Chapter 2

Keeping Your Customers Loyal

IN THIS CHAPTER

Bullet Knowing how to satisfy customers so that they keep coming back

Bullet Communicating with unhappy and difficult customers

A huge factor in your business’s long-term success is not only attracting but also satisfying and retaining customers. As a small-business owner, you may be on the front lines of dealing with your business’s customers. However, if you have employees, they’ll likely be dealing with customers, too. Therefore, the importance of providing excellent customer service must be clear to everyone in your organization who has any impact (direct or indirect) on customer satisfaction. This includes the receptionist, the accounts receivable clerk, the delivery truck driver, and many others.

This chapter offers some helpful advice for providing excellent customer service. Here, you discover many strategies for keeping your current customers, whether they’re satisfied or dissatisfied.

Although the level of customer service in many American businesses falls short, only a foolish business owner would assume that unhappy customers will continue to tolerate poor service or buy products that don’t perform. Consumers generally have many choices, so if you and your employees don’t satisfy your customers’ needs, you’ll likely face these unpleasant results:

Competitive threats: Now more than ever, customers have many options for buying what your company has to offer. For the vast majority of businesses, competition is intense at the global, national, state, regional, and local levels. It’s only a matter of time before your unhappy customers become your competitors’ newest customers.
Negative word-of-mouth: Even worse than losing dissatisfied customers to the competition is negative word-of-mouth, whereby unhappy customers post negative reviews online and talk, telling other consumers why they wouldn’t buy your products and services. Furthermore, your competitors are more than happy to recount the negative stories they’ve heard from your disgruntled customers. All this talk will certainly tarnish your business’s reputation.
Potential lawsuits: As if losing customers and tarnishing your business’s reputation aren’t enough, disgruntled customers can initiate (gasp!) lawsuits. Even if those litigious customers don’t prevail in court, they can cause you to face large legal bills, and your business can suffer further damage to both its profitability and its reputation.

Retaining Your Customer Base

As the owner of a small business, you should strive to keep your customers happy. How? Well, you have an enormous impact on your customers’ satisfaction through your company’s products and services and the way in which you present them. This section provides you with the keys to keeping your customers satisfied. Of course, not all customers will stay satisfied and loyal to your business, so you also discover how you can learn from customer defections to minimize their happening in the future.

Getting it right the first time

As a small-business owner, if you don’t get your product or service right the first time, you may not have a second chance with customers. Customers aren’t stupid, and if you sell them inferior merchandise or services — especially when better merchandise or services are available from other sources — they won’t come back the next time they’re in the market for the products and services you offer.

What’s more, some of your customers who suffered bad experiences with your company will tell others of their lousy experiences. Large companies usually have enough cash reserves built up to weather a storm, but the typical small-business owner doesn’t.

Continuing to offer more value

Getting your product or service right the first time isn’t enough to keep customers coming back in the long run. Like life, the business world keeps changing. Because of the ever-present threat of competition, resting on your laurels is foolish — and perhaps fatal. In addition to initially developing a top-notch, quality product or service, you must regularly examine how you can offer even more value — improved products or services at the same or lower cost. If you don’t, competitors who faithfully keep up with market forces will gradually eat your lunch.

Suppose that you’re a dry cleaner. A new dry-cleaning technology that allows dry-cleaning establishments to get their work done 20 percent faster and 30 percent cheaper has been introduced in the marketplace. If you fail to take advantage of this improvement in your industry, you may discover the hard way, when your customers leave you for your competitors, that they want the value this new technique offers. As your competitors cut prices and reap greater numbers of customers and profits, you lose business and experience shrinking profit margins.

Knowing that company policy is meant to be bent

Flexibility is paramount in any organization, but it’s especially important in a small business, where responsive and personally tailored service can set you apart from the larger companies. One place where you should be flexible is in your company policy. If a customer has a problem but you have a rule or regulation preventing you from resolving that problem, forget the rule or regulation. Bend it. Skirt it. Find a loophole in it.

For example, put yourself in the following situations:

You’re an electrical contractor who needs material to complete a job. Your electrical wholesaler tells you that he has a problem with the order-entry system and can’t process your order right now, so you’ll have to come back tomorrow to place your order.
You’re a regular customer at a dry cleaner. It’s Wednesday, and you need your tuxedo dry-cleaned by Friday night. The dry cleaner informs you that it won’t be ready until Saturday because of the firm’s three-day turnaround policy.

What are the common threads here?

The electrical wholesaler and the dry cleaner apparently have cast-in-stone rules and regulations that dictate the way they do business, and they won’t bend those rules to solve a customer’s problem.
The two businesses are in danger of alienating a customer.

How can these business owners become more flexible to satisfy the customer? The electrical wholesaler can give the contractor the material today and run the transaction through his order-entry system tomorrow. The dry cleaner can put the customer’s tuxedo in front of someone else’s order, no matter what the company’s operations manual dictates.

These are the moments of truth in any business — the times when what the business says it will do conflicts with what the business actually does. These times differentiate the business that says the customer is king from the business that acts as if the customer is king.

This policy doesn’t mean that you should always provide extra service casually or for free. In some situations, you may want to charge more for a special service. Consider the special favor and the one-time transaction when you set your pricing strategy. Also, you don’t want to tell your employees to feel free to break any rule at any time; that’s the road to chaos and lack of standards, quality control, and profitability. But flexibility helps keep customers feeling happy and coming back — and recommending you to others. Let your managers and other employees know that you stand behind this philosophy, and you’ll empower them to always provide good customers with top-notch service.

Taking away lessons from customer defections

The costs of acquiring a new customer are often significant. After spending the marketing effort and dollars needed to secure a new customer for your business (see Book 5 for the skinny on marketing), you will want to keep that customer coming back to your business for many years. If you experience much customer turnover, your cost of doing business will rise significantly as you try to attract replacement customers, so you need to take action quickly. After all, customer turnover can indicate major problems with your company’s products or services and customer service.

A popular action within a business is to celebrate successes rather than examine failures. However, as a small-business owner, you’ll stick around much longer if you scrutinize your failures and make positive changes to correct them. Take the time to examine customer defections and their underlying causes. The following sections dig deeper into this topic.

Examining the value of customer loyalty

Frederick Reichheld is a management consultant who specializes in understanding, and working with corporations on, customer loyalty. He’s the author of several books on customer loyalty, and his research has produced the following powerful insights and facts:

The average company today loses half of its customers in five years.
The typical Fortune 500 company has an average annual real growth (that is, growth in excess of the rate of inflation) of 2.5 percent. If such a company retained just 5 percent more of its customers each year, its real growth would jump to 7.5 percent.
A 5 percent increase in customer retention in a typical company generally translates into an increase in profits of more than 25 percent. In some industries, good, long-standing customers are worth so much that reducing customer defections by 5 percent can double profits.

Clearly, retaining customers — particularly your best customers — has an enormous bottom-line impact. Given how important and valuable retaining customers is, you may think that if a business were losing many of its customers, it would seek to understand why and to correct the underlying problems. Well, if that were the case, customer loss wouldn’t be as high as it is in many businesses.

Tracking customer defections

In his consulting work and research, Reichheld has also found that, not surprisingly, many businesses don’t learn from their customer losses. He says,

“Psychologically and culturally, it’s difficult and sometimes threatening to look at failure too closely. Ambitious managers want to link their careers to successes; failures are usually examined for purposes of assigning blame rather than detecting and eradicating the systemic causes of poor performance.”

The good news for you, the small-business owner, is that you don’t have to be concerned with bosses and organizational politics when addressing the problem of customer defections. After all, you’re the boss. However, it’s a natural human tendency to spend more time chasing and celebrating successes than investigating and learning from failures and losses.

Make a commitment to track the customers that you lose and ask why. (This is the customer equivalent to the exit interview that you should always perform with departing employees.) Knowing that you’ve lost customers isn’t enough; you must find out why you lost them. Doing so can help keep you in business and help keep your business growing (see Chapter 3 of Book 6 for more on growing your business).

Consider, for example, one particular automotive oil-change business. The business boasted that you can get your oil changed within ten minutes and be on your merry way. On one visit to the establishment, a customer pulled into the entrance and got out of his car. He was then ignored for the next ten minutes — and not because the business was too busy. The people who were checking in new customers moved at a snail’s pace, and one employee even spent several minutes on a personal phone call.

When it was the customer’s turn, the employee who checked him in was rude. He left during the oil change to do some shopping nearby rather than sit in the poorly ventilated, exhaust-infested garage. Upon his return, he had to wait another ten minutes because, although his car had finally been serviced, the paperwork wasn’t done. The same employee who checked him in took another 15 minutes to finish the paperwork and kept his unfriendly and surly attitude all the while.

Throughout this poor-service experience, the customer didn’t utter a word of complaint, but guess which shop he bypassed the next time his car needed an oil change? A gas station closer to the customer’s home started offering oil changes, which were about 20 percent less costly than the other place. The attendant who checked him in at the service station was friendly and polite, and his car and paperwork were ready when promised.

Make it part of your company’s culture that you don’t expect employees to be perfect and that making mistakes won’t necessarily lead to an employee’s immediate firing. However, make it clear that you won’t tolerate employees who provide sub-par service, display poor attitudes, and drive good customers away from your business.

Recognizing and practicing customer service

All businesses have products or services to sell. Sometimes businesses get too focused on those products and services, giving short shrift to the accompanying customer service that customers expect.

Maybe you can’t readily define the term customer service, but you probably know what it is when you get it or don’t get it. For example, you surely recognize customer service in a company you do business with when

Its receptionist (or at least its telephone system) connects you with your party quickly and efficiently.
Its bookkeeper politely answers a question you have about an invoice.
Its shipping clerk quickly traces your order and tells you exactly when to expect it.
Its salesperson gets back to you quickly with the quotes and delivery schedules you requested.

In each of these situations, the company is solving your problem or addressing your need in a manner that meets or exceeds your expectations, which is, after all, the definition of customer service. Customer service is solving your customers’ problems or meeting their needs.

When you ask an employee for help in a business that you frequent, have you ever felt that her behavior was essentially saying to you, “That’s not my department or responsibility”? In a business — large or small — that recognizes the value of customer service, the correct response to a customer question is, “Let me find the solution for you.” The solution may ultimately rest in the hands of another employee, another department, or even another business, but the employee has accepted responsibility for solving your problem.

Some larger companies have distinctly identified customer service departments — a person or group of people whose sole purpose is to solve customer problems. In such a company, all customer telephone calls are routed through to the customer service department. In smaller companies, however, many — perhaps even all — employees are involved in customer service. In the examples from the previous bulleted list, the telephone operator, the bookkeeper, the shipping clerk, and the salesperson are providing customer service. If you, the boss and Grand Poobah, get involved in solving a customer’s problem, you, too, are focused on customer service. The same is true for the janitor or the night watchman.

The challenge is for your employees to understand that they’re on the job to solve your customers’ problems. After all, they may believe (because this is the way their job descriptions read) that their role is simply to answer the telephone, keep the books, ship products, or sell services. Although these functions accurately describe the employees’ assigned activities, they don’t define the employees’ assumed responsibilities.

You and your employees are on the job — just as your entire company exists — for one reason and one reason only: to solve your customers’ problems.

Smart business owners know that customer service (and the accompanying problem solving) begins before a sale is made, continues during the sale, and continues long after the sale is complete. Keep in mind that customers aren’t just coming to your business for your products and services. The attentiveness you show toward your customers’ needs — before, during, and after the sale — that comes with what you sell is an integral part of the package. Treat your customers as you would a good friend.

The following sections break down the stages of customer service so that you can see what you and your employees need to do to keep your customers coming back.

Customer service before the sale

When a customer goes to buy a product or service, part of what can close the sale or blow the deal is the quality (or lack thereof) of the customer service before the moment the customer decides to buy. When a customer schedules an appointment, she’s buying not only the service provider’s expertise but also the “proper care and handling” before the service is provided. And when a potential customer enters your store for a product, she wants the store to be clean, well maintained, and conveniently arranged. That’s all part of the customer service experience.

Consider the last time you bought something, whether it was a car, a bag of groceries, a medical exam, or a haircut. With each of these purchases, you interacted with the business provider before you committed to buy the product or service.

If you’re like most people, you probably have some bad memories about slick salespeople who accosted you the moment you walked onto an auto dealer’s lot. Many car salespeople spend more time selling than they do listening and educating. The salesperson isn’t trying to solve your problem — figuring out which car to purchase. He’s trying to solve his problem — how to make a hefty commission to meet his next mortgage payment. Because of poor customer service at the point of sale in the car business, many people turn around and take their business elsewhere.

Customer service during the sale

After a customer commits to buying a product or service, the customer service must continue. Never halt your efforts to satisfy customers. When a customer forks over the dough for your wares and you don’t meet the customer’s service expectations, even if the sale is finalized, you may lose repeat business and the opportunity for referrals to other customers.

For example, after your doctor arrives in the examination room, you’ll pay close attention to how well she listens to you and how she treats you. If the doctor is abrupt, bad at listening, and arrogant in asserting her opinion — instead of showing a willingness to discuss options and consider your needs — you may choose to find another physician.

Likewise, after you decide to buy a car, you won’t be overjoyed if completing the transaction takes several hours. Even though you may be happy with the selection of the car, the hassle in getting on your way may make you less glowing in your recommendation to others.

Customer service after the sale

After a customer has purchased your company’s products or services, your relationship with that customer, at least as it relates to that transaction, isn’t over. The customer may have follow-up questions that you need to answer or problems down the road with your products or services.

If you or your employees treat your customers as if they’re bothering you and you aren’t attentive to after-sales service, you may discourage customers from making more purchases and referring others to your business. Poor after-sales service communicates to your customers that after you have their money, you don’t really care what happens to them.

In addition to being attentive to all your customers’ questions and concerns, be sure to solicit feedback (possibly through a formal survey) from your customers as to the quality of the customer service that your business offered them.

In some businesses, you must be careful not to give away valuable support that you can and should charge for. For example, if follow-up exams or appointments are expected, you should build the cost of those expected services into your upfront pricing or set a pricing schedule for the cost of the follow-up. Be sure that at the time customers buy from you, they know the cost of such follow-up work. Customers don’t like negative surprises, especially when they affect their pocketbooks.

Showing that you care — the old-fashioned way

In the age of technology, you may be tempted to discard some of the personal touches that today’s customers still appreciate. Although technology certainly answers many of your business’s needs, it can never replace the following personal touches in the eyes of customers:

Handwriting notes: A handwritten note is always the best way to say “thank you.”
Thanking customers personally: Having the owner of a company call and say “thank you” (as opposed to having an assistant or salesperson send out an email) makes a positive impression.
Handling mistakes honestly and quickly: Don’t waste one second trying to cover your tracks after mistakes are made. Come clean, fess up, and solve the problem. Provide personal customer service representatives — not voicemail boxes that allow you to avoid dealing with problems. Approached correctly, mistakes can provide an opportunity to improve your business, impress your customers, and reward their loyalty.

Dealing with Dissatisfied Customers

You can have the best products and services, offer competitive prices, and provide terrific customer service, and you’ll still end up with the occasional unhappy customer. How you handle complaints — both justified and unjustified — is vital to the long-term reputation and health of your business. The following sections contain our time-tested advice for dealing with your unhappy and sometimes troublesome customers.

Here’s a tip to help you maintain your sanity: Keep in mind that you have your own way of doing things, that yours isn’t a perfect product or service, and that you can’t meet all your customers’ needs and expectations all the time.

Listen, listen, listen

Most people like to believe that they’re terrific listeners. The reality is that most of them aren’t. And even if you are a good listener, you have moments when, for any number of reasons, you don’t listen well. You get busy and stressed out with the competing demands on your time from work, family, friends, daily chores, and obligations. You also have days when you’re tired, not feeling well, or have been on the receiving end of bad news or bad experiences.

Another impediment to good listening is that you may be convinced that an upset customer is simply being a troublemaker. As with all personal relationships, however, your preconceived notions about others can keep you from hearing legitimate and real concerns and reasons for being dissatisfied.

Before you (or one of your employees) lose your temper with a complaining customer, take a deep breath. Try to set aside all your personal issues, your opinions about the situation, and your preconceived notions about the customer and her right to be unhappy. Stop and listen. Try to find out what the customer is unhappy about and why. Different people, not surprisingly, get upset about different things. You have no way to know and understand what’s upsetting a particular customer until you take the time to ask and truly listen.

To ensure that you’ve really heard what your upset customer has said, paraphrase the concerns you’ve heard and tell the customer that you’re sorry that she’s unhappy. (Keep in mind that this isn’t an admission of wrongdoing or guilt on your part, especially if you’re worried about landing in court and being sued for product liability.) Then work on developing a solution with the customer (see the following section for how to do so).

The absolute worst thing that you (or your employees) can do to a customer with a complaint is to interrupt and argue when she’s trying to convey dissatisfaction with your products or services. And don’t be defensive. This is easier said than done, but you’ll do far more long-term damage to your business’s reputation by further upsetting an already-unhappy customer. Even if you’re 100 percent certain that the customer is the biggest yahoo you’ve ever dealt with and that you don’t want her as a future customer, treat her with respect and try to solve her problem. Otherwise, you may end up with negative online reviews and word-of-mouth advertising, and possibly a lawsuit.

Develop a solution

When a customer complains, keep in mind that he’s complaining because of dissatisfaction with the deal that he received. The next step, after listening to the customer’s complaints, is to develop a solution that addresses the complaints.

You have two ways to arrive at a solution:

Ask the customer what solution he would propose and then see how it compares with what you can do. The advantage of asking the customer for a solution is the same as with any other form of negotiation (which, after all, is what’s going on in this situation). If you let the dissatisfied customer make the opening offer, you know exactly where you stand and what you have to do to satisfy him.

Imagine the benefit you can derive when the customer’s solution is less costly than what you were about to offer. In such a circumstance, the opportunity suddenly exists for you to take an unpleasant situation and turn it into an opportunity to strengthen the complaining customer’s loyalty to your business.
Propose a solution yourself and then wait for the customer to counter with a solution that he thinks is better. If you go this route, you don’t propose a solution until the customer doesn’t have, or refuses to come up with, one.

For example, suppose that you run a professional service business and you’re responsible for missing a customer’s appointment — either because of a scheduling mistake or because you’re behind schedule and the customer simply couldn’t wait any longer. You quickly determine that the customer is really angry about having been stood up after he has taken valuable time out of his workday.

Your solution to ease the customer’s unhappiness can go something like this:

Apologize for the time he wasted.
Ask for his recommended solution.
If he doesn’t have a solution, offer a discount (perhaps 15 or 20 percent off the appointment price when he reschedules).
When the customer returns for the rescheduled appointment, be absolutely certain that he’s seen on time and provided with the best possible service.

The key to understanding your customers’ complaints (and your employees’ complaints, really) is your ability to put yourself in their shoes. After you’ve figured out how to view your business through the eyes of a customer, you’ll find that you can solve problems the vast majority of the time.

Now suppose that your company sells products, and a customer comes in to say that a product you sold her broke and isn’t worth the packaging it came in. In this case, you can offer a replacement product, fix the broken one, or offer the customer a refund. But if you’re certain that the customer misused the product and that her mistake subsequently led to the breakage, you have a dilemma on your hands. You have to decide whether this person adheres to your definition of what a “good” customer should be.

Even in those situations in which you determine that this person isn’t what you consider to be a good customer, try to make the parting of your ways as harmonious and conflict-free as possible. It’s okay if an unmanageable customer doesn’t do business with you anymore. Just do everything you can to ensure that he doesn’t go away angry and tell others that your business offers a lousy service or product.