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Cutting Back in Order to Save Costs


“Cost-effective” – what does that term really mean in the sort of business where customer service is a major factor? For example, what about cutting back on services in order to save costs? We’ve all had experience with businesses that have done that, and may business owners have felt tempted – if not pressured – into making service cuts in order to trim costs. How does that really play out?

First, it should be clear that the more you cut services, the greater the chances are that a significant number of your customers will have negative experiences. Cuts to floor and service desk personnel, shipping, delivery, checkout and return counter employees, to any positions directly or indirectly connected with providing your customers with the services that they want and expect – cuts such as these will leave some (and perhaps many) of your customers feeling slighted, ignored, frustrated, or just plain angry.

In some cases, such cuts might result in practical problems or financial loss for you customers, through delayed deliveries, a slowed-down return and refund process, or delays in repair or replacement.

Each one of these negative experiences comes with a price tag, in terms of unhappy customers, lost customers, or even very vocally hostile ex-customers who won’t hesitate to give you negative word-of-mouth. And the price of winning these unhappy customers and ex-customers back? Here’s a number to consider: It takes approximately 12 positive service experiences to make up for one negative experience (Ruby Newell-Legner).

If you’re cutting back on services, it’s going to be even harder – much harder – to give your unhappy customers even two or three positive experiences, let alone the twelve that it will take to win them back. It’s like trying to bail out a row boat when the hole in the bottom is twelve times the size of the bucket that you’re bailing with. The one thing you can count on is that you’re going to sink, unless you patch that hole – which in this case means restoring customer service.

“OK,” you say, “but what’s the actual return on having a high level of customer service? If I have first-rate service, with as many employees as I need to provide it, is it really going to pay, or am I better off going with an acceptable minimum of service – just enough so I’m not losing customers?”

Consider this statistic: According to Emmet Murphy & Mark Murphy, a 2% increase in customer retention will have the same effect as cutting costs by 10% (assuming that you could even make those cuts without losing customers in the process). In other words, the payoff for even a small increase in customer retention is equivalent to a significant reduction in costs. So you can achieve the same effect as cutting costs simply by maintaining a high level of service – and without the negative repercussions.

So when it comes to providing your customers with services, “cost-effective” means providing first-rate service with a first-rate payoff, rather than cutting back services as far as you can, and hoping you won’t have to pay the price.

If you would like to know more about how the ASK LISTEN RETAIN System or how it can help create customer retention and loyalty, please contact us.