With discussions about how customers contribute to a business's success or failure still fresh in my mind (see my recent blog post), life presented me with the opportunity to observe first-hand the unintentional killing of a new customer relationship. Businesses can and do spend immense sums of money on acquiring and nurturing customers. In fact, it costs 6-7 times more to acquire a new customer than to retain a current one. For smaller businesses and entrepreneurs launching new ventures, acquiring new customers is critical and fostering good relationships an essential second step. If you get the initial customer experience wrong, it can cost you much more than a lost sale.
How a Business Lost a $5000 Customer over $20
I’m on a short vacation at the Oregon coast this week in the quaint coastal town of Manzanita. The town consists mostly of the main central street and the small businesses that line it. There are three grocery stores here – a "regular" grocery store, a small mom-and-pop shop and a local organic grocer. In short, I have options of where to do my shopping. At home I typically shop at a local equivalent of Whole Foods Market, so I am the ideal customer for the organic grocer here in Manzanita.
I went into the organic grocer this morning looking to buy natural sunscreen I’d forgotten to bring. While in the store, I picked up a couple of other items. When I got to the counter, the two clerks, who I’m guessing were the store owners from the way they talked, began to ring me up and noticed that a few of the items had apparently been priced incorrectly (the price sticker was on the packaging). In this case, the items had been marked $2.39 and apparently were supposed to have been marked $6.79 each. I remarked that I had noticed the great price and that’s why I was buying several of those items.
Next came the moment of opportunity for the grocer – the interaction that determined whether they would honor the lower price as marked, maintain integrity and create a lifelong customer or break trust and lose a valuable customer. I bet you can guess from the title of this article what happened: the grocer chose not to honor the lower price. Even worse, the grocer rang up my purchase at the higher price without telling me.
When I noticed the inflated total and questioned it, the man admitted to charging me the higher price. You could argue that I should not have expected them to honor an incorrect price, but I wanted to see how the owners would act when presented with the opportunity to do the right thing and they failed my test. Because he tried to pass on the higher cost without telling me he was doing so, I felt deceived and the grocery therefore lost me as a customer for good. Bait-and-switch or outright deception in any form during a sales process are some of the most short-sighted and quickest ways to destroy customers’ trust.
For me, it wasn’t about the $20 difference in cost; it was about the grocer’s attitude of customer service and breach of integrity. When the grocer refused to accept responsibility for the mispricing and honor the price-as-marked – and then charged me the higher price without telling me – I lost trust in the grocer to honor future prices and felt devalued as a customer. The grocer’s decision gained them $20 today, but lost about $5,000 (or more) of future business. According to Neosperience in this post about the costs of bad customer experiences, 86% of customers stop doing business with a company because of a bad experience (I fall into that camp based on my experience with this grocer, for example.) Add up the costs of bad customer experiences to business, and it’s a bundle. Loss of revenue to US and world-wide business due to poor customer service totals billions annually.
Perhaps even more importantly, the misdeed creates ripples of negative consequences that extend far beyond the one customer (me) and associated lost revenue. In today’s world of Yelp, Facebook, blogs and old fashioned word-of-mouth broadcast digitally, bad experiences travel fast and spread far and wide. It’s been documented that a happy customer will usually tell a couple of people, but an unhappy customer will tell ten times that amount. And, according to the White House Office of Consumer Affairs, posted by Help Scout, a bad customer experience reaches twice as many people as a good one (graphic below).
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Using my experience as an example, here are the three ways the grocer’s seemingly inconsequential decision to not honor a price has significant financial consequences for their business:
- Lost immediate future purchases. I am only on my first full day of vacation and will be here for five more days. I had picked up many more items to purchase on this trip but put them back after the grocer refused to honor the price-as-marked on the one item. Lost sales $40.
- Lost near-term future purchases. During this trip, I need to feed five people. I expect to spend at least $250 on grocery items and would have gone back to the organic grocer for all my purchases (but certainly won’t be now).
- Lost longer-term future purchases. Manzanita is less than 2 hours from where I live and we frequently come here. Even if we only spend $500 a year on groceries during trips to Manzanita, that adds up to $5000 in only 10 years (and I expect to be coming here much longer than that). So in order to gain $20 today, the organic grocer has lost $5000 of future business.
In this Inc.com article, 7 Deadly Ways to Kill Customer Happiness, Sujean Patel describes more ways in which businesses unwittingly undermine their customer relationships and, therefore, profitability. You’re not IN business if you continually disappoint or neglect customers and don’t right your wrongs… you’re OUT of business.
The truth is you won’t really know how many potential customers you miss out on for every customer of yours who has a bad experience since one customer’s bad experience can have a disproportionately large impact given available technology and online social channels. The result is not only missed customers and revenue but also longer term damage to a business’s reputation, which can be very difficult to undo.
So, what should you do if you’ve inadvertently messed up an order, failed to deliver or somehow otherwise disappointed a customer and you’ve realized your mistake? (You’re in luck if the customer lets you know how he’s feeling, as for every customer that complains, 26 dissatisfied customers don’t speak up and instead simply stop doing business.)
5 Simple Steps to Follow If You’ve Messed Up
People make mistakes – that’s a fact of life – and if you’re in business, messing up with a customer is going to happen at some point. Here are some pointers on how to handle the situation with grace and save the customer relationship (and avoid the negative outcomes discussed above):
- Listen to your customer’s complaint. Everyone wants to be heard. Listen politely and don’t argue. When a customer feels she’s been wronged, no amount of talking will convince her otherwise. You can either be right or you can save the customer relationship – not both.
- Admit your mistake. Everyone makes mistakes and owning up to them is essential to maintaining integrity and regaining your prospect’s or customer’s trust. A simple, contrite apology goes a long way.
- Ask how you can right the wrong. You could say to your customer something like, “Wow, we really messed up. How can we make it right for you?” By asking your customer how to make it right, you have a much better chance of providing a remedy or solution that satisfies the customer. In short, give the customer what she wants. Most people are reasonable and will not make an unreasonable request.
- Go above and beyond. Usually, a dissatisfied customer simply wants to be heard and have the mistake acknowledged, and that will enough to satisfy him. By offering to right the perceived wrong, you go the extra mile in the customer’s eyes. For example, I recently received an unsolicited voucher for a free meal from a restaurant’s manager as his way of apologizing for them not having a usual menu item. It was an unexpected bonus and I left the restaurant an even bigger fan.
- Learn from your mistakes. Use mistakes as an opportunity to learn more about business methods and processes that either work or need to be improved and to gather insight about what’s important to your customers. You can use your insights to really dial-in your business offerings and customer service, as well as personal learning opportunities. Especially when you’re just starting a business or operating as a solopreneur, every potential customer and sale is important.
Investing a little more time and effort into preventing customer service mishaps and applying lessons learned will help you build your customer base, level of trust and brand status. And, always have a plan for what to do when you mess up. In the end, you’ll benefit by growing the base of loyal customers and Raving Fans that help boost your business’s bottom line.
Please share your thoughts and opinions in the comments!
What strategies have you used to keep from losing a new or existing client?
Which steps are you following to help create a “happy customer” atmosphere in your business?
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