Measuring the Value of Customer Service

We intuitively know that we like to visit shops that treat us well, however you can probably also think of instances where you’ve received outstanding service from a shop, restaurant or hotel, and you’re still not going to go back there, perhaps because of its location or some other factor.

It is so incredibly important in any business to measure cause and effect, not just results. Managers will naturally celebrate results because results pay bills and results make managers look good. However, results are so far away, and so outside of your control that focusing on results is really just superstition. What you have to focus on is the short term, immediate, simple activities that sit in the chain of events which cause the outcomes which you then measure as results.

In customer service, it's so important that this connection between service and profit is more than just an intuition.

Research from the Association for Consumer Research on “Market Orientation and Customer Service” found a very strong connection between five links in the chain of events that connect service to profit:

• Customer service
• Customer satisfaction
• Customer retention
• Sales growth
• Profitability

However, other studies have found no significant connection between service and profit. They can't both be right, can they?

The answer to this might be found in another research study from the University of Maryland, entitled, “Linkages between customer service, customer satisfaction and performance in the airline industry”

This research found that the connection between service and profit is ‘non-linear’, in other words, it’s not a direct connection, where more customer service = more profit.

Better service leads to increased profits up to a certain point, and then it doesn’t matter how much better your service is, your profits decline because the customer doesn’t care and that extra service costs money.

Can you think of instances where a supplier did something that they thought was good for customer service, but which made absolutely no difference to you? Perhaps you were offered a discount when you didn’t ask for one? Or you were given free drinks in a restaurant because of a delay in serving you, when you were actually glad of not being rushed? Of course, you’re happy to take the discounts and free drinks, but they didn’t make you a more loyal customer.

Research in 2013 from the Miller Heiman Research Institute found that companies that measured customer-focused behaviours had an average increase in profitability of 13% compared with other companies.

This performance gap increased to 25% when combined with measurements of best practices in selling and sales management.

Examples of the customer-focused behaviours measured include:

• We consistently use a formal process for measuring customer satisfaction and loyalty
• Our salespeople have a solid understanding of our customers' business needs
• We clearly understand our customers' issues before we propose a solution
• We have relationships at the highest levels with all our most important accounts
• In an average week, our sales force definitely spends sufficient time with customers

It’s very important to note that this is relative to the customer’s expectations of service. The ‘optimum service level’ depends on the company’s brand image which in turn creates those customer expectations. Clearly, Harrods’ customers expect something different than Lidl’s customers, but the same trade-off applies to both; once that optimum level is achieved, doing more for your customers adds no value at all, and may even be counter-productive on top of being a waste of time and money.

This connection between expectation and delivery could perhaps be summed up with:

Your customers are happiest when you do what you say you’re going to do

Measure activity, not results

Why is there a connection between measuring activity and improving results?

Perhaps because, when you measure people doing the right things, they tend to do more of those things, because once they know they’re being measured, they want to excel.

Measuring activity also allows you to give feedback before it’s too late!

What do you think happens when you measure activity and also give recognition for the right behaviours and results?

We know from the service chain that improving service increases profits, but we also know that this is only true as long as costs aren't outrunning revenue, and we also know that measuring inputs tends to increase outputs, when we're measuring the activities of human beings. I doubt it would make much difference with robots but with humans who tend to do more of what you recognise, measurement is a really simple form of recognition. You notice when somebody does the right things, and if you acknowledge that action with some supportive and appreciative words, even better.

I know that it's so tempting to measure results, but it's really not very helpful. Better to measure activity and celebrate results only when you can show a direct causal connection back to those activities, otherwise all you're rewarding is blind luck, and you can't mass produce that.

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Peter Freeth is a talent, leadership and culture expert.

genius.coach

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