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What Is Good Customer Service – 2 Models for Success

By Michael Lewis

clerk and a buyerAll companies claim to value and provide great customer service. But the fact is, few companies understand the components of the customer service model they promise, or deliver the level of customer service expected. In fact, according to a poll by American Express, 78% of customers surveyed chose not to make an intended purchase due to poor service, and 60% of purchasers were willing to try a new brand or company solely to receive better service elsewhere.

In an environment where all competitors have broad selections, similar brands, and low prices, excellent customer service is what differentiates retailers from their competition. Why then is mediocre or poor customer service commonplace, and how can management make a difference?

Today’s Retail Environment

Definitions of Customer Service

Large firms known as “category killers” and “mass discounters” dominate the retail market, led by the largest company in the world today, Walmart. Cost containment is the absolute bottom-line, competition is unceasing, and margins are razor-thin. As a result of Walmart and similar companies’ successes, two different models of customer service have emerged:

  1. Cheap Prices and Convenience. This model is more common as consumers generally have shown a preference for low prices when they consider products to be the same or similar. After all, how much difference is there in consumers’ minds between Kleenex, Puffs, and Kimberly-Clark facial tissues? Successfully implementing this model requires superior store design and signage to promote self-service, unwavering focus on lowering costs, and constant attention to inventory management. Examples of the model include Walmart, Target, Walgreens, and the revamped JCPenney stores.
  2. Personalized In-Depth Service. This model is most often compared to the “mom and pop” stores that characterized retail prior to the mid-1900s. Offering fewer products, the focus is on the customer-employee interaction in which the latter provides helpful advice and seeks to develop a personal, long-term relationship with the customer. Products are generally more complex, with performance features that may require instruction before use. Prices are higher to reflect the higher labor costs required to maintain a stable, knowledgable workforce. Examples of this model would include Home Depot, the Apple retail stores, Nordstrom, and Men’s Wearhouse.

Why Is Poor Customer Experience Common?

While technology and worldwide sourcing has made each customer service strategy viable, each is dependent upon a workforce to implement the respective strategies. Failure to deliver the  intended level of customer service is more likely a failure of the human factor, rather than the technical capabilities of a company. While consumers have been positively affected by the efficiency of technology and worldwide sourcing, which has led to more choices at lower prices, employees working in the retail industry have been negatively affected by fewer jobs, less upward mobility, and lower wages. As a consequence, turnover is high and employee morale is low. Paradoxically, these employees are most often the point of interaction with customers.

The retail industry remains one of the nation’s largest employers, representing 14.6 million jobs in 2010 (12% of the U.S. jobs). However, in 1999, the industry employed almost 23 million workers, according to the U.S. Bureau of Labor Statistics. In addition, wages have fallen significantly over the last 30 years, and part-time work has become the archetype of retail employment. As a consequence, retail has become the industry-of-last-resort for displaced workers at all levels of experience, education, and desperation.

In addition to the morale problems created by what many view to be a “dead-end job,” managers must work with an increasingly diverse set of under-educated workers who have little incentive to remain with a particular employer. Limited English proficiency (LEP) is also a problem, as many workers lack basic English language and literacy skills to perform all job functions.

Retail managers are generally forced to deal with a constantly rotating group of employees, with annual turnover rates of 200% to 300% eating up time and resources of HR departments and training professionals. Some observers believe that a new cadre of “migrant service workers” who move from one retail job to the next, learning no new skills and achieving few wage gains, will become the dominant labor force in retail and other service businesses.

poor customer service can lead to a bad experience

How to Improve Customer Service

The approach taken by management to improve the customer experience will depend upon which of the two customer service models is sought. And the choice of model will depend upon the following:

  • Desired Customer Demographics. According to PricewaterhouseCoopers in their Retailing 2015: New Frontiers report, the coming decade is likely to witness a widening gap between “haves” and “have-nots” in terms of wealth, education, and techno-literacy. The top 10% of households will account for a growing share of total income, while the young will be increasingly more technically oriented, more comfortable with self-serve venues, and less demanding of extensive people interaction. A successful retailer will be aware of these and other demographics, and will tailor its marketing and customer service to appeal to the desired market demographic which is likely to bring the greatest profits.
  • Available Technology. Technology has had a profound impact on the retail industry, enabling the “just-in-time” linking of all parts of the production chain, eliminating tedious mistake-prone counting of products in stock, and increasing the efficiency of cashiers with improved visuals, automatic scanning, and change-calculating registers. Signage and product price changes will be accomplished through a central computer within a few years, automatically updating prices and inventory levels throughout a store, territory, region, or company within minutes. However, installing or upgrading technology requires a significant initial investment with payback occurring over months and years. Success in a low cost, maximum convenience market requires extensive use of technology.
  • Available Capital. A company’s ability to access foreign suppliers, add product diversity, improve store layouts, and utilize technology to change its existing profile often depends upon the amount of capital which it can access. Larger companies generally have a greater variety of financing sources than their smaller competitors. Without sufficient capital, it is difficult to attain the scale necessary to generate large purchasing discounts or employ modern technology.
  • Company Goals and Competitive Environment. The success of a store is most likely dependent upon the competitive environment in which it is located. Walmart is notorious for taking market share from small retailers, often destroying a small town’s local retail businesses. Companies that try to “out-Walmart” Walmart generally have not been successful, lacking the capabilities that the larger company can employ. On the other hand, some very successful companies are content to be number two or three in a market that is large enough to support multiple suppliers, so that they too can compete with a low-cost, high-technology approach to the market. Other market participants prefer to compete for a smaller market share and higher profits by offering a different, “high touch, high level of personal contact” experience.

These two routes to competing on the basis of “quality” service have markedly different effects on the workplace and on jobs, and require different management approaches. Too many managers fail to differentiate between the customer service models, blending them together to produce a vague set of  meaningless measures and mediocre performance. Understanding what the targeted customer wants – low price or customization, convenience or relationship – and meeting his or her objectives requires a focused and disciplined strategy that extends throughout the organization.

Model 1: Cheap Prices and Convenience

In this model, management is typically in complete control with little autonomy provided to front-line employees. Detailed policies and procedures should be in place for employees, with detailed performance measures that are easily measured and constantly monitored.

If possible, interaction between store employees and customers is avoided, relying instead upon physical layout, signage, and popular brands to guide customers to their desired products quickly and efficiently. If customer interaction is essential, specially trained employees are usually easily identifiable and available on the market floor. These employees are likely to be higher-paid, with possible advancement available to them within the organization. People skills, flexibility, and problem solving are key requirements of their position, as well as desirable capabilities as they progress up the command hierarchy.

Most employees, however, are engaged in receiving, stocking, counting, and replacing inventory rather than direct contact with customers, and are likely to leave after short periods of employment. Recruiting and hiring skills are essential for management, but fortunately, these jobs are low-skilled, require little training, and can be learned relatively quickly on the job. Many successful companies elect to use part-time and seasonal workers, rather than full-time employees who are likely to be dissatisfied with the poor job quality and the lack of advancement opportunity.

If your preferred strategy is low cost and maximum convenience, you should:

  • Design your store with easily identifiable product areas with a combination of overhead, aisle, section and shelf signs so that customers can quickly locate the items they seek to purchase. Self-service is the primary goal, supplemented with quick check-outs and minimal delays.
  • Limit your products to brands with whom the customer is familiar, and that require little instruction or explanation from store personnel regarding installation or use. When selling similar products, differentiate them by price and/or provide signage that details the features of each.
  • Complement your physical store with an aggressively promoted website and social media presence to encourage online shopping and minimal physical presence in the store. Your website should include the same (if not greater) discounts and promotions as the physical retail location to spur activity.
  • Focus employee tasks on the receipt of incoming products, the movement of the product to the store shelves and their replacement, monitoring of inventory levels on the selling floor to minimize “outs,” changing and updating prices, and returns of flawed merchandise for maximum vendor recovery. Emphasize measurable performance factors with the workforce, and replace employees who fail to meet minimum standards.
  • Continually recruit employees due to the above-average turnover. Young people who are entering the job market for the first time or retired workers who are physically capable of performing the daily tasks are likely to remain longer than experienced workers who seek more fulfilling work.

walmart

Model 2: Personalized In-Depth Service

Customer service in this environment is more likely defined by the quality of the interaction between employee and customer than by the speed or expense of the purchase transaction. While inventory management remains important, the number and diversity of products in a personal service, high “touch” store is usually less than found in a mass retail, self-serve environment.

Employees are trained to fully understand the capabilities and limitations of each product, provide instructions or explanations for their use, and promote sales by providing answers, since customers are less likely to a have predetermined product in mind as is usually found in a self-serve milieu. In other words, their visit to the store is prompted by a need for a yet-to-be discovered solution.

Store employees in this service model usually have specialized training, a degree of autonomy, and positive attitudes, as they likely earn above-average wages and are likely full-time with benefits. Few of these characteristics are found in mass discounters. At the same time, employees are often required to meet higher sales goals while continuing to perform inventory and pricing tasks. If you have elected to provide high in-depth service in a high touch environment, you should:

  • Design your store to encourage browsing and complementary product sales. The purpose of the design and decor is to encourage longer stays, not efficiency as would a store focused on low price and convenience. Companies like IKEA and the Central Market Division of the grocery store chain H-E-B do an excellent job of directing shoppers through their facilities and ensuring they see most of the merchandise available for sale.
  • Employ product specialists for those products which are technically complex, higher priced, or popular to encourage interaction between the employee and potential customers. The employee should execute continuous product demonstrations to attract an audience of prospective buyers.
  • Establish “Preferred Buyers Clubs” and mailing lists of interested customers who can be solicited for special promotions, events, and exclusive sales. Salespeople should be encouraged to maintain their own cadre of “special” customers to build a long-lasting relationship with the store. Promotions might include price discounts that are applicable on the next or second visit to the store. For example, a customer buying a $100 item might receive a coupon worth $10.00 that would be used on the next visit, rather than be applied at the time of the original purchase. This practice will incur more frequent visits and foster a lasting affinity for your company.
  • Minimize the physical tasks of the store salespeople, focusing them on generating greater sales volume. Hire employees who reflect the appropriate image of the store, consistent with your desired customer demographic. For example, if your primary market is the middle-aged and up, your sales people should be of the same demographic. If your typical customer is a techno-geek seeking the latest and greatest technical innovation, be sure your salespeople are equally competent in technology and the accompanying vernacular.
  • Implement an extensive recruitment, evaluation, and employment process to employ the most qualified people available, and invest in their training. You should make every effort to minimize turnover, as each employee will have increased value the longer they work with the company. Promote within the company whenever possible to encourage their commitment to you and your philosophy. Just as you expect your employees to foster good relations with your customers, you need to make the effort and time to build relationships with your employees.

personal customer service

Final Word

Retailing – the sale of products – is the crux of business, and the ultimate source of revenues for everyone in the production chain. It is simultaneously the pride of American business and its shame. Consumers enjoy products of all types that are manufactured all over the world at prices that are affordable for most citizens. At the same time, the push for lower costs and greater efficiencies have created dismal working conditions for most retail employees.

Eventually, it is hoped that technology will eliminate the most tedious, repetitive tasks of the average retail worker prevalent in the Walmart model of customer service. If this occurs, retail will be the vehicle for long-term careers and job satisfaction enjoyed by the Nordstrom employees, and once again become the paradigm of American business.

How have your experiences been as a customer? How would you suggest companies improve your retail customer experience?

(photo credit: Dean Pictures, Bigstock)

Michael Lewis
Michael R. Lewis is a retired corporate executive and entrepreneur. During his 40+ year career, Lewis created and sold ten different companies ranging from oil exploration to healthcare software. He has also been a Registered Investment Adviser with the SEC, a Principal of one of the larger management consulting firms in the country, and a Senior Vice President of the largest not-for-profit health insurer in the United States. Mike's articles on personal investments, business management, and the economy are available on several online publications. He's a father and grandfather, who also writes non-fiction and biographical pieces about growing up in the plains of West Texas - including The Storm.

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