Article 3.5

EARN HIGH RETURNS WITH HEROIC RECOVERIES

            General Motors' Saturn division recently recalled 1800+ cars to replace them with brand new ones; they also put the owners in more expensive, free, loaner cars while they waited. It seems that bad antifreeze could have ruined the recalled cars' engines. This incident is quite a “heroic recovery” which we could define by these guidelines:

            1.         If a firm does not give the customer expected quality goods and/or services, which is usually perfection these days, then the firm should correct the shortfall immediately.

            2.         Because the customer expected perfection and will suffer some costs due to nonconformance, a significant and pleasing amount of these costs should be paid for by the supplier in cash or kind.

            3.         The recovery should be done quickly and pleasantly without the customer being delayed or passed around.

            Such treatment is great for the customer, but can firms afford it? What must GM be thinking? How did the business slogan “buyer beware” become “unconditionally guaranteed forever or money back and then some”? Some statistics and strategic assumptions help to understand the favorable economics behind heroic recoveries.

HEROIC RECOVERY STATISTICS

            A government agency with the acronym TARP discovered these statistics for customers buying retail services:

            1.         If a firm were to heroically cure a mistake, 95% of the customers would not only return, but they would also tell five friends that the firm had good service - positive word-of-mouth advertising!

            2.         If the firm did not cure to the customer's satisfaction, then the number of customers who would return plunges depending upon the type of goods and services being bought and the number of convenient alternatives. These dissatisfied customers would also tell an average of twelve friends not to buy from the firm - negative word-of-mouth advertising.

            3.         About 15% of the American adult population would tell 24 “friends” about the unsatisfactory service.

            The cost benefit decision is, therefore: the cost of the heroic recovery versus the benefit of maintaining a happy customer's lifetime stream of business and getting positive word-of-mouth advertising; or, lose the lifetime value of the customer and get negative testimonials.

A STRATEGIC PERSPECTIVE

            Some strategic assumptions that compliment the statistics above are:

1.                   In a post-consumer, US economy, there are less new, prospective customers to win, so perhaps we should shift some resources from prospecting to retaining existing, repeat customers.

            2.         Depending upon the industry, surveys suggest that the reason that 7 to 9 out of 10 customers switch suppliers is because the first one drove the customer to the next one. Heroic recoveries are our last chance to retain the customer by turning a negative experience into a positive one.

            3.         If we want to pry away a happy customer from an entrenched competitor, it will often be so costly that it isn't worth it. Any decent competitor is apt to get last look at any of our offerings, and if they decide it is not profitable to meet our proposal, then we will probably lose on the deal too.

            4.         If we were an excellent supplier who rarely gave a customer a reason to leave, and if we executed great recoveries, then we could retain profitable customers (let the losers go) at a greater rate than the competition. We could then grow faster and more profitably than the industry.

HOW TO DO A HEROIC RECOVERY

            When coaching employees on the importance of spending money to make money with heroic recoveries, we might give them some steps and guidelines for doing a great cure. The steps would include:

            1.         Whoever picks up a customer complaint owns it and cures it immediately or hands it to next and last person to solve the problem without delay. Upset customers especially hate to be passed around, delayed, and confront redtape and “that's not my job” attitudes.

            2.         Listen patiently and carefully. The customer may need to vent and complain out of proportion with the problem, because this was the straw that broke their back or our failure happened at a particularly inopportune time.

            3.         Clarify and confirm what the immediate problem is that must be cured.

            4.         Agree with the customer if at all possible that: it is a problem; they are right; we are wrong and are so sorry. Avoid excuses for our failure; nit-picking the customer's facts; or arguing that we are not completely at fault. Customers don't want to hear any of this stuff; we don't want to win a point and lose both the customer and their positive testimonials.

                        People are philosophical creatures who will even fight to the death over what they believe to be true and fair. Hearing - “You are right, we are wrong and sorry” - can be 95% of the cure by itself. With this upfront attitude, a majority of hostile customers will immediately turn positive, helpful, and sharing in the “misunderstanding”.

5.                   State how we can solve the problem immediately. If we aren't sure, ask the customer,

                        “How can we solve this right now to your complete satisfaction?”

            6.         Do something extra, if not pay them, for their inconvenience costs. More firms are offering unconditional guarantees with quick, easy to invoke payoffs for failures that the firm can control. It makes it easier to sell “we have quality,” and it is an incentive for customers to complain to make a cure possible instead of their quietly leaving for another supplier.

            7.         Confirm that the customer is pleased with the solution by asking them if they are.

            8.         Do some preventative, next-time thinking. With other people's help try to determine: what was the root cause of the failure; what can we systematically, educationally, or aptitudinally change so that this type of failure will not happen again.

OTHER CONSIDERATIONS

            If front-line troops are going to administer heroic recoveries, then perhaps they might want to read this article and suggest policy and system changes that will be necessary to give them the necessary flexibility to meet the goal. Ask them also how well executed heroic recoveries should be praised and then fed back to the failure points for preventative redesigning with minimum defensiveness.

            We might worry about how to handle the abusive customers who seem to: always complain; have unrealistic or special expectations out of line with their small, unprofitable volume; and may in some instances cause the problems or act unethically. If so, know that statistically they are about 1-5% of all customers, so improving cures will still benefit 95%+ of all customers. To deal with the difficult group, ask the team for a short list of the obvious ones and discuss as a group how to turn those relationships into win/win ones or invite the customer(s) to leave and paralyze the competitors. Later on consider tracking and ranking by database entries.

            We should finally think about applying heroic recoveries to other departments at work and to important people in our personal lives. This type of philosophy and skill-set will promote trust and cooperation instead of causing friction and productivity interruption.

CONCLUSION

            Customer retention has become strategically important, and heroic recoveries are a key tool for doing that. It would be better to have perfect quality goods and services and never need cures; but, no matter where a firm is along the quality path, heroic recoveries can immediately pay off for all.

 

 

ÓMerrifield Consulting Group, Inc., Article 3.5