Having a company that never gets customer complaints may sound like heaven, but customer complaints are actually good for business. When you never hear complaints, you can't gauge how well you're doing (or not doing) and are not challenged to improve your business.

Dealing with customer complaints also gives you the opportunity to build loyalty by engaging at-risk customers and showing that your company is responsive to their needs.

Francis Buttle, managing director of customer management firm Francis Buttle & Associates, explains to CustomerThink that there are three clusters of cost to customer service.

The first is handling customer complaints. These are the costs of people, technology and communication. Customer recovery costs such as refunds, waivers and service re-performance are also part of this cluster.

The second is the "cost" of computing the organizational benefits of the current complaints-handling process. These are any process, product or service gain or marketing saving that is a consequence of learning from customer complaints.

The third is the cost of unvoiced complaints. These are the issues customers have but don't report and therefore aren't fixed. These could have what Buttle calls the "iceberg effect," where instead of complaining to the business, unhappy customers tell other people negative things about the company and potentially drive customers away.

One way to help prevent the iceberg effect is to make it easy for your customers to complain, suggests customer service consulting firm Sterling Consulting Group. Make customers aware of your customer complaint policy and make sure it spells out how they can contact the company when they have a problem, where to make complaints about specific areas and who is responsible for dealing with their precise complaint.

Once you have complaints coming in, you need to deal with them effectively if you are to make them valuable. "Customers have more tolerance for poor service than for poor service recovery," MIT Sloan Management Review warns. "And if a customer experiences a second failure of the same service, there is no recovery strategy that can work well. In all likelihood, the customer will be lost forever."

To prevent that from happening, The National Federation of Independent Business provides six tips for turning complaints into opportunities to improve your business, exceed customer expectations and strengthen their loyalty. NFIB suggests to:

• Act fast — Address disgruntled customers as soon as you can. If they complain and hear nothing, they'll assume you don't care and take their business elsewhere.

• Listen and learn — Give customers the opportunity to vent, and listen carefully to find the root of their problem. Do not make excuses or offer solutions until they finish. Make sure to get to the facts.

• Apologize — You don't have to agree with them to show regret for their bad experience. Acknowledge their feelings without saying that they're right, unless of course they are, then you should therefore take full responsibility. If not, apologize for misunderstandings that may have taken place.

• Stay cool — Remember that people may simply want a chance to vent their frustration. Let them speak their mind and try to separate what they are unhappy about and what they want you to do about it. Don't promise something you cannot deliver, but get to an understanding of how to resolve the situation.

• Resolve the problem — Often, customers don't care how something happened. They just want to know what you're going to do about it. Fix the problem, clarify the compensation they'll receive and adjust your business to ensure that the same situation does not happen again.

• Follow up — Thank the customer for his or her complaint, and after some time, follow up with the customer to see if there's anything else you can do to ensure his or her satisfaction with your company's service.

Complaints are a great way for businesses and their employees to brainstorm about ways to improve the company. As a manager or business owner, it is your responsibility to keep your customers happy and provide good service.

If you are not the one directly dealing with customer complaints, make sure that your customer service department is in line with your service goals. Because they are the ones who will be initially bombarded with negativity, let them know that you support them, MIT Sloan Management says.

Draw attention to the successes of the customer service group to show that their goals mirror the company's. Give them freedom to resolve complaints. Allow them to see customer feedback and use meaningful measures of their performance through positive reinforcement for solving problems and pleasing customers.

By working with your staff and with customers on unsatisfactory experiences, you can increase customer retention and improve your overall business.

Resources

Your Customer Complaints Could Be Costing You More Than You Realize
by Francis Buttle
CustomerThink, March 11, 2008

Ten Tips for Dealing with Customer Complaints Online
Sterling Consulting Group

Making the Most of Customer Complaints
by Stefan Michel, David Bowen and Robert Johnston
MIT Sloan Management Review, Sept. 22, 2008

Six Tips for Handling Customer Complaints
The National Federation of Independent Business, Sept. 12, 2008