you think of unconditional service guarantees, which national firms come to
mind? Federal Express says, “tomorrow by or its free.” Domino's Pizza use
to guarantee a hot one in 30 minutes or $3 off; it used to be free, but too
many customers complained that the punishment did not equal the crime - they
all gladly accepted the $3. Sears guarantees Craftsman Tools for life; L.L.Bean
has the same guarantee for their products. Do these guarantees work; do they
pay; have the firms mentioned done well?
used, guarantees do pay for many reasons.
no one else is offering the guarantee, then
you have an edge. For distributors, it is tough to differentiate yourself
by the tangible products that you sell, because all of the competitors stock
the same or similar lines, and the customer sees most products as flawless
quality, interchangeable commodities.
with distinctive service in the customers' minds average a 5-10% price premium over the mediocre competitions' value
added margin. For distribution firms, their margin percent is their
value-added, the cost of the goods sold is the suppliers' value-added. If, for
easy math, a competitor is quoting a 20% margin, then a service excellence firm
could still charge 21-22% and get the business. At 23%, a customer might
protest that the firm is good, but not that good. Marriott Hotels has ranked as
the number one domestic chain with the frequent business traveler and the
meeting planners for the 80's; they currently are charging 5-10% more than
their competitors in a glut-supply hotel market. FedEx is charging 20-30% more
than their competitors for overnight letter delivery, but no one else
guarantees it. Because higher prices flow right to the bottom-line, a
distributor could doubleprofits with a distinctive service sold
with a guarantee.
service not only sells higher, but it
costs less. Zero errors is the low-cost, high pride and morale, and low
employee turnover way to do things. And perfect service gives customers fewer
excuses to switch to competitors. If you retain your existing business at a
higher rate than the competition, then
you grow faster.
guarantees motivate more customers to
complain about unacceptable service, which gives the firm a chance to turn
a negative into a positive with a heroic recovery. The cost of the recovery
must be compared with the value of keeping a profitable flow of business from
an account over the next 5-10 years and having the customer be so impressed
with your concern that they speak positively of you to associates or other
potential customers. If, however, the customer quietly leaves or the firm blows
the recovery, then a future profit-flow is lost and the disgruntled customer is
apt to tell 2 to 4 times the number of people how poor the firm is. The cost of heroic recoveries have a
terrific return on investment, and you will get more chances with a service
customer complaints are more
opportunities to rethink, refine and re-educate the delivery system. A
majority of firms delude themselves into thinking that they have “good service”
because no one has kicked them for being bad today. Meanwhile customers may be
quietly deciding to leave without complaining, and the firm is too busy measuring
how many new accounts they are opening and not how many existing, profitable
accounts they are losing.
6.A service guarantee focuses and
motivates the employees to move towards service standards that are important. In the absence
of a challenging, meaningful goal, the job is just that. If today's service is
not good enough to guarantee, then use the idea of a service guarantee to spark
the firm towards high consistency.
you decide to offer a guarantee, here are a few design guidelines:
the guarantee “unconditional.” “Ifs and buts” water down the impact and the
challenge to both the customer and the employees.
standards that are both easy to understand and to communicate to both the
employees and the customers; complexity like conditions waters down the effect.
pay-off has to be: meaningful enough to motivate the customer to request it;
large enough to cover their cost of failure which we caused them; and/or the
punishment must seem fair in the customer's mind.
guarantee must be easy to invoke. Imagine having to fill out a form and mail it
to get a $5 coupon six weeks later which you must hand deliver for a credit
against a future purchase.
pay-off must be easy and quick to collect.
must guarantee elements that you can control. Domino's doesn't guarantee an
“excellent “ pizza, because that is a subjective issue and starting with
precut, frozen dough you have limits. 93% of their customers rate the pizza as
satisfactory; they are buying speed, convenience, and consistent reliability.
guarantees are so potentially powerful,
why aren't more firms at least planning for the day that they will offer them? Many
managers are still preoccupied with old notions of what makes a firm successful
- cut costs, buy low, sell more. Many have not considered the alternative
economics of perfect service, heroic recoveries, customer retention, and
service guarantees in spite of the roaring success of these types of programs
in the past 10-15 years.
assume that they can't guarantee everything, so why not just focus on zero
errors and on-time delivery for starters. Some are concerned that if they had
great service and offered a guarantee,
customers would cheat and cost the firm too much. Case studies show that
1-5% of most customer groups are potentially abusive, so keep track of payoffs
on a database. Rank customers every six months from high to low by the number
of credits/payoffs that have been issued. Investigate the top ones to find the
rascals and invite them to shape up or to go paralyze your competitor. Don't
let fears of abuse keep you from succeeding with the other 95-99% of the
customers with a service insurance program.
service guarantee program can help to achieve several vital objectives. It can
be the catalytic vision to get employees motivated to move towards perfect
service standards instead of just getting by. It can be a competitive advantage
and the catalyst for a “customer retention program” - don't upset them to begin
with, but if so, motivate and execute heroic recoveries, and then use mistakes
to improve the service system. And, see
the payoffs as well spent advertising dollars, because you are not only
saving and ensuring the loyalty of the customer, but also activating them to
talk about and sell you for a long time.