Home > 5465801, customer engagement, customer experience, Customer service > How do we calculate the result of poor customer service?

How do we calculate the result of poor customer service?

Poor customer service is costing businesses £3.4bn each year concluded a recent study by Merlin Stone  for Oxford Brookes University. My first reaction was this is just stating the ‘bleedin’ obvious’ and why was money spent on it.

Of course, all I was seeing was the press release and so there is probably a lot more weight to this – especially if Merlin Stone is behind it. I have followed his thinking on service for over a decade and it could never be described as lightweight. And I am sure the sponsor wanted some facts particularly around the amount of money involved/lost to poor service to help them shift product. Interestingly there was another report at the back end of last that put the cost of poor service at £15bn to UK businesses  – anyway the fact remains that we all know instinctively that poor service costs businesses and the numbers are little more than guess work.

My more considered second thought was that the process of trying to simplify the ‘poor service equals lost business’ equation down to that single number means much of the detail is lost as to how one gets to that point.  Understanding that calculation is important in running a service business (is there any other kind?).  The difficult bit is knowing what aspects of poor service affect the customer’s buying habits and how big their direct and indirect effects are. There are plenty of supposedly “poor” service companies doing well (sorry to mention Ryanair again) and “good” service companies struggling eg British Airways.

As an aside here do we mean customer experience rather than customer service

There is a slight problem with supposedly instinctive understanding. How do we know God exists? Because the evidence is all around us. Faith works for believers but not for bean counters so the effect of good service needs to be calculated. Otherwise we could be spending millions on services the customer doesn’t care about or is going to leave us anyway or nothing at all because the manager can not justify it to the CFO.

Someone, somewhere, will have done a formula for the effects of service on sales and profit (what about share value or market share?). It will have a number of variables in it – the customer demographic, their spend, the market, your strategy/goals, the competitive landscape, the regulatory landscape, your brand and so on. Sadly it means the calculation is always going to be a very individual one for each business.

These sorts of research surveys are really only there to get people thinking about the impact of poor service and to get publicity for the participants, so don’t place too much faith in them.

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  1. Mike Morris
    January 19, 2010 at 1:55 pm

    Mark,

    I find this interesting, but, like you believe the headline numbers are just there to make an impact, not really to enlighten us. Often, one company’s loss through bad service is often another company’s gain.

    I believe, and I have carried out a large number of customer surveys, that what is important is to identify what the company or organisation needs to do to improve service to their customers in order to retain existing ones and to gain others.

    Elsewhere you pose the question “is customer experience more important than service” and this is the crux of the issue to find out the customers’ views of their service experience. Often this insight is too late, the recipient of bad service has moved on to another supplier – muttering “I shall never go to that restaurant again” (or similar).

    By the right people asking the right questions frequently, and then acting on the findings, the service provider has the opportunity to minimise the defections, improve the service offerings (if necessary) and to welcome back the prodigal customers.

    Measuring the impact of good service – increased profits, higher customer numbers, referrals, additional services provided per customer, etc. is probably, more important than the cost of poor service.

    In my opinion, more important is for the service supplier to understand the needs of customers and then to develop services to meet these needs.

    This latter does not mean that the highest level of service is always the best – it should consistently meet customer expectations. Although, personally, I like to exceed expectations, there are often significant costs in doing so.

    As you say, a significant segment of the market are happy with a lower service for a much lower cost – not just airline customers. Many IT suppliers have tiers of service levels, e.g. Platinum, Gold, Silver, Bronze, .. and customers can purchase the level they wish – but all of them wish to receive the service they have paid for, whether it is a 2-hour fix or a 3-day response.

    Space does not permit a response to all of your points, but please keep producing your thought provoking articles.

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