The profit in good customer service

PUBLISHED : Monday, 21 April, 2008, 12:00am
UPDATED : Monday, 21 April, 2008, 12:00am

How should companies retain consumer loyalty? In an economy such as Hong Kong that is heavily reliant on the service sector, one would think ensuring good service across all retail fronts, from apparel to financial services and food and beverage industries, is the most basic benchmark.

Good service starts from the top and with sound management strategy and training. In his research on how to measure employee-customer encounters, Gallup Organisation chief scientist John Fleming and his team found the measure, developed as a quality improvement approach referred to as 'human sigma', has high correlation with financial performance.

In an article in the Harvard Business Review, 'Managing Your Human Sigma', Mr Fleming says that in sales and service organisations as well as in professional service firms, value is created when an employee interacts with a customer. To achieve meaningful operational and financial improvements, that encounter must be carefully managed.

As research in neuroscience and behavioural economics have established, human decisions are based on a mix of emotion and reason; customer behaviour is therefore, rarely rational.

Examining indicators of behaviour such as attrition, frequency of use, total revenue and total spending, the research found a striking pattern emerging that 'emotionally satisfied customers contribute far more to the bottom line than rationally satisfied customers do'. So much so that according to Mr Fleming's research, companies that fully engage customers deliver a 23 per cent premium over the average customer in terms of 'share of wallet, profitability, revenue, and relationship growth'.

His research also warns against taking literally high-level averages of company performance such as those derived from surveys that found company X the leader in customer satisfaction. These claims only make executives feel better about their position in the market, but obscure the variation within the company, the very information needed to improve would be buried.

Unfortunately, many in Hong Kong's service sector have yet to comprehend the notion of engaging the customer if employee-customer encounters are any indication.

Poor service is no surprise and no service is usual. If complaints are taken to higher levels such as the marketing manager, one common outcome is to use all means to fend off the customer. The nature of the complaint is irrelevant and the concept of service is all but foreign.

In Hong Kong, there is also apparent increased market segmentation, dividing further the high and low end of society, and the divide is notable in financial institutions that aggressively target the high-net worth sector.

In the past few years, cash-rich mainland tourists have helped drive Hong Kong's retail industry. These buyers mostly represent one-off encounters that account heavily for some retailers' income, but may not necessarily make a sustainable contribution to long-term earnings. However, have these retailers ever considered that the tourists may stop coming? That said, many believe the mainland population will make the party a big one.

For better or worse, companies should not ignore the core of what human sigma attempts to convey - employee attitudes affect customer attitudes which affect financial performance. With customer data kept in the marketing and quality department, and those about employees with the finance department, only when that data is brought to a single platform can a true picture emerge.