Customer Service: An Option Only for the Wealthy?



Brian Cantor
10/15/2012

Finding an article or quote raving about the value of customer service is as easy as giving away a $100 bill. A mere perusal of the #custserv hashtag on Twitter will yield an endless supply of idealistic customer service discussion.

Finding articles that directly dispute the value of customer service as a business necessity—and, in fact, damn it as a detriment to profitability—is a significantly taller order.

Except for this past week, that is, when two such commentaries emerged approaching customer service as a profit-swallowing luxury reserved for only the richest, least budget-conscious companies.

Though certainly debatable, the commentaries, if nothing else, reveal that there is indeed question about the importance of quality service in the customer experience. While many take its significance for granted—and, in fact, claim that a customer will pay considerably more than market price for a product backed by elite service—others wonder whether customerstruly care.

They might enjoy great customer service—how could they not—but they will not necessarily view service as a relevant criteria on the purchasing rubric. If they are happy with the pricing and availability of a product, they might simply have to write poor customer service off as a reality of doing business in a world run by greedy humans.

Customer Service’s Impact on Profit – Up in the Air

Like the cable and, most recently, banking sectors, the airline industry is notoriously panned for its customer service. Just about every element of the service experience—from scheduling, to fee structures, to information sharing—is seen as a weakness, and those organizations who manage to perform a hair above abysmally are generally lauded as revolutionary.

And yet, in a new financial analysis of the airline industry, Seeking Alpha argues that investment in quality customer service runs directly counter to profitability.

The article reveals that airlines like Spirit and Allegiant, organizations deemed "prime customer service offenders," draw significantly greater profit margins than more customer-friendly competitors like JetBlue and Southwest Airlines.

It does not take an astute debater to locate the counterarguments. Profit margins say nothing about customer loyalty, and so the short-term bottom line impact of skimping on customer service could ultimately serve to damage brands’ long-term reputations with customers.

And remember that profit margin is not the same as net profit—even though their margins might be lower, both JetBlue and Southwest Airlines earned more total profit (albeit slightly in the case of JetBlue) in the trailing twelve months than Spirit and Allegiant. Even though they face additional costs, the customer-centric airlines, particularly Southwest, are still able to declare considerable profits.

Though his commentary provided the source material for Seeking Alpha’s piece, Ian Altman proudly acknowledges the counterarguments. "Building loyal customers lends to customers who are, in fact, willing to pay a bit more for a similar product based on goodwill and perceived value," writes Altman, who believes that taking on a profit-conscious, "shareholder" mentality is a sign that the business lost its perspective of the customer.

What the counterarguments and gushy sentiment do not address, however, is the disparity between customer service idealism and reality. Regardless of the long-term impact of poor customer service, the data is quite clear: it costs considerably more to deliver a quality customer experience.

That additional cost exceeds what can be addressed through pricing increases, revealing that when push comes to shove, customers do not have an endless supply of funds to devote to a great "experience." They are not, no matter how many customer service Tweeters say otherwise, looking to pay "double" for customer-centricity.

And insofar as that is the case, businesses face an irrefutable disincentive to invest aggressively into their customer experiences. They need to deliver a baseline experience in order to keep the customers and cash coming in, but there appears to be a clear point of diminishing returns. Since the correlation between a company’s customer experience investment and its customers’ willingness to pay more is not perfect, the motivation to make that investment is not as clear as some customer service idealists would have brands believe.

Apple: Too Wealthy to be Relevant?

In theory, Apple should represent the perfect counterpoint to the airline industry. It did, after all, parlay a customer-centric philosophy into charging premium prices for products, which in turn helped it become the most valuable brand of all-time. Could there be a better case study in favor of customer experience investment?

At least one observer thinks so.

In response to an article entitled "Customer Support: Kudos to Apple," a ZDNet commenter writes, "Apple can do this because they can AFFORD to. Good customer service isn’t cheap and Apple has unlimited money so it’s very appropriate that they have superior customer service. Duh."

An interesting comment for many reasons, its most noteworthy assertion concerns the progression between commerciality and customer-centricity.

Whereas conventional wisdom—and most customer experience consultants—argues that a quality customer experience is needed to maximize revenue, this commenter makes the reverse contention. He argues that a discussion about meaningful customer experience investment can only come into play when the brand has the surplus to pay for it.

In essence, the first step is cater to the bottom line rather than customers. Only when successful in that regard can brands begin dedicating themselves to elite customer support.

Of course Apple can provide a great customer experience; it has billions in profit to help pay for it. Brands who are less established and less successful, however, do not have that luxury. Caring about the customer is not an option for their businesses, and if they want to do so at some point, they better focus on maximizing profit in the near-term.

Much in the way some argue that public policy helps the "rich get richer" and increase its distance from the impoverished, this chain of thinking would suggest that only the "rich" can deliver a quality customer experience. Customer service is a costly luxury, and businesses without enough cash reserves to support it are at a disadvantage. Apple will wow customers and generate enough money to continue wowing them while competitors will be forced to compete on product alone.

A costly misconception

Unlike the airline study, which suggests that investment into customer service does not necessarily create an equivalent increase in demand, the Apple commentary does not downplay the importance of customer service. Apple’s use of wealth to create an elite customer experience is treated as an unfair advantage rather than as an unwise decision.

Both, however, expose a tendency to view quality customer service as an expendable luxury of the customer experience. Airlines are cautioned that investing into customer service will destroy their profit margins. Non-Apple tech companies are warned that it takes an ample supply of cash to pull off customer service heroics.

And if that view prevails in any organization or industry, the customer will become a serious victim of misconception. Those who view quality customer service as a luxury cannot possibly view poor customer service as a deal breaker, and they will therefore underappreciate the trade-off associated with the customer experience.

The difference between missing out on customers who can afford to pay for luxuries and turning away customers who expect quality customer service to accompany any purchase is a great one.

How great?

That ultimately depends on the customer’s willingness to command a greater customer experience. Though customer service dialogue still centers on success stories like Apple and Amazon, it is not as if contrarian viewpoints related to airline or banking companies are impossible to locate.

And if customers continue perceiving quality service as a premium offering—and choose not to pay for it in the short-term—it only continues the vicious circle. Organizations will be unable to justify the price increases needed to cover the additional costs, and they will either need to relax their customer experience investments or deal with lighter profit margins.

In the long run, that latter decision will probably pay-off—by parlaying customer service as a differentiator, these brands can corner the market and develop fruitful, lasting relationships with customers—but in a world consumed with dollars-and-cents, it is not always the easiest thing to push through in the short-term.

As customers ask themselves whether they truly care about the value provided by an elite customer experience, business must simultaneously ponder whether short-term margins are more important than massive long-term growth.

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