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
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
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
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
A STRATEGIC PERSPECTIVE
Some strategic assumptions that
compliment the statistics above are:
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
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
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
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
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
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
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.
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.
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