Every business messes up.
Sometimes it’s product related; sometimes it’s due to problematic service. Sometimes mistakes occur very rarely; sometimes they (unfortunately) happen very frequently.
Because our customers are all human, they understand that companies may occasionally mess up; but when that happens, they judge us on two factors:
- How often we make mistakes
- How well we recover from those mistakes
Obviously, the goal is to have as few mistakes as possible. Realistically, however, a flawless production and service delivery business is unlikely.
When a mistake does happen, how your business recovers from the situation will have a significant effect on account retention, level of future purchases, and price sensitivity.
For example, if a B2C company addresses and resolves a major problem quickly, there is an 80% chance that the customers will likely make future purchases from the business. If the problem is corrected slowly, the likelihood for future purchases drops to about 55%. If the problem is never even addressed, the business only stands a 20% chance of selling to the customer again. The same trend is generally true in B2B transactions.
How to Recover When Business Mistakes Happen
No matter how large your business, the way to ensure great service recovery depends on two factors – a simple policy and empowered employees.
How to Craft a Service Recovery Policy
To expedite responses when problems arise, develop a straightforward, understandable policy that employees can remember – even when stress and emotions may be running high. Remind employees to keep the customer in mind and calmly listen to their concerns. Make sure they strive to find the root of the problem as expeditiously and cooperatively as possible. Finally, ensure employees communicate the issue to the appropriate internal team members in an effort to fully resolve the problem – and to make sure it doesn’t reoccur in the future.
When people talk about companies that handle client problems well, the gold standard is the Ritz-Carlton. From their first day on the job, employees across the organization understand that the team consists of “ladies and gentlemen serving ladies and gentlemen.” This simple mantra motivates every member of the staff to always consider – and prioritize – the customer.
How to Empower Your Employees to Handle Customer Crises
By empowering your employees, you give them the ability to address problems independently – and more quickly than if they need to coordinate with multiple levels of management before providing the customer with a response.
To continue with the Ritz-Carlton example, employees at the luxury brand may spend up to $2,000 per incident – not per year – to rescue a guest experience. As the average Ritz-Carlton customer spends about $250,000 with the Ritz over their lifetime, the $2,000 recovery is either preserving future revenue or rewarding past spending. Additionally, the unique response flips the situation into a positive word-of-mouth story that reinforces the value of staying at a Ritz property.
When empowering your employees to offer a make-good in a customer response situation, consider how much your typical customer spends with your business over the lifetime of the relationship. Ritz-Carlton’s policy allows employees to spend 0.8% of the customer’s lifetime value to keep each relationship going. Your company should decide on an appropriate limit that works for you. It should probably be less than 1% of the typical customer lifetime value and that should then be further tempered by the magnitude of the result; pick a reasonable limit and apply it across the team.
Educating all employees about the new approach is next. Instead of training your team, demonstrate trust and ask employees to share their experience with their manager each time a problem occurs. (But make sure that the managers do not second guess employees and make them defensive or hesitant to respond to customer problems in the future.)
Finally, make sure the management team celebrates each time someone responds appropriately and successfully to a customer problem! The total cost will be small compared to revenue saved – and you definitely want your employees to be working hard to retain and grow customers.
When a Recovery Strategy Works
Back when I was the V.P. of Manufacturing at a mid-size public data communications business, I served as the liaison to a very large software company that was evaluating our new system to potentially resell it on an OEM basis. One Friday afternoon, I received a call from their test facility; one of our circuit boards had failed. The company explained they would be sending two engineers on Monday to help us correct our problem, which they then went on to describe.
Before I even told our CEO about the call, I immediately contacted an experienced consultant familiar with our product who would be able to pitch potential solutions for the circuit board issue. He agreed to travel from Florida to Massachusetts on Monday morning to meet with the customer and our team.
Only then, with a response plan firmly in place, did I notify our CEO of the customer’s call.
By the time the customer arrived for the meeting on Monday, we had already identified the root cause of the problem and taken corrective action to ensure the circuit board issue would not happen again.
Walking out of the meeting, the customer’s senior engineer said, “We knew how to solve the problem, but we wanted to see how you would approach it.”
“How did we do?” our CEO asked.
“Outstanding!” the customer exclaimed.
Because of our fast response and proactive recovery strategy, our business relationship was solidified and remained successful for years to come.
Sam Klaidman is the Founder and Principal Adviser at Middlesex Consulting. He helps his B2B product manufacturing clients grow their services revenue and profitability by applying the methodologies and techniques associated with the Customer Value Creation and Customer Experience professions to assist his clients as they design and commercialize new services and the associated business transformations. Contact Sam here.