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Measuring Customer Value

As relationships with customers continue to change, now might be the time to revisit your customer profile, identify those that bring value to the business and then consider what actions you need to take to re-connect with those who will provide the income needed to sustain the business.

Measuring the value of individual customers, or segments of customers is vital to all business sectors, to understand where future profits lie and thus where to focus strategies. Businesses must retain their most valuable customers and devote less attention to the least valuable. However, deciding how to measure value can be daunting. 

There are a multitude of factors that can contribute to customer value, such as profitability, loyalty and retention; all of which are highly debated in themselves. This article outlines some of the different techniques, and the advantages and drawbacks of each. As a starting point, some definitions may be useful:

  • customer value – includes profitability and the secondary benefits a customer can bring to a company 
  • profitability – can be synonymous with value, but here is defined as the monetary value a customer provides following cost deductions 
  • customer retention – maintaining customers. This can be the outcome of high customer loyalty and satisfaction 
  • customer loyalty – here includes attitudinal loyalty (such as commitment), and not merely behavioural loyalty (purchasing behaviour) 
  • satisfaction – is how content customers are with current quality and price as well as prior period expectations 

These traditional methods calculate the absolute and relative profit of customers over a defined period and use these historical costs and revenues to predict a future value. Profitability profiles can highlight the interests of leading customers, which can assist in developing new products and improving existing services. However, such an approach needs to incorporate reliable revenue cost figures, future downstream costs and multiple periods. 

Three profit-based approaches are analysed below: Recency Frequency and Monetary Value (RFM), Customer Lifetime Value (CLTV) and Activity-Based Costing (ABC).

RFM – Recency, Frequency and Monetary Value: This method of profitability analysis concentrates on historical transaction data of individual customers to map purchasing cycles and to predict future behaviour. It regards recent, frequent purchasers and high spenders as the most valuable customers. RFM is beneficial as it broadly defines the customers and customer segments generating the most income, and reveals the consumers demonstrating recent activity. 

It also valuably highlights key events in a customer’s purchasing cycle, the effectiveness of marketing strategies and impacts on shareholder value.

Problems: 

  • The focus is on revenue, so the cost of acquiring, maintaining and keeping customers is ignored. This is problematic as some customers may be costlier to serve than others, e.g. those requiring bespoke work or specialist products. 
  • It assumes recent large purchasers are more likely to stay valuable than small purchasers some time ago, which is not always the case. 
  • Historical spending patterns can be misleading as the size and frequency of expenditures generally fluctuate with cash flow availability. 
  • RFM ignores the volatility of a customer’s past purchasing behaviour. 
  • This technique is not capable of considering a customer’s potential value, i.e. opportunities for cross-selling (selling the customer different types of product to their regular purchase) or up-selling (selling more of the same types of product to a customer).

CLTV – Customer Lifetime Value: This technique is often utilised by businesses. It focuses on the long-term value and predicted purchases of individual customers based on the entire lifetime of that customer. It calculates the value in today’s terms of those future purchases by considering revenue from the customer, cost of generating the revenue and projected lifetime value. Successful implementation requires accurate prediction of both a customer’s future spending patterns and the cost of acquiring future sales. The use of data warehouses, which record consumer activity, is particularly useful for this technique. Such warehouses are common in retail where information is collected on store cards, and used to analyse past transactions and develop risk strategies.

Problems: 

  • This technique incorporates many of the same problems as RFM because it too relies on historical spending patterns to predict future spending. This ignores cash flow fluctuations, volatility of past spending and potential value. It also regards customers as static entities incapable of change. Equally the company is passive and unable to influence future consumer behaviour through marketing, sales and product development. 
  • This technique is inappropriate for industries with tough competition and rapid changes, as historic patterns of buying will be short and thus less reliable and it does not include what may cause customers to change purchasing behaviour.

ABC – Activity-Based Costing: ABC is a financial tool developed to aid profitability analyses that focus on transaction size, level of purchases, changes in order volume and the cost of the customer. However, the latter is often ineffectively calculated. This is because cost of sales varies and customers use such resources as marketing and general administration very differently. ABC overcomes the problems of allocating costs by calculating the actual time spent on each customer, and multiplying this by the cost per hour. 

This tool is particularly relevant for industries with customers that exhibit very different purchasing behaviours, as it allows identification of demanding and costly customer segments. It also allows managers to identify the specific activities which are the costliest and can thus look at ways to reduce these costs.

Problems: 

  • ABC still does not examine potential customer value, and again regards both customers and companies as static and incapable of influencing change. 
  • It incorporates difficulties of acquiring (often costly) information.

Customer Retention

All the above examples have based customer value on the profits they can generate. However, research has demonstrated that customers can in fact create additional benefits, and organisations may occasionally retain less profitable customers [1]. In 1990, Professor W Earl Sasser Jr, and Frederick F Reichheld published an article in the Harvard Business Review which suggested that a 5% increase in customer retention leads to a profit increase of between 25-85% [2]. Customer retention is thus an important consideration when analysing value.

Benefits of customer retention:

  • Revenue grows from repeat purchases. 
  • Serving an experienced customer can often be more efficient as they may not demand the information and extra service required by new customers. 
  • Learning from existing customers can benefit process effects as feedback and suggested innovations can reduce costs of product development and can inspire new products. 
  • Some companies retain customers who will ‘stretch’ them. These are more demanding and thus push the company to continually improve. 
  • Existing satisfied customers will generate new business through referrals. This strategy is valued as shown by the emergence of ‘family and friends’ deals. 

Retention is often calculated by the percentage of customers repeat buying within a specific time, the cumulative value of purchases over a specific time or the percentage of customers repeat purchasing from year to year. However, measuring retention is difficult as many complex factors such as loyalty and satisfaction will interact to determine whether a customer will stay with a particular brand or company. These can be difficult to quantify.

Customer Loyalty

Along with satisfaction, customer loyalty is often used as a measure of retention rates, and is equally as problematic to quantify. It is often calculated by repeat purchases, cross-selling, multiple purchases and referrals. However, loyalty is a multi-dimensional concept involving behavioural elements (purchasing patterns) and attitudinal elements (commitment, trust, emotional attachment), therefore measuring just repeat purchases cannot fully capture the motivation behind consumer loyalty.

‘Loyalty’ is a dubious term, as customers demonstrating loyal behaviour may not always be showing true commitment to the brand or company, but merely repeat purchasing out of convenience. It is therefore important to consider why customers may stay ‘loyal’:

  • monetary incentives 
  • convenience 
  • no alternative 
  • may see no difference among alternatives 
  • avoid risk 
  • high switching costs 
  • loyalty initiatives 
  • true attitudinal loyalty 

Customer satisfaction and loyalty are difficult to incorporate into valuation methods, but understanding how these contribute to customer purchasing patterns is vital for managers. Understanding these factors can provide managers with information, such as which customers are most likely to continue purchasing and why they remain loyal to a particular company. This allows implementation of targeted strategies to keep the desired customers, attract new business and develop successful products or services.

However, deciding which customers to retain and which customers to attract is far from simple, even with the above factors accounted for. Dhar and Glazer suggest ‘hedging’ customers can overcome such issues. To do this, a manager must assess the customer base as a whole and gain a spectrum of customers between the high profit, highly volatile and the low profit, low volatility customers. This means that any new customer must be judged in accordance with the existing portfolio to strike a balance between volatility and expected return. This is beneficial as high spenders are often unpredictable so should not be relied upon exclusively, but steady spenders may not generate sufficient profits. Instead of always trying to attract big spenders, it can also help to keep some reliable customers around. Managing a customer portfolio in this way brings stability to cash flows as the collective impact is always accounted for [4].

Conclusions

New technologies and analysis methods (such as ABC) are allowing more accurate calculations of customer profitability that can be used to predict future purchasing behaviour. However, profit-based analyses omit the human elements that determine what makes a person buy into a product or service. Therefore, they remain useful as a base for decision-making, but should not viewed as an exact reflection of future customer behaviour. It is important to understand the motivations behind consumer patterns, as it can be useful to direct marketing, develop products and retain customers. Businesses need to retain their most valuable customers, but as this can include more than just monetary gains, care needs to be taken over the method of analysis used.

[1] Lynett Ryals ‘Are Your Customers Worth More Than Money?’ Journal of Retailing and Consumer Services, Vol 19 Issue 5 (September, 2002) pp 241-251.

[2] W Earl Sasser Jr & Frederick F Reichheld, ‘Zero Defections: Quality Comes to Services’, Harvard Business Review, Vol 68, No 5 (September, 1990), pp 105-111.

[3] E Grigoroudis & Y Siskos analyse national satisfaction barometers spanning various countries and sectors in: E Grigoroudis & Y Siskos, ‘A Survey of Customer Satisfaction Barometers: Some Results from the Transportation-Communications Sector’, European Journal of Operational Research, Vol 152, Issue 2 (January, 2004) pp334-353.[4] Ravi Dhar & Rashi Glazer ‘Hedging Customers’, Harvard Business Review (May, 2003) pp86-92.

Failte Ireland: How to Provide Customer Service Excellence

Failte Ireland has produced a guide to help organisations on how to achieve Customer Service Excellence.

Service excellence cannot be achieved in the short-term, nor can you ever truly say that you have ‘achieved’ excellence because it’s a journey, not a destination; the quest for excellence will mean that you are constantly pushing the bar to get even better at what you do.

This journey clearly requires a great deal of commitment on your behalf, but also from those who work with and for you. That is probably the real challenge in seeking to strive for service excellence: how can you get all your employees to really care, to really want to go that extra mile, to really believe in what you are trying to achieve?

Overcoming Communication Barriers: Attitude

The attitude of both the sender and the receiver can act as a major obstacle in the communication process.

However, it is not always possible to be aware of all of these influences as they are heavily reliant on personal characteristics. 

Some of the principal barriers here include:

  • relationship between communicators 
  • personal belief and perception 
  • culture 
  • status 
  • emotionality 

Relationships

Messages are more easily understood when both the sender and receiver can empathise with each other, as well as with what is being said. Personal attributes can be involved here, some of which cannot be altered, such as gender, race or physique; but all can influence behaviour, and reactions to the behaviour of others. Attitudes can also create barriers – people have a tendency not to listen to others who have a different viewpoint from their own.

The ability to empathise with someone else may not be easy and the relationship between the people involved in any communication process may form a barrier to the effectiveness of communication. If the relationship is good, communication is more likely to succeed.

Personal Belief and Perception

The biases that people have developed during their lifetimes may distort the messages they receive. People are affected by previous experiences, attitudes, values and feelings and all of these can influence the messages being communicated. It is human nature to evaluate others based on these personal attitudes, but this can have a negative effect on communication and cause some aspects of the message to become lost in the transmission. Stereotyping is a significant barrier to communication. It typifies people so that they are dealt with quickly, without any effort as they are regarded as part of a homogenous group with identical traits. Stereotyping is dangerous because it causes people to act as though they already know the message that is coming from the sender. Judgements are made about who is communicating the message, rather than the message itself and the receiver automatically becomes less objective.

Culture

Culture and geography can create obstacles to effective communication. Very often, words or phrases from different parts of the world, or even different parts of the same country, can have different meanings. Non-verbal communication such as body language or gestures can also have different meanings. An example of these variances can be seen in the different interpretations of head shaking. In western societies this means no, while head nodding means yes. To many traditional Greeks and Middle Easterners, an upward head nod means no.

Status

If the person communicating is regarded as an authority on a particular subject, understanding is increased as more credence is attached to what is being communicated. More attention tends to be paid if the person communicating the message is in a position of superiority, e.g. if someone is listening to a speaker, attention will automatically be greater if the listener has admiration and respect for that speaker.

Emotionality

When the sender displays high levels of emotion, the receiver can become distracted. If too much attention is paid to the emotional message being conveyed, important information such as factual information may not be understood. On the other hand, the receiver may completely ignore the emotional message and concentrate on the factual information instead. In both cases, the message is distorted because the entire message is not being absorbed.

Overcoming Mental Barriers

How to develop empathy with the person you are communicating with:

  • Put yourself in their place and try to see yourself through their eyes to understand their point of view. 
  • Listen actively and objectively to the message, not the person communicating the message. 
  • Take time to learn about various cultures and become more familiar with the cultures of people you are regularly communicating with. 
  • Realise that a person’s status can affect the message you perceive. Just because they are in a position of authority, it does not necessarily follow that what they are communicating is correct. 
  • Be aware that a person’s emotional state when either sending or receiving messages can unconsciously affect how the messages are transmitted and can affect how others interpret the message sent. 

It may not always be possible to completely control mental barriers, but even awareness of their existence by the sender or the receiver can help to ensure the smooth flow of communication.

Running a Customer Service Improvement Meeting

If you want to make customer service improvements, it’s important to get the input of your team.

One of the most effective ways of gathering their ideas is to run a quality improvement meeting. This checklist will help you to prepare for and run such a meeting, and also provides some pointers on what to do afterwards. 

Defining the Meeting

In general terms, you might describe the meeting as a ‘quality circle’ – a group of employees who come together to discuss issues with the processes and procedures in their particular area. 

You can run such a meeting from a perspective of: “What can we do to improve our levels of customer service?”

IF your team deal with customers on a daily basis, they are ideally placed to make service improvement suggestions. 

Some General Points to Consider 

  • Six to nine participants is considered ideal for a ‘quality circle’ meeting – enough to generate good ideas, yet not so large that people don’t get the chance to speak. If your team is larger than this, think about how you will give everyone the chance to contribute, e.g. discussing ideas in smaller groups before sharing them with the larger team. (Note: you do not have to restrict the meeting to just your own team. If you feel that others have a valuable contribution to make to the discussion, invite them too.)
  • It is vital your team feel they can offer up suggestions without having them dismissed. Ensure that everyone feels that they can openly discuss their ideas and opinions.
  • Try not to direct the meeting too rigidly. You are part of the team and will have valid input, but the others shouldn’t feel as if you are dictating the discussion. Contribute where necessary, but allow others to do the same.
  • Prevent the meeting from becoming a complaints’ forum. Improvement initiatives will come from having constructive conversations, not by dwelling on negatives.
  • The goal of a ‘quality circle’ meeting is not to finish up with a list of ideas that are ready to be implemented immediately. Some of the suggestions will need further investigation or development work.
Customer Journey Mapping
April 20, 2020
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What is it?

Customer Journey Mapping is a valuable tool which can be used by organisations to fully understand the customer end to end experience from the initial point of contact through to resolution.  Customer journey maps are excellent at showing the gaps between customer expectations and perceptions of the actual experience at key steps along the journey.

How does it work?

Customer Journey Mapping works by asking a customer to reflect on what it’s like to do business with your organisation.  Unlike Process Re-engineering, it is essential that a real customer is involved where there is a direct interaction between the organisation and a customer. These are known as ‘moments of truth’.  Moments of truth are the points in a journey that define the overall experience, both positive and negative, i.e.

  • the moments that present an opportunity to delight the customer;
  • the things the customer expects and does not necessarily notice unless they are not in place.

The process follows the steps listed below.

  • Using a complete business ‘transaction’, break the transaction into steps. A transaction can be a quick and simple one such as an enquiry or request or conversely it can be complex, involving several departments.
  • The customer then walks through each step, describing their experience. On occasions it may be helpful to offer the customer a prompt such as ‘At that stage, how did you feel?’.
  • Capturing the journey is usually done by portraying the experience in terms of a ‘Heartbeat Monitor’. Where a customer is happy or satisfied with the service, the heartbeat travels in an upwards direction and conversely, dissatisfaction is captured in a downwards direction.  From this, the completed journey will resemble a heartbeat monitor.  However, this is merely one mechanism to map the customer journey.
  • It is essential that where dissatisfaction or less than satisfactory service is experienced, the necessary actions are identified to rectify the problem.
Why use it?

Customer Journey Mapping offers organisations the opportunity to gain excellent insight from their customers. Customers will use their own words to describe their experience and not be constrained by having to select a ‘best fit’ questionnaire response.  In addition, it can identify issues which really matter to customers – organisations may not even be aware of them.  The best customer journey mapping exercises take place with customers who can offer an honest reflection of their experience, especially where service has been less than satisfactory and improvements can be made.

Connecting with Customers in Times of Crisis

During the COVID-19 pandemic, companies that lead with empathy and genuinely address customer needs can strengthen relationships.

by Fabricio Dore, Oliver Ehrlich, David Malfara, and Kelly Ungerman

How to Define Customer Service Standards

Setting out the standards of service your customers can expect from your organisation is vital – not only for your customers, but for your employees too. 

Service standards are usually defined in terms of:

  • timeliness
  • accuracy
  • appropriateness

‘Delivery in three days’ or ‘calls answered in 20 seconds’ are phrases that give the essence of a service standard that involves a timeline.

These statements need to be defined precisely before they can be considered as true service standards. ‘When does the clock start?’, ‘Are we expecting 100% success in the timeframe?’, ‘Is measurement based on working days or calendar days?’, ‘Does this apply to all locations worldwide?’ and ‘Does this apply 24 hours/day, 7 days/week?’ are some of the questions that have to be asked in the process of defining the standard.

So an initial definition of ‘answer the phone within three rings’ may be implemented as ‘Between 8am and 6pm on workdays, 95% of calls will be answered by a human in 15 seconds and 100% in 40 seconds’.

Similarly, an initial definition of ‘delivery within two days’ could become ‘For addresses in the UK mainland, parcels will be delivered two working days after receipt of the order’.

Accuracy: Customers expect accurate information and accurate deliveries – only 100% is acceptable as a standard under this heading. ‘We got most of your order right’ is a response that is not appreciated by a customer.

Examples of service standards reflecting the accuracy of a service are ‘the information quoted in a telephone conversation is 100% accurate’ or ‘the parcel received by the customer contained all the goods ordered by the customer’.

Appropriateness: How often do you hear the exclamation ‘they didn’t answer the question!’ It happens often when politicians are being interviewed on TV but it shouldn’t happen in the commercial world. Appropriateness is about ensuring that the customers’ expectations have been met, particularly in an enquiry situation.

An Example: A customer writes to an organisation with a three-part enquiry. The customer receives a response that is on time, totally correct in what it says – but fails to address one of the three topics in the original enquiry. Such a response would fail the appropriateness standard – again based on a 100% expectation.

‘100% of the customer’s questions were addressed’ would be a good starting point for such a standard.

How do You Create a Set of Service Standards?

There are at least seven potential sources of information to help define the service standards for an organisation:

  • management
  • employees
  • existing customers
  • potential customers
  • lost or former customers
  • competitors
  • regulatory authorities

You should seek information from different levels of management. However, do not rely solely on management input – existing customers are a better source.

Employees: This group is too often overlooked – ‘what do they know?’ is a view that has been expressed. In fact, employees interact with customers every day, so they are a really valuable source of information and will expect to contribute to the process.

Lost or Former Customers: Why did these customers not return? They will probably be pleased to tell you.

Potential Customers: What can you learn from people who are choosing an alternative supplier? The sales team may give you some input but there is no substitute for direct input from prospects.

Competitive Information: Mystery shopping and monitoring competitors’ web sites and literature can reveal useful input.

Regulatory Authorities: The activities of some types of business are governed by a regulator who sets service standards that must be used.

How Many Standards Should We Have?

You should have standards that are appropriate to the size, diversity and complexity of the business.

Initially, we suggest that you establish a small number of service standards that focus on the absolutely critical areas of your business.

You will need a period of time for colleagues to ‘buy–in’ to the concept of service standards, the monitoring arrangements and the benefits of implementing an effective programme.

Once they have become a way of life, consider expanding the range of measures on a ‘need to have not nice to have’ basis.

You should only have service standards that can be monitored accurately and with an appropriate degree of effort.

Planning the Implementation

Having defined the ideal set of standards, management is then faced with the challenge of working out how to measure performance against the standard.

The standard is of no use if performance against it cannot be measured. Technology often has a role to play in monitoring performance against timeliness standards – particularly in–coming telephone calls.

Correspondence management systems also help monitor the timely answering of written communications. Use of technology as part of the process may allow performance results to be based on 100% of all transactions, rather than on a sample.

Feedback forms or follow-up calls/questionnaires can be used to check customer feedback. It is important to get expert advice on sampling.

At this stage, all ambiguity must be eliminated from the wording of standards so that the whole organisation understands the measure.

Suppose that ‘95% of calls to be answered in three rings’ is a draft standard. It leads to the following questions:

  • what happens to the other 5% of calls?
  • do we care how long the customer has to wait?
  • do we mean answered by a computerised voice or by a real human being?
  • does the standard apply 24 hours/day, 7 days/week?

Development of the final wording and the associated data gathering process is likely to require a couple of iterations. Some compromises may be required as the cost of data collection is balanced against the ideal service definition.

Accuracy and responsiveness standards are more challenging to monitor. Listening to calls, speaking to customers and independent assessment of written/ email communications against the original enquiry on a sample basis usually provide reliable results.

Statisticians should be asked to give advice on sample sizes and data gathering techniques.

Implementation of Service Standards

Ownership, visibility and commitment are the key words.

Ownership: It starts at the top. The chief executive and top management team must be sponsors and champions. They must ‘walk the talk’, own the communication process and ensure initial and on–going focus on standards in every employee briefing.

Each service standard must have a management owner, who is accountable for the delivery of the service. Performance against standard will normally be a feature of that individual’s annual review.

The management owner will also have the authority to implement process and other changes to improve operational performance. But there is no copyright on ideas, so all colleagues should be encouraged to make suggestions for performance improvement.

Visibility: ‘How well are we doing?’ should be a question that employees don’t have to ask. Customer service standards and the current performance against those standards should be communicated to all employees on a timely basis.

Notice boards, memos, email, team briefings, newsletters and the organisation’s intranet are appropriate methods.

Employees really appreciate the opportunity for discussion. Employees who are based out of the office are frequently overlooked, so they should get special consideration.

Commitment: The mission or values of an organisation are a good place to anchor the commitment to customer service.

The chief executive, all levels of management and all employees must be committed to delivering the promise to customers regardless of external or internal influences. It’s not easy but remember: service is your best salesman.

How are Service Standards Used?

The main use of service standards is as a tool to confirm to management that customers are receiving what they have been promised.

Sales and marketing colleagues will want to take the operational standards and develop them into the sales pitch for the organisation.

While the enthusiasm is to be applauded, this approach should be resisted until consistent performance has been achieved and sustained.

Service standards, and performance against those standards, should be reviewed regularly with employees. It is important that they know how the organisation is performing.

Discussions about service standards can often generate ideas for process improvement to further enhance service delivery.

Review of Service Standards

Business economics, external factors and changes in the market place all have an influence on service standards. Just as these factors change, so should an organisation regularly review its service standards, probably every 12–18 months.

Information For Sight Impaired Customers – A Checklist

Understanding the make-up of your customers and their specific requirements is an important part of delivering excellent customer services.

For sight-impaired customers, it is vital that you have considered how your written materials meet their needs.

One way in which you can do this is to produce your information in clear print. Clear print is an inclusive approach to print design that can help you to reach as wide an audience as possible by taking into consideration the needs of partially-sighted people when designing all print material. 

The Royal National Institute for the Blind (RNIB) offers a set of guidelines on clear print, and the checklist below enables you to review all your print material against it to ensure that it complies with the guidelines. 

Assess your publication in relation to the following questions. The answer to all of them should be ‘yes’. If you have answered ‘no’ to any of them, you will need to make the appropriate changes to your print material to make it an effective clear print document.

QuestionYes/No
Is the typeface at least 12 points or above?  
Does the text contrast clearly with the background?  
If the type is reversed, does it contrast sufficiently with its background? Is it big enough?  
Is there enough space between each line of type?  
Is the typeface either roman, semi-bold or bold?  
Have you avoided using capital letters in whole sentences?  
Are the numerals clear?  
Have you avoided splitting any words between lines?  
Is text unjustified, aligned to the left margin?  
Have you avoided leaving uneven gaps between words or letters?  
Have you avoided centre alignment of text except in titles?  
Are there 60-70 characters per line (unless you are using columns)?  
If using columns, is there enough space between columns?  
If using columns, does the text follow easily from column to column?  
Is the page layout clear and unfussy?  
Is there a contents list?  
Are page numbers and headings consistent and in the same place on each page?  
Is there a space between paragraphs?  
Is text set horizontally?  
Have you avoided setting text around illustrations? (This can be confusing.)  
If the reader needs to write on the page, is there enough space?  
If there are images, are they clearly defined and easy to read?  
Are images clearly separated from the text?  
Is the paper matt? (Avoid very glossy paper.)  
Is the page a size which is easy to handle?  
Is the document laid out in such a way that folds will not obscure the text?  
Can the document be flattened, so it can be placed under a scanner or screen magnifier?  

[1] Information from the Royal National Institute for the Blind. Available at: https://help.rnib.org.uk/help/newly-diagnosed-registration/registering-sight-loss/statistics.

Reproduced with permission of RNIB. For up-to-date best practice information visit www.rnib.org.uk

Managing your Emotions with Hostile Customers

Imagine that you’ve just picked up the phone to answer a customer’s call, or a client has unexpectedly arrived in person at your office. Out of the blue, you find yourself on the receiving end of some shocking rudeness. And you’re left gasping. 

How do you manage yourself, calm the situation, and build bridges with this person, who remains important to your business? And how do you recover from the experience and prevent such a situation happening again?

Dealing With Angry Customers - Intelligent Dialogue | Intelligent ...

Although customer service and sales people most commonly encounter such situations, everyone has “customers.” Anyone who you interact with in your workplace who looks to you for results or some other output is a customer. 

In this article, we explore five strategies for dealing with rude customers, and we look at how to handle the aftermath of these difficult confrontations. 

Sorting Unhappy Customers from Rude Ones: If a customer is unhappy about the quality of goods or services that he or she has received from your organisation, he is perfectly entitled to express his dissatisfaction. And if he remains calm and civil, 

despite his frustration or anger, you’ll most likely be willing to help him with his grievances. You’ll try hard to put things right, whether it’s replacing a faulty toaster or compensating him for a missed family holiday because of an over-booked flight. 

Occasionally, though, despite your welcoming manner, expert knowledge and willingness to help, there are people who can’t control their anger and resort to verbal abuse, offensive language, and even threatening words or behaviour. When you’re confronted by these rude customers, it can be difficult to know how to respond or defuse the situation. 

Strategies for Handling Rude Customers: Researchers at the University of British Columbia (UBC), Canada, have studied “incivility” between customers and employees. Their findings show that employees who expect to encounter rude customers at work react far less strongly than employees who normally enjoy good customer relations, but who face unexpected rudeness.

The researchers recommend that organisations train their staff to deal effectively with irate customers, even when those customers are generally viewed as highly civil. And they add that employees should deal with rude customers at the time of the encounter, rather than try to repair a damaged relationship after the event. 

The consequences of not handling such situations effectively can be serious. The UBC study cites customer incivility as a cause of stress, emotional exhaustion, absenteeism, and reduced performance. And if an employee reacts negatively to the customer, it threatens an organisation’s reputation for customer service and can impact customer retention. 

Coming face to face with a raging customer can be a frightening experience. So, what do you do if you are suddenly on the receiving end of a stream of bile and abuse? Here, we explore five strategies for dealing with rude customers: 

1. Stay Calm, Don’t React. 

The first thing to do is to remain calm and not respond in kind. If you are faced with an unexpected verbal attack, a natural defence mechanism is to “bite back.” Something as simple as taking some deep breaths can give you a vital few seconds to gather your thoughts and avoid retaliating in a way that might see you being viewed as the aggressor. 

Tip: Your personal safety is paramount. If you feel threatened by an angry person, trust your instincts and leave the room immediately if you feel unsafe, or if you’re too upset to resolve the situation on your own. 

Ask your boss or a trusted colleague to work with you to resolve the situation. It might also be appropriate to report the incident, if the person is completely out of control. 

The UBC research suggests that rude customers “can violate an employee’s sense of dignity and respect, and trigger negative emotions that can motivate employees to react negatively” toward that customer. So avoid “fighting fire with fire.” Remain calm, controlled and tactful, otherwise you risk inflaming the situation further. Keeping your emotions in check can defuse the encounter. If your interaction with the customer is by email or on social media, you may have worse rudeness to contend with. People often say things online that they’d never say in person, but resist the temptation to give them a “taste of their own medicine.” Take a deep breath. Go for a walk to disperse the tension. Do whatever it takes to gain distance before you hit “send.” When you do write your reply, keep your cool, state the facts, and make clear your willingness to help. 

2. Don’t Take It Personally. 

Chances are, your customer is angry about a bad product or service and you are just the unfortunate target for her frustration. Instead of taking her rudeness to heart, try to empathize with her. She wants to know that you understand the inconvenience and disappointment that she’s suffered, so you need to show her that you do. Developing emotional intelligence is a useful strategy for managing your emotions and sensing other people’s emotional needs.

Occasionally, though, it really does feel personal. A customer will approach you with the sole purpose of insulting you. 

Despite the provocation, try to remember that the customer doesn’t know you personally. He was probably angry or having a bad day before he met you, and had already decided that he was going to “raise hell” with somebody. In these situations, it doesn’t matter who you are, you’re just the unlucky one in the firing line. 

Tip: One way of learning how to deal with rude customers is with Role Playing. Our article can help you use this technique to prepare for a variety of challenging or difficult situations. 

3. Listen and, If Appropriate, Apologise. 

A rude customer might want to vent her frustration. She wants you to hear every word that she says say, so listen actively, no matter how unreasonable she sounds. Demonstrate that you have taken in what she’s said by occasionally reflecting back her words. For example, use phrases like, “So, it sounds like you’re saying that,” “What I’m hearing is,” or, “Is this what you mean?” 

Be aware of your body language while she speaks. Keep your arms unfolded, and maintain appropriate eye contact to demonstrate your open attitude. And when you reply, keep your voice low and even, to keep things calm. 

Saying sorry might run against every instinct you have, if you’ve been subjected to a barrage of abuse. But if the customer’s grievance is genuine, a prompt apology may staunch the flow of rudeness and provide the basis for a better relationship. 

4. Stand Firm. 

You may have apologized and be going all out to help your customer, but you don’t want him to walk all over you. If he’s factually wrong or if he’s not letting you get a word in, you may need to be more assertive to get your message across. 

If you’re a team manager, your team member may ask you to step in to help resolve the situation. That means balancing your responsibility for ensuring that you satisfy your customer with the duty of care you have towards your people or your organisation. 

In situations when a customer’s behaviour has become unacceptable, it’s important to tactfully let her know that she’s “crossed a line” – for example, when she’s using insulting, threatening or racist words or behaviour. It may be possible for you to negotiate a solution, but it might be one of those rare instances when it’s best to let the customer go. 

Tip: Make sure that you agree with your manager or head of department what behaviours are to be deemed unacceptable in this way.

5. Solve the Problem 

The best way to disarm a rude customer is to involve him in taking away the problem that’s fuelling his behaviour. Ask him what he feels would be an acceptable solution. You then have something concrete to work toward. 

Most customers just want a fair resolution, but a rude customer may make unrealistic or extreme demands. If so, remind him that you want to help, and counter with suggestions that are fair and reasonable, and negotiate towards a mutually acceptable deal. 

Look for quick, simple solutions. Many problems that lead to customer rudeness will have occurred before, so your company may have policies that allow you to offer refunds or replacements, for example, with little fuss. Fast resolutions satisfy the customer, minimize stress, and end difficult situations swiftly. 

Dealing with the Aftermath: Encountering a rude customer can be a highly stressful experience, so it’s important to take a breather afterwards. If you can remember that very few of your customers behave in this way, you’ll gain some valuable perspective. 

It’s also important to think through what happened, to consider whether the customer’s rudeness reflects a bigger problem or a recurring issue. You may need to report the situation to your manager – for example, if the problem is beyond your remit to resolve – or follow up with the customer, much as you might prefer not to. 

If you’re a manager, remember that it’s not just about the customer’s feelings. An encounter with a rude customer will eventually end, but your team members are the people that you work with and manage every day. 

So, if one of your team has been dealing with a rude customer, check in with her to make sure that she’s OK. Choose your time well – straight after the situation is a good time for some team members but not for others. Discuss what was said, to ensure you have a full picture of what occurred, and find out if there’s anything you need to look into in light of her experience. 

Key Points 

Rude customers differ from the merely unhappy in that they can’t control their anger. 

They are unreasonable, unfriendly, and prone to using verbal abuse, offensive language and threatening behaviour. But you’re in business to serve your customers, so it’s important to try to help them. 

When dealing with rude customers, it’s crucial to control your own emotions, and to counteract their inflammatory behaviour with calm, considered responses. 

Remember, try not to take any comments personally, listen actively to your customer, and apologize if it’s appropriate to do so. 

Customer Relationship Management
April 7, 2020
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Customer Relationship Management (CRM) is a strategy used to learn more about customer’s needs and behaviours to create, develop and enhance relationships with carefully targeted customers.

Many organisations view CRM as primarily a technological issue and as a result implement systems that more often than not fail. This is because they assume that CRM is ‘done’ once the right system has been found. The real value of CRM, however, transpires when it is regarded as a strategy or approach that deconstructs the underlying processes, relationships and structures concerning customer behaviour. It is important to align organisation wide business processes to such strategies.

Technological CRM solutions comprise of systems that link together the different influxes of customer information, for example from mail campaigns, web sites, call centres, and sales and marketing. The information is then organised by operational systems (for example sales and inventory systems) and analytical systems. However, these systems “don’t provide the divisional and holistic customer view needed”[1] as they underrate the value of individual customer relations and the benefits of building a strategy to derive benefit from the information.

There is common agreement that a customer relationship should be managed in stages: [2]

1. Recruitment: The customer is targeted and encouraged to purchase. 

2. Welcoming: Make sure the customer knows how to use the product or service and has a contact in the company in case of queries. 

3. Get to Know: Make sure information is exchanged. This stage is where companies can analyse loyalty, satisfaction and retention to determine the future strategies required for individual customers. 

4. Account Management: At this state, customer relationships are managed securely and additional needs problems are identified ahead of time through good communication with the customer. 

5. Intensive Care: If a problem arises and the customer is dissatisfied, for example from bad service or changing needs, special attention is needed to return customers to stage four. 

6. Dissociation of the Relationship: This is where a customer no longer purchases. It may be possible to win them back in time if the reason for leaving is resolved. 

Challenges

The above stages will benefit if businesses first decide on the information they need and what they want to do with that information. Many commentators state that there is little point in endlessly gathering customer data if this knowledge cannot be used. Successful CRM relies on the ability to access information and the existence of internal organisational structures that manage this data. So rather than focusing on technology-based processes, businesses must change the way information is integrated and utilised throughout the organisation. Even before the information is gathered there must be a customer strategy in place that builds relationships based on the individual company and their individual customers. 

A Harvard Review written in 2002 [3] is still as relevant today describing the importance of:

  • Acquiring Customers: The most valuable customers must be identified so their needs can be identified. This means the product or service can be improved to retain valuable customers and marketing strategies can be directed to attract new customers. Technology can analyse historical revenues and cost to predict future value, although this can be fraught with difficulty (see ‘Measuring Customer Value’ article). 
  • Producing the Right Value Proposition. By studying customer needs and surveying competitors, the product or service can be developed to meet the needs and demands. Technology can show product and service behaviour data, create new distribution channels and develop new pricing models. 
  • Instituting the Best Processes. Research must be carried out on the most appropriate and effective ways to deliver the service. Technology can process transactions faster, and provide information to manage logistics and the supply chain. 
  • Motivating Employees. Employee loyalty and attitude must be appropriate. Technology can assist to create and implement incentive schemes to retain employees and improve attitude, which will ultimately impact customer service. 
  • Learning to Retain Customers. Customer behaviour must be analysed to determine what keeps them loyal, why they defect and what wins them back. Technology can track these aspects through monitoring buying behaviour and customer service satisfaction levels. 

Managerial Implications

Again in 2002, Lynette Ryals [4] suggests some managerial implications for implementing a CRM into a company: 

  • Managers will need to oversee and support the implementation of organisation wide strategies of CRM. 
  • Although CRM is not purely a technological issue, new software may have to be put in place for CRM support. Such technology will allow companies to gain information on buying behaviour, to monitor marketing strategies and to respond to suggestions or complaints. 
  • A new emphasis may be needed to stress value creation (for example customer loyalty and word of mouth advertising) rather than just profit (monetary value). This means creating strategies that span the lifetime of the customer relationship. This can help improve returns, minimise risk and gain the benefits from the customer.
  • Aims to retain customers may require changes to pricing policies which reward longer-term customers. It may be necessary to implement other strategies such as outlining cheaper alternatives to customers to induce trust. 
  • Customer risk (i.e. losing a customer) must be managed by detecting early signs of abandonment, such as slower payments or keeping lower than usual balances in an account. 
  • Managers can benefit from good customer relations by asking customers to recommend solutions. This can be achieved by involving them in new product development for innovation and referrals benefits (i.e. word of mouth), e.g. by free trials. 
  • Employees have to be empowered to act in ways that maximise value creation rather than short-term profit. For example, by allowing them the authority to deal directly with complaints, one way being to offer reduced prices. 

Employee Segmentation

A recent development within CRM is that of employee segmentation, which is based on attaining the optimal workforce in order to meet customer needs. It looks to match the skills and capabilities of employees to the needs and expectations of different groups of customers. To do this, the customer portfolio must be analysed and their needs identified, and the workforce must be segmented into groups or job families to match customer profiles. Companies such as B&Q have found that employee segmentation has generated more revenue and greater customer loyalty. 

Principles:

  • businesses should support and reflect the customer base 
  • customers should expect expert advice and ‘people insight’ (which is based on analysing the links between employee data, store performance and customer satisfaction) 
  • employees should be capable of delivering new strategies, for example managers should be able to deliver new customer propositions and teams must be in place to deliver the business plan 

Customer-facing staff, on-site support staff and support teams (call centre representatives) are the groups most likely to be affected by these principles. 

Employee segmentation can help to build on customer relations; maximise the potential of technology; enable fast, high-quality service by front-line staff; ensure employees are empowered, motivated and in the right job; and improve employee engagement (higher morale, satisfaction, lower absenteeism and turnover). In some cases, this may only be fully realised with a complete change in workforce (although in practice this may not be realistic), but may just mean a re-evaluation of how capabilities should be employed. 

Employee segmentation generally moves away from staff working to ‘productivity metrics’ (e.g. calls per hour within call centres) to developing experienced staff with in-depth knowledge on the product or service. This means more quality time will be spent with each customer. Reward structures will change accordingly towards customer-related competencies, skill level and commercial awareness. [5] 

Conclusion

Customer relationship management methods will vary depending on the type of customer and business sector. However, we believe that in all cases a complete reliance on technology cannot build the most effective relationships. Technology can provide and collate valuable information, but it is the individual analysis of this, the organisation-wide integration of this knowledge, coupled with timeless good manners and communication skills that will produce real results.

[1] Stewart Deck, ‘What is CRM?’, CNN at http://edition.cnn.com/2001/TECH/industry/05/23/what.is.CRM.idg/index.html (23 May 2001).

[2] Merlin Stone, Neil Woodcock & Muriel Wilson, ‘Managing the Change from Marketing and Planning to Customer Relationship Management’, Long Range Planning, Vol 29 No. 5 (1996) pp 675-683.

[3] Darrell K Rigby, Frederick F Reichheld & Phil Schefter, ‘Avoid the Four Perils of CRM’, Harvard Business Review (February, 2002) pp 101-109.

[4] Lynett Ryals, ‘Are Your Customers Worth More Than Money?’ Journal of Retailing and Consumer Services, Vol 19 Issue 5 (September, 2002) pp 241-251.

[5] Jim Matthewman, ‘Strong Division’, People Management (February, 2003), p 34.