There are hundreds of tips on how to improve customer service but most of them work inconsistently and rarely sustain. Improved customer service can increase customer experience and customer loyalty, which in turn can increase customer lifetime value.
But anyone who has tried to implement customer service initiatives knows that it is very hard to make these changes stick. After some initial improvement organisations often fall back into old habits. One company that has been so successful in delivering and sustaining amazing customer service is Zappos.
Zappos has been an inspiration for many innovation articles but unfortunately over-focussing anecdotes and missing the sustainability parts. Chances are you have already read about the often-repeated Zappos anecdotes. In 2011 Zappos had one customer call lasting over 8 hours. One year later they broke their own record with a 10 hour call.
These are two stories alone seem to be the main message of 90% of Zappos articles. But do we really believe a number of record-duration calls make customer loyalty innovation? Not really. Consistently great customer service is not a collection of heart-warming, customer-involving anecdotes.
How to improve customer service sustainably
Let’s say you have one key insight or strategy element that you want to use as the core of your customer service improvement. I am calling this your “idea” for the rest of this article. Here are four questions on how to transform your idea to a sustainable innovation initiative:
(a) How to make my (customer service) idea work?
(b) How to make my idea work consistently?
(c) How to scale my idea up?
(d) How to make my idea profitable?
The idea / starting point
For Zappos the starting point (or idea / insight) was the innovation tactic of using a non-traditional channel to build customer loyalty and as a branding tool.
“Our best branding tool, as unsexy and low-tech as it may sound, is actually the telephone. And if we get that interaction right, it’s something they remember, maybe for the rest of their life, and tell their friends and family about.” Tony Hsieh, CEO and Co-founder Zappos
For online retailers the phone is a non-traditional channel, hence a way to be differentiate yourself from other online retailers. And they want to not just use the service calls not only to answer customer questions but also to make an emotional impact.
This their key idea but it requires more work to be called an innovation.
(a) How to make your idea work?
A key element to make their idea work was to empower their call agents by removing typical call centres constraints. Zappos decided their call agents would:
- Not use scripts,
- and not having to complete the call in the shortest possible time.
The idea behind this was not to “have scripts because we want our reps to let their true personalities shine during every phone call.” (Tony Hsieh) So, these are two measures to make their idea (a) work.
(b) How to make it work consistently?
Considering that “89% of consumers have stopped doing business with a company after experiencing poor customer service,” the bar is very high to provide customer service consistently well.
In order to provide a positive customer experience which is at the heart of the idea, Zappos decided to not only provide technical training but also:
- Provide training for employees at Zappos’ corporate university teaching courses such as “Science of happiness”, “Delivering happiness” among others.
- Incentivise call agents for positive service calls and giving additional training for the lack thereof.
There are more elements than these two but the point is that there are mechanism to ensure consistent quality of service.
(c) How to scale it up?
Scaling up your idea can be a major challenge. And it often differentiates successful innovation from one that get undone slowly. Executing a good idea once is achievable but cracks often appear when you scale up.
Zappos gives their call agents a lot of freedom to make commitments to their customers in order to provide memorable experiences. But where these promises require support from other departments, scaling up can be a challenge.
If you have silo mentality (or general lack of support) in your firm, the customer service team will get stuck. The organisational culture will ripple out to the customer and diminish the value of your innovation partly or completely.
Believing that “your culture is your brand” (Zappos CEO and Co-founder Tony Hsieh), Zappos have:
- Made cultural fit 50% of hiring criteria.
- Given all employee’s 10% of their time to spend outside of the office in team building activities in order to improve corporate culture / cohesion.
- Decided to let all new employees work in the call centre for the first 4 weeks, irrespective of the role they are hired for (includes senior management roles), so they gain understanding of the customer.
- Pay employees a generous bonus for leaving the company if they feel they don’t fit the corporate culture, so disengaged people don’t just stick around.
“Our number one priority as a company is our company culture. Our whole belief is if we get the culture right, then most of the other stuff, like building a long-term brand or delivering great customer service, will just naturally happen on its own” Zappos CEO and Co-founder Tony Hsieh
The scaling up question essentially asks what supporting elements are required to make your idea work. It can be cultural elements as in this case but it can also be other changes that are required within the organisation to scale your idea up (e.g. training, resources, additional communication channels and so on).
(d) How to make it profitable?
Always be prepared to answer who will pay for your innovation idea. Most innovation ideas cost something upfront (even cost cutting).
Your ideas will be paid for with additional future revenues, reduced costs (opex) or the cumulative effect of both. These get discounted at the cost of capital (CAC, WACC) or internal hurdle rate (depending on what your company uses to discount future cashflows with).
There are a whole lot of cost elements that you have seen above: (1) Zappos spends 20% more per call than other service centres for not limiting calls (2) 4 weeks of every new employee’s salary while they work in the call centre (3) running a corporate university (4) 10% of all payroll for the time spent on cultural activities (5) bonuses to leave the company. And this is not all.
Here are some of the elements how they pay for the costs of their innovation:
“Zappos uses a loyalty business model and relationship marketing. The primary sources of the company’s rapid growth have been repeat customers and numerous word of mouth recommendation. Of its customers, over 75% are repeat buyers.” Wikipedia
“We showed that in industry after industry, the high cost of acquiring customers renders many customer relationships unprofitable during their early years. Only in later years, when the cost of serving loyal customers falls and the volume of their purchases rises, do relationships generate big returns…. In apparel e-tailing, repeat customers spend more than twice as much in months 24-30 of their relationships than they do in the first six months.” Frederick F. Reichheld and Phil Schefter; Harvard Business Review
“Our whole philosophy became ‘let’s take most of the money we would’ve spent on paid advertising and paid marketing and instead of spending it on that invest it in the customer experience/customer service and then let our customers do the marketing for us through word of mouth’ and that became the whole business model” Tony Hsieh, CEO and Co-founder Zappos. And yes, the record calls stories are part of their free word-of-mouth marketing.
In summary the innovation is being paid for by:
- Minimised customer acquisition costs (= immediate saving).
- Higher customer loyalty & customer retention and hence high customer lifetime value (= future revenues).
- Free word of mouth advertising (= immediate saving).
- Premium pricing of their products compared to their peers (~20% higher pricing) – not listed above (= immediate revenues).
“Jam tomorrow – but never jam today”
Future revenue and future cost savings are possibly the most common arguments for innovation. But this sounds like “jam to-morrow and jam yesterday – but never jam to-day.” (Alice in Wonderland). Immediate savings and immediate revenues are more convincing than promises for things to always materialise tomorrow. Keep this in mind when you answer the question on how to make it profitable.
More on the numbers?
Many people struggle with the financial part of their innovation. It is important to at least have a basic understanding. If you struggle with this part and would like to learn more, please let me know. I am happy to have some dedicated posts on the financial aspects.
Take action now & boost your innovation skills
Improve your innovation skills while you still have it in your mind:
- What is one key idea on how to improve customer service? Apply the 4 questions on it.
- If you don’t know all answers get help from people in your company.
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