"The more I find out, the less I know."

Thursday - March 18, 2004 at 03:37 AM in

Marketing and the Customer Experience

I discovered a nice blog today (if infrequently updated) about marketing and branding. Being in the business of evaluating companies' customer service, I've had this rant brewing for a while, and this seems like as good an opportunity as any to let it free.
Most Companies Don't Understand Brand
A company's "brand" can be loosely defined as the sum total of customers' opinions about that company. Different brands stand for different things: Apple Computer is typically associated with innovative products and good service. Yugo (the car) stands for cheap, in the bad sense. Southwest airlines and jetBlue both have reputations for good service and low prices, while most of the major airlines are known for surly flight attendants and long delays.

So far so good.

But the piece that most companies miss is that brand is not generated through marketing alone. The direct experiences of a company's customers have a much more powerful impact than any amount of advertising. One survey found that 92% of consumers form their opinions of a company through the treatment they get when they call the company on the phone. Research from my own company shows that customers who have an outstanding customer service experience are 88% more likely to buy from that company in the next year.

So why is it that, when faced with an image problem, the response of most companies is to throw money at advertising and PR, rather than improve the product and customer service?

Case In Point: Mobile Phones
If you're reading this blog, odds are you own a mobile phone. Odds are (at least in the U.S.) that you're less than thrilled with the service you receive. Odds are, if your phone is from Verizon, you're much happier with the service than if your phone is from AT&T Wireless.

In the mobile phone business, companies typically spend hundreds of dollars to acquire each new customer (the figure I saw once was $400, but I can't vouch for its accuracy). The overall growth of the mobile phone business in the U.S. is fairly minimal these days, so most of those new customers are jumping from one company to another. Churn is a huge problem, because a lot of people aren't happy with their service.

Yet, in the mobile phone industry, the typical customer service phone call costs only $10. That means, when you pick up the phone to call your mobile phone company, they spend, on average, $10 to solve your problem or answer your question.

So, they spent $400 to get you to sign up, but only $10 to (for example) correct the mistake on your bill. That $10 is the best opportunity the company has to get you to stay as a customer. Ever. Because odds are, that $10 phone call is one of the very few times during your contract when you'll have direct contact with your mobile phone company, and your opinion about that company will be cemented during the course of that $10 call. That $10 is more powerful than the $400 it cost to acquire you as a customer in the first place.

So why don't they make an effort to give you better service?

It isn't because better service is more expensive. In research my company has done, we found that, even though Verizon Wireless had the best customer service among the four largest mobile phone companies, it also had the highest call automation rates, which means the least expensive customer service operation. Verizon Wireless is getting a better brand image through customer service calls, not for free, but at a negative cost. They're simultaneously saving money and delivering better service.

That's so huge, let me repeat it, with boldface and italics:

Verizon Wireless is getting a better brand image through customer service calls, not for free, but at a negative cost.

What are they doing differently? I can't say for sure, because I'm not privy to how Verizon Wireless works internally, but I can guess that they are either (a) lucky, or (b) paying attention.

Getting Priorities Straight
In too many companies I've observed, advertising and marketing is viewed as a cost of growing and acquiring new customers; while customer service is viewed strictly as overhead. As a result, the is little or no cross-communication between the marketing side of the business and the customer service side of the business, and certainly no common budgetary authority. So, for example, nobody (short of the CEO) has the authority to say, "This million dollars would be more effectively spent improving customer service than on an ad campaign."

The result is that marketing and service often work at cross-purposes. The mandate of marketing is to polish the brand image, to induce customers to make a purchase. Then, the call center (often organizationally lumped in with the data network and phone systems) says, "Those pesky customers just keep calling and costing us money!"

Or, viewed in another light, who has the most impact on a company's brand image: the VP of Marketing, making $200,000 a year, or the front-line phone rep, making $8/hour (who will probably quit after six months)? If you answered the VP of Marketing, I suggest you try calling your own company's 800 number and see what happens.

Fundamentally, the problem isn't one of money. We saw that with the wireless phone companies.

The problem is one of priorities. Every customer phone call presents an opportunity to strengthen your brand image. Most large consumer-oriented companies get millions of these opportunities a year, and waste most of them. Or worse, they ship them off to a third party outsourcer, who has no stake in the company's brand image, and only has incentives to provide the lowest-cost service.

Pardon the bad analogy, but hiring a third party to handle your customer's phone calls is like asking a friend to go on a date for you. It might be cheaper or easier in the short run, but it completely misses the point of the relationship.

"Zero-Defect" Service Economy
It has become an article of faith that we in the U.S. now live in a "service economy," meaning that most of us are employed in providing services, rather than making things (a manufacturing economy) or growing food (an agricultural economy). But this service economy is still relatively new, and most companies are still struggling with the processes and technology to do it right.

By analogy, the service economy is probably about where the manufacturing economy was in the first half of the 20th century. Back then, manufacturers didn't always understand the importance of manufacturing quality and product design in brand image and marketing. The nadir of this was the U.S. auto industry in the 1970's, which gave us ugly cars which didn't last long, and often came full of manufacturing defects. In so doing, Detroit did everything short of setting out the Welcome mat for the Japanese to come and take over the U.S. market for new cars.

Today, nearly every design decision in any manufactured product is considered both a marketing decision and a manufacturing decision. Product design is understood to be both a part of the brand image, and essential to reducing the number of defects. At some point between 1950 and 1990, the manufacturing economy underwent a revolution, where design and manufacturing went from simply the cost of making a product, to an important factor influencing a company's brand image. "Zero defects" and "six sigma" became key in manufacturing, as companies came to understand that quality production was both cheaper in the long run, and improved the brand image.

At some point, the service economy will undergo a similar transition. I don't know when this will happen, but I personally will do everything I can to bring it about. The tipping point will come when companies begin to realize that they are losing competitively because of poor service, and that a single badly handled customer costs far more money than can be earned from many happy customers (just as a single defective widget from a manufacturing line costs far more in warranty repair and lost business than the profit from many working widgets).

When this happens, the emphasis will shift from customer service as a cost, to customer service as a marketing opportunity.

I, for one, can't wait.

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