Has ‘customer service’ has just become a bogeyman for retailers to lump all their issues together instead of dealing with poor systems, product quality and organisational culture and so forth? That is; for lack of imagination in identifying the real issues, they just blame on customer service because it makes intuitive sense.

In fact, there is plenty of evidence that customer service DOES work:

IBM (1994-1999) saw a 5.5 percent increase in customer satisfaction coincide with savings of $7Bn and a stock price that increased x1000! No doubt that better customer service would not be the only causal factor in this equation, but it is also not the only piece of research.

Another study (Harvard, 1994) found that employees who felt that they were meeting customer needs had 2x the job satisfaction level of employees who did not believe they were meeting customer needs. The relationship between cost savings and job satisfaction has proven time and time again.

The same study found that more than two-thirds of customers defect and stop using your service because they find service people indifferent or unhelpful.

But as they say in the classics: ‘lies, damned lies and statistics.’ Research can be made to prove anything if you know how to play with the numbers.

Can anyone explain WHY good customer service leads to customer satisfaction, and not merely postulate that it does because it seems to be a sensible assumption?

The answer might be as simple as ‘conditioning’ and dates back to 1890 – almost 120 years ago! Pavlov introduced us to the concept of conditioning and ‘association’ by proving that the dogs produced a physical response to an external stimulus (the bell) simply because that stimulus became associated with food.

If you think Pavlov’s bell has very little to do with modern marketing principles, consider this: Why would Holden (or any car manufacturer) always put a beautiful girl in or next to their car in their advertisements or at the car shows?

The answer is of course that they are drawing on the power of association, wanting prospective buyers to associate one kind of beauty with another – so to speak.

In exactly the same way, customers will come to associate visiting your store with a pleasant experience if they are ‘conditioned’ by specific stimuli (good customer service). Retailers who succeed at creating and delivering the right stimuli will find that customer satisfaction becomes a conditioned response and all it will take is a trigger like a simple smile of acknowledgement from a sales assistant.

Good customer service delivers the results, and there is plenty of scientific evidence that it is positively correlated with financial performance and there is sound underlying scientific principles to prove how it works.

Zara (Spanish retailer) turns its stock over every three to four weeks, and new clothes arrive twice a week. Researchers suggest that this quick turn strategy is designed boost profits by an average of 67 percent. The premise of this strategy is that by creating artificial scarcity, consumers are more likely to buy NOW, rather than wait two weeks because the merchandise just won’t be there.

Palmer (writing for http://www.usnews.com) has also cited a few studies that highlight the effectiveness of using sweet scents to lure customers into a store.

Sony Style stores use a sweetish scent (citrus base with vanilla overtones) and Westin hotels use an earthy, musky scent called White Tea. (Spangenberg, found that certain scents—Rose Maroc in men’s clothing stores and vanilla in women’s—increased shopping time, number of items purchased, and amount spent).

Music also has an effect on sales. Maureen Morrin, associate professor of marketing at Rutgers University, found that people who make unplanned purchases tend to buy more in the presence of pleasant background music. (Interestingly, scent and music together decreased spending).

All of this is old hat theory to most retailers. Not that many retailers who don’t actually deal in fragrance or music, ever use it proactively.

The interesting question is whether such tactics are ethical? Is it simply about creating a great shopping environment, or does it border on psychological manipulation? What would consumers do/ think if they knew? When does sell+tell become covert psychological manipulation?

POP QUIZ:

Exactly!

(I hope you said ‘as much as possible’).

Closer to the real world, think for a moment about a product like SALT. Do you know the price for a kilogram of table salt?

Few people do.

This means salt is NOT a Known Value Item (KVI). There is an important aspect of KVIs that marketers can use strategically to their advantage – and it is something we learned in Economics 101, but then promptly forgot about.

It is called price elasticity and it is an important concept if you are serious about making money. Let me explain:

How much would you pay when you pop into the supermarket to buy salt?

• Would you buy it if I told you that it was $2.50 for a 750g container of salt?
• Would you still buy it if it was $3.00 a container?
• What about $5.00?

It is actually around $1.70 in Aldi Supermarkets.

I am pretty confident you would be prepared to pay more, AND I am confident you wouldn’t have done a comparison shop for anything under $5.

This means that they COULD have charged 50 – 300 percent more, and not have lost any sales!

The moral of the story is that KVIs are price elastic, and non-KVIs are inelastic. If a product is ‘price inelastic’ you can and should put the prices up! And keep doing it until the results suggest otherwise.

To the non-marketing readers, here is a little practical tip that shows this principle in action – and you may avoid the ‘trap’ in future. (Never say that blogs don’t offer helpful advice!)

A supermarket may advertise a ‘special’ – say 2L milk at 99c. Everyone knows that is a good deal because milk is a KVI. They selected milk as the ‘loss leader’ and this does two things:

It creates the perception that this store is ‘price competitive’, and since no-one goes to a supermarket to buy only milk, you will end up buying other things. And importantly, you won’t be paying much attention to prices because you already ‘know’ they are ‘cheap’.

At the heart of this concept is an important profit generator: In order to be perceived as affordable, you only need to price your KVIs at the appropriate price points. Everything else (the salt) should be approached differently.

It may not be a ‘million dollar’ question, but it may well be a ‘hundred-thousand-dollar’ question:

What is the ‘salt’ in your business?

And once you know… go and put the prices UP!

The headlines will blame the ‘recession’, but these businesses did it all to themselves without the assistance of the global ‘crisis’ and they will deserve to fail.

They all had three (3) things in common. The three A’s of failure.

Sin #1: Acknowledgement
Despite all the lip-service about how important the customer is, every one of these businesses failed at the first hurdle. They failed to acknowledge the customer appropriately. Ah, well. Must be a Gen Y thing. Chin up and on with the shopping.

Sin #2: Approach
My beloved started shopping and sent out buying signals that would make the stock exchange floor sound like a graveyard. Not once was she approached.  (I kid you not.) They kept themselves busy with ‘other things’. This is enough to cure even the most determined shopper. But we had a party to go to and she gritted her teeth and kept going.

Sin #3: Attitude
If a girl’s gonna party, she’s gonna party, right? So off to the dressing rooms she went. As she emerged from the dressing room the sales assistants all responded in the same way. The actual words were slightly different, but in each case there was a presumption of a ‘non-sale’.  Their attitude was that the sale was not going to happen.

The classic response du jour was: ‘No good?’ (How much was said with those two words – she was a real poet.)

Hard to believe, isn’t it? After spending all the money on opening the store, marketing it, running it, and the staff members first words to a customer is ‘no good’!

At that point even the bravest shopper will wonder if they are indeed doing the right thing and we abandoned ship. No more time left, so we went to the party, and she wore an ‘old’ dress – that is, a dress that had been worn once before.

The moral of the story?
All of the work you do as a business owner: CRM or Social Media, Market Research, Quality Assurance – everything you do to find customers and build relationships with them – counts for nought if the people at the coalface cannot get the basics right. (At this point, feel free to nod your head in agreement.)

The person walking into your business is… wait for it … a person! Not a ‘customer’ not a consumer, not a slice of market share; just a person who should be acknowledged as a person.

But if you think this is a sorry saga about customer service, just hold your horses. The (pending) failure of these businesses cannot be attributed to poor customer service.

Despite what your favourite marketing consultant might tell you, poor customer service is not the cause of poor performance. All of these ‘sins’ I listed above are merely the symptoms.