A Refreshing View of Customer Service

Friday's Wall Street Journal carried an interesting review of the book "The Best Service is No Service," by Bill Price and David Jaffe. The book was reviewed by David A. Price.

Being academically trained in marketing, I was interested in what the authors had to add on this important topic. After-sale experience by the customer is, of course, critically important for a number of reasons- rebuy probabilities and word-of-mouth advertising, to name just two.

Mr. Price begins his review by stating,

"In theory, we should be living in a golden age of customer support. Blogs and Web sites make it easier than ever for consumers to reward good service and punish bad. Companies, for their part, can avail themselves of sophisticated customer-service technology and, thanks to the rise of Indian call centers, less-expensive workers.

But reality hasn't seemed to follow theory. When calling an 800 number, we expect to find ourselves in voice-response hell. We dutifully follow instructions to key in a 10-digit policy number – only to be asked by the customer-service rep for the same darn number. Waiting on hold for 25 minutes? Well, that's what speakerphones are for. A simple email query languishes for days. When it comes to service, entire industries – cable-television operators, cellphone companies, airlines, health insurers – are regarded with the disdain once reserved for used-car dealers."

So true. Already we see that the authors correctly observe that many US companies use automation to cut the costs of customer service, as if it were some unwanted, but necessary function, like garbage removal. Thus, opportunities to use technology to wring more precious customer information from these contacts, as well as leave customers with a positive feeling toward the company and its brands, is irretrievably lost.

Price further reports that the authors define customer service narrowly and pragmatically,

"They consider customer service in its narrow sense of customer assistance – taking orders, answering help-desk questions, resolving complaints, handling billing inquiries. Mr. Price (the author, not the reviewer) is a former senior customer-service executive at Amazon.com, the company from which the book draws many of its most compelling positive examples."

The authors report how most businesses actually perceive and track the function,

Messrs. Price and Jaffe note that three-quarters of chief executives in an Accenture study believed that their firms provided "above average" service. Yet almost 60% of those same firms' customers were upset with their most recent service experience. Senior executives at most companies, the authors believe, are simply in the dark. "The standard across most service operations is to report and track how quickly things were done," they write, "not how well they were done or how often, or why they needed to be done at all.

Thus typical measures like "pickup within three rings" or "email response within 24 hours" hide more about customer service than they reveal. And the measuring is easily gamed. At one company where managers imposed a target "average handle time" (call time) of 12 minutes, phone calls miraculously shortened to just under 12 minutes: As the 12-minute mark approached, agents simply said whatever it took to get the caller off the phone. The call center at another company hit on the idea of reducing the number of phone lines so that excess callers simply got a busy signal – and went unmeasured."

I really loved this part of the review. It was very eye-opening, if not completely surprising. I can personally attest to receiving many post-sales or customer service event emails which, by their design, obscure the real issue and will serve no useful purpose, in my opinion, in helping the companies' managements truly understand what went wrong, if it was properly addressed, and how 'satisfied' I now am.

Think about that second italicized paragraph. Only managements which have virtually zero identification with the long term healthy growth of their companies could behave this way. Rather than consider how to use the customer contact to their companies' benefits, these managers look for ways to simply make the contacts go away or appear minimal.

Instead of these inept approaches to customer service, the authors draw on the experiences of one of them, Mr. Price, at Amazon, to suggest at least one better approach,

"The authors contrast these crude metrics with Amazon.com's focus on "CPX" – contacts per order, contacts per unit shipped, contacts per transaction and contacts per customer. In other words: Don't just ask how long it took to help the customer, ask how often the customer needed help and why. The goal is to avoid creating a need for a customer to contact the company in the first place."

I found this hint of the book's meatier parts very encouraging. These sound like great ideas for describing what is actually occurring in the post-sale information-gathering and expectation-management phase of the sale. The authors further describe some Amazon practices,

"In contrast with writers who offer platitudes so general as to be nearly useless ("Listen to the customer!"), Messrs. Price and Jaffe lay out specific recommendations. Among these: Hold weekly operations meetings to go over CPX scores. At Amazon.com, Mr. Price recounts of his tenure there, chief executive Jeff Bezos would often show up and join in the discussion. Teams would then work between meetings to zero in on "root causes" and solve problems. The authors also recommend charging the costs of customer support back to the product teams that created the need for it; make them feel the pain."

These, too, sound very useful. Especially fully-costing customer service back to the product group which engendered the need for the costs. The fact that Bezos would attend and participate in these meetings tells you that he felt, and wanted to communicate, how vital it was to fully understand and make use of customer service events. Not just to minimize them, but to understand what they told Amazon's managers about the actual provision of the initial products, and how to address whatever was going on that caused the need for the post-sales service activity.

I found this to be a thoroughly refreshing approach to customer service that harks back to the original marketing philosophy of creating long term customer value and company profitability. Rather than try to simply minimize the effects of product policies by reducing the cost of customer service, it just makes so much more sense to use the function as the information-rich opportunity it is to provide necessary feedback to a company's operating groups on how their efforts are ultimately perceived by their customers.

Reinventing Sales Management?

Last Monday's Wall Street Journal featured an article in the "Managing" column concerning Ram Charan's latest consulting-what would you call it- fad? scam?

According to the article's opening passage,

"Ram Charan is known for his platinum clients and his relentless schedule. The business professor-turned-management consultant says he's worked seven days a week for 30-plus years, advising executives at the likes of General Electric Co. and Verizon Communications Inc. on such topics as improving results and execution."

As a reference, I've pasted two Yahoo-sourced stock price charts for Verizon, GE and the S&P500 for the past 5 years, and beyond.

I don't know the timeframe in which Charan has advised the two firms. If it's within the last five years, they should get their money back.

As this chart clearly shos, neither firm has outperformed the S&P in total return over the period. GE barely mirrored the index, but still fell short. With dividends, maybe it was close for GE, but surely not sufficiently better to justfiy the excessive senior executive compensation the firm pays.

Verizon has barely earned a total return that is even 1/5 of that of the index.


This second chart shows a longer term of performance for GE, Verizon, and the index.

Again, not knowing when he worked with the two firms, if it were prior to five years ago, that isn't necessarily so impressive, either.

As far back as 2000, both firms began to fade, in performance terms.

With that as some empirical perspective on performance at two of the firms the Journal alleges Charan has 'helped,' let's move onto the interview. It opens with this passage,

"Recently, Mr. Charan turned his attention to sales, particularly from one business to another. He doesn't like what he sees. In "What the Customer Wants You to Know," published last year by Portfolio, he argues that companies need to "reinvent" the way they sell, to focus on their customers rather than product features. Mr. Charan talked to The Wall Street Journal about the problems with sales and how to fix them."

I think this would be news to most marketing professors in the better business schools around America. Sales management and process has been taught since I was in undergradate school, back in the late 1970s.

Beginning to quote Charan in the interview, the article relates,

"Mr. Charan: The sales function has traditionally been about execution. Most sales people are very good at connecting with the purchasing customer. They get training to know the product. And they beat the competition on price.

Now the world has changed. Copying a product became very quick. You now have competition on the Internet to beat down prices.

It has become very hard to differentiate yourself in the eyes of the customer, for business-to-business sales. So salespeople should not sell the product any more. They should find out what the customer needs, which will be a combination of products and services and thought leadership.
WSJ:Can you explain this new approach?

Mr. Charan: Salespeople need to work backwards from what the business need of the company is. Let's say I'm going to sell you this BlackBerry. I come to you and I say, "I've done some homework on your company. I think you're going to need 1,000 BlackBerrys. And in order to make your BlackBerrys fruitful, I'm going to need some information. How many users are in selling, how many in manufacturing, how many in research, how many in finance, how many on the road?"

With that information, I can design something that is useful to them. That information is proprietary. If you don't trust me, I will not get that information. Salespeople need to learn the business of the customer. They need to learn how to ask the right questions. They need to have analytic skills to diagnose a customer's business. They need to figure out who makes the decisions in a company."

Hasn't Charan, or, for that matter, the Journal's Phred Dvorak, ever heard of 'consultative selling?'

It's a little marketing and sales thing that's over 40 years old. IBM salesmen used it to sell the original 'big iron' mainframe System 360s and 370s.

Dvorak continues,

"WSJ:Don't most companies do this already?
Mr. Charan: No. They say how their products will reduce customers' costs. They don't touch on improvement of revenues, margins or brand image."

Honestly, I simply do not believe this. Just look at this post which I recently wrote about Tennant. This passage,

"As a result, the cleaned area would dry in about 30 minutes -- a pressing concern for institutions such as casinos that otherwise have to rope off cleaned areas for as long as 24 hours, Mr. Swenson says,"

clearly indicates that Tennant focused on improving their customers' revenues through value-added product features.

Finally, Dvorak closes his interview with Charan, having apparently sat there simply nodding his head and being totally accepting of Charan's contentions, with these questions and answers,

"WSJ:How does the sales force have to change?
Mr. Charan: The old salesperson: gregarious personality, very sociable. Plays golf. Goes to ballgames. Quick to link with people. Highly motivated. Long hours. Very perceptive in reading other people. The more successful ones know how to close the deal. It's still useful.
Going forward, the salesperson must build trust with the customers' people that's deeper than before and sustained over time. You cannot design a solution without information from the customer. And if the customer does not trust you, he or she will not give you information.

I would be very surprised if John Chambers, CEO of Cisco, thought his salespeople filled their order book just by taking customers to baseball games. Or Larry Ellison's. High-value, big-ticket institutional sales between companies have always been a consultative selling proposition.

WSJ:What else has to change?
Mr. Charan: In the old game, one person could do the selling. In the new game, you need a team from your company. The reason you need a team is the solution you're going to create is going to come from different parts of your company."

Again, large, complex, long sales cycle, big-ticket business-to-business sales have always employed extensive teams to win a customer's business.

It was hard for me to read this Journal piece with a straight face. Is Charan really so clueless that he is ignorant of better sales practicies in business stretching back decades? And was his interviewer, Dvorak, similarly ignorant?

How did this article make it into the Wall Street Journal's "Managing" column? It's just completely fallacious in its portrayal of the best practices of consultative selling in American corporations.

What is it with Charan? Can only he invent "new" concepts? So whatever strikes his fancy is new and worthy of a book or new fad, even if he's overlooked existing, long-used practices which happen to be exactly what he is preaching as "new?"

NBC's New Ad Sales Approach: What's Old Is New Again

Yesterday's Wall Street Journal carried an interesting piece in the Media&Marketing Section regarding advertising.

The piece, by Brian Steinberg, featured the changes in ad marketing and sales being wrought by NBC's new ad-sales chief, Michael Pilot, late of GE's Commercial Finance Group.

Apparently, Pilot has "a history of using sophisticated analytical methods to generate sales growth."

Twenty-odd years ago, when I was a graduate student at Penn, we learned these sorts of techniques from the then-resident expert Professors, Len Lodish and Jerry Wind. The use of prior sales data from which to build models of most-likely buyers, and more productive sales and marketing efforts, is hardly new.

I think it's wonderful that NBC is making use of someone with Mr. Pilot's tendencies. Beyond his focus on more analytical sales planning, Pilot is also redesigning the entire sales and fulfillment process, something consultants like my old outfit, Andersen cum Accenture, likes to call 'business process re-engineering,' to be more efficient, automated, and electronic.

All this is, frankly, pretty obvious, low-hanging fruit. The question you should have, that I have, is, what took GE, the parent of NBC Universal, so long to effect this change? As I've written in prior posts, GE is too large to be effectively managed anymore for consistently superior total returns to shareholders. This is an excellent example of why I believe this to be so.

How does one justify viewing GE as either visionary, or well-led, if something so large and prominent as the ad sales function in one of its six business groups, is so hopelessly antiquated and poorly-managed?

I think this also speaks to the reality of business education in America, and, possibly, the world. Michael Pilot is most certainly not the only business school graduate to have learned these techniques over the past thirty years. Where are all the other graduates with similar knowledge, and their successful sales management changes?

Where does all that learning, knowledge and skill go? Thousands of graduates from the top ten or so US business schools in the past few decades, and when one of them actually implements a decades-old idea, it's considered breaking news in the Wall Street Journal.

How sad.

Wal-Mart and the Wheel of Retailing

Did you read the piece about Wal-Mart in the Wall Street Journal’s first weekend issue on Saturday? Am I the only person who doesn’t understand why Wal-Mart thinks it can trade-up from being the nation’s largest purveyor of cheap, bulk provisions to the masses to being a destination for those seeking fashion, style and upscale wares?

Back when I was earning my degrees in Marketing, there was a theory which was taught that went by the name of “the wheel of retailing.” It essentially observed that every so often, a new, low-cost retailer will arise that rips through the existing sector structure like a hot knife through butter, growing at the expense of outmoded, expensive older giants.

In the 1920s in hard goods, it was Sears. In the 1930s, in groceries, it was The Atlantic & Pacific Tea Company, a/k/a A&P. In fact, so virulent was A&P’s impact on the world of small, neighborhood grocers that the Robinson-Patman Act of 1934 was informally known as “the anti-A&P Act.”

That said, the Wal-Mart saga since the 1980s is both remarkable, yet not surprising. What the company did is not all that new. It upended several existing chains of general merchandisers who had grown inefficient, insensitive to consumer needs and wants, and basically moribund. How it did it was with the latest version of what the lowest entrants on the wheel of retailing always use- low-cost supply of large volumes of goods. It looks glitzier now, with integrated IT functions shared among vendors. But if you go back to the architect of Sears’ great transformation, you will find that Robert Wood, the creator of that transformation, learned his supply skills as quartermaster on the Panama Canal, one of the more challenging logistical projects of that era.

What is puzzling me is why there is all this attention paid to the mid-late life growth pangs of a retail success. Retailers who began life at the bottom always try to extend growth, once they saturate the market with stores, by moving up-market. And they nearly always fail in doing so.

So will Wal-Mart. The company appeared briefly as a selection in the large-cap equity portfolio I manage. That was back in the 90s. But it hasn’t performed in a consistently superior fashion in over a decade.

If Wal-Mart really wants to move up-market, they should do what Les Wexner did with The Limited. He employed a strategy of buying different brands to move out of the original retail niche in which The Limited succeeded. Wal-Mart could probably employ its size and legendary logistics acumen to vault some existing fashion brands into the big leagues, and at the same time, bring better financial management to them. And attract the more upscale consumers it now seeks, albeit through doors with other brand names on them.

Whether they do or not, at least they would have a fighting chance with both customer segments- the current Wal-Mart shopper, and the fashion-conscious shoppers who now move up to Target and Kohls. It’s not like Wal-Mart is aiming at uncharted, nor vacant, product/market territory.