acquisition costs, with a final positive impact on the bottom-line. For instance, a 5 percent increase in loyalty has been shown to escalate profits by up to 100 percent. In short, poor service equates with poor profits. And perhaps what is more interesting is that proper customer service actually pays for itself.

Customer acquisition is not cheap. Advertising, promotions, and indeed the cost of having a customer walk into the store or express interest in a firm’s offering, all of that can run in the hundreds of dollars per new customer. This is to say that once a customer knocks on the door, it only makes sense to not only close this first deal, but also make sure he or she will keep coming back.

A company focusing on one-time sales will almost always fail to achieve its full potential, particularly as the cost to up-sell, or cross-sell is generally much lower than that associated with the initial sale (up-selling is about complementary or add-on products to a previous purchase, while cross-selling engages the same customer to purchase a different product). New customers need to be convinced to make a purchase, whereas existing customers are familiar with the company and generally require less convincing to buy a product or service. Indeed, ecommerce spending of existing customers can be up to double that of new customers.

Another reason to focus on customer service is that a good part of a company’s marketing comes from word of mouth, and good customer service can be cheaper than advertising. For instance, 92 percent of consumers believe recommendations from friends and family over all forms of advertising. A dissatisfied customer increases the difficulty of acquiring other customers, and can result in a situation referred to as a “leaky bucket,” where efforts are only applied to gain more customers, at the expense of retaining existing customers.

Bad customer service can introduce costs that are not sales-related. One example is employee retention, since staff that has to deal with angry customers while not being empowered to satisfy them, often builds up frustration and dissatisfaction, with the final possibility of quitting their job, causing the costly need to recruit and train replacements. Furthermore, training employees to provide quality customer service is likely easier than preparing them to deal with dissatisfied individuals.

The simplest way to achieve decent customer service is by exceeding customer expectations.

A clerk that goes the extra mile to make sure a customer received her order on time, a company that takes responsibility for a defective product by promptly providing a replacement, or a policy to treat mispriced items or small change amounts to the benefit of the customer can leave a positive impression and both gain a longterm customer and his friends’ business.

In more practical terms, superior customer service involves elements such as: establishing proper communication channels with customers (making it easy to complain or be serviced, for example), empowering employees to have the budget or decision-making power to satisfy a customer on the spot (via proper training, the ability to issue refunds or replacements, the authority to throw in extra perks or round down bill totals), and in simple terms, treating customers with dignity.

Providing bad customer service can mean all sorts of headaches for businesses. (Image via
McKinsey estimates 70 percent of buying experiences are based on how the customer feels they are being treated. Treating customers with dignity starts with what a customer sees, going through the way she is engaged, all the way to the end result that customer receives.

Elements to keep in mind here are the quality, organization, professionalism, friendliness, and even the cleanliness of the company’s facilities and its customer-facing staff. Of equal importance are transparency, reliability, and availability in dealing with issues and complaints, a need that translates into the necessity to maintain multiple customer contact points and providing numerous and easily accessible channels for the customer to reach the service department (hotline, email, mobile app, website contact links).

Lastly, given that less than 4 percent of dissatisfied customers actually do complain if they are unhappy, and 91 percent of those who don’t complain, silently leave and never come back, it is essential for the firm to not only open up channels to receive feedback, but to also actively probe its customers, listen to their thoughts, and take corrective action when needed.

Once customer service is set as a strategic need for a company, managers can track performance via a number of indicators such as customer retention rates through repeat sales, existing customer referrals which generate new sales leads, propensity of customers to switch to competitors (due to deals and rebates), willingness of customers to pay more for the same product or service, as well as conduct of customers when problems arise (complain to provider, commence litigation, or switch to competition, for example).

Yet one faster approach is to measure the Net Promoter Score (NPS). The NPS is calculated by sampling customers with a “yes-no” question about whether they would refer the product or service to a friend. If each “yes” answer is mapped to a value of 1 and “no” answers are mapped to a value of 0, the sum of such values divided by the total number of people sampled will yield the NPS (a wider gradation in answer choices is also possible, although questions with binary options can lead to higher customer response rates).

In conclusion, proper customer service ought to be treated as a pillar of business strategy and day to day operational management. No matter how compelling a company's offering is, it remains of no value without customers who are willing to spend money in return for that offering.

If not treated properly, those customers will defect or not come at all. Customer service is therefore a vital component to ensure customers knock on the door, keep coming back, and refer other people in their network. When done properly, customer service becomes a sustainable competitive advantage that increases revenues, decreases costs, and acts as a differentiator versus competitors. And the beauty of it is that more often than not, customer service more than pays for itself.

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