IDEAS AND TOOLS
Managing Customer Risk
Elisa Mendzela suggests a risk management strategy - with a
difference - to grow your market share.
article was first published in the Chartered Accountants Journal of New
Zealand and is under copyright. If you use or quote from this material
please attribute it to the author and publisher.)
time you (or any one in your company) communicates with a customer
there's a risk. You may provoke a variety of reactions:
- dissatisfy the customer - by not fulfilling needs and/or
- satisfy the customer - by satisfying needs and meeting
- delight the customer - by exceeding their
expectations in some way.
those who delight can be certain of customer loyalty. We all know it's
far easier to keep an existing client or customer than attract a new
one. That's not to neglect the quest for new business, but we need to
first be mindful of the true value of existing customers - for renewal,
repeat business, or (best of all!) referral.
In today's fiercely competitive business environment,
is a key success factor. In many industries it's practically impossible
to make a difference with the quality and type of product or service
offered. For example, most banking services have become commoditized.
Banks find themselves in the thick of development projects to seek
"better" products to gain advantage over the competition. Most
developments are successful but it's never long before competitors
catch up or surpass them - for a short while. Then round it goes again.
commoditized, businesses can easily get caught in a downward spiral of
perpetual discounting - fighting for customer share. Differentiating on
product is rarely possible. And differentiating on price alone can
spell disaster - unless you're so huge you can command powerful
economies of scale.
So how can customer risk be managed? Up to a point, the same
way as any other risk - but then comes a crucial difference.
Identify the risks
At least once a year, pause to reflect - on your business position,
customer base, and assets (not just balance sheet assets like equipment
or stock, but people, expertise, technology etc).
even thinking about your staff, you need to know what business you're
in and who your customers are. Included here is knowledge of who your
most lucrative customers are and what they have in common. What would
tempt them elsewhere? Consider how their needs might be changing and
what your competitors are doing.
Quantify and analyse. Don't rely on hunches. We're often
systematic. Ask questions and find out answers. Core questions should
technology to help you process information and develop a more personal
understanding of, and relationship with, your customers.
- What brought your customers to you
- What your key customers want
- What they actually get
- How important this is to them
- How you can add further value to them
- How they view you against competitors
Know what it is that your customers are buying from you. What a
customer is purchasing may have little to do with the products or
services you sell, but something that resonates with that customer's
values. Examples might be prestige, dependability, convenience,
quality, youthful image, or security. (I recently talked with someone
who purchased accounting services from a well-known firm. As we talked
it became clear that he was not really purchasing accounting services
but rather "prestige", "dependability" and "innovation".) If we can
identify what customers are really buying we can tailor products and
services to truly match their wants and needs.
More "MAGIC" demands Less Control
In an increasingly competitive business environment, the smoothest,
most "customer- friendly" operation wins and retains customers. We can
go along quite merrily looking at strategy, collecting and analysing
information and formulating risk management plans. However, we may be
missing the most vital part of managing customer risk - how to motivate
staff to use their creativity and talent to produce superior results.
How do we encourage that "X" factor - the personal touch that
distinguishes excellent service from the adequate, creates customer
delight and raises profits?
It's people, not organisations, who have ideas. People
innovate. People build or break businesses. So managing the risk on the
people side of the equation is critical. But this doesn't mean control
- a command and control approach just doesn't work these days. Let me
During a recent stay overseas I worked with two major retail chains. At
the time, the retail sector was stagnant: declining profits, frenzied
competition, spiraling discounting. Both chains targeted middle to
upper income customers. In many locations, it was possible to walk from
one chain's store to the other's, and only cover a block or two
chain operated a "command and control style" of management. This went
as far as banning all employee bags in the workplace. Instead
management provided employees with a small transparent plastic handbag
to place lunch money, handkerchief, comb, or other small item. Each
employee had a locker in a room near the staff entry-exit area. This
was supervised at all times by security guards.
At the start and end of each day staff went to the locker
transferred items to/from their transparent plastic bags. Any larger
bags were left at security. Contents were always scrutinized, recorded,
and ticketed. You were given a receipt on the way in, and handed it in
on the way out - if you wanted your bag back! The entire store operated
in a similar fashion - Theory "X" operated (employees are not to be
trusted. They are lazy (bad) and will only work if you make sure they
felt de-motivated. Service delivery (and profits) were taking a tumble.
Management's answer - "incentives". Staff received no salary only
commissions. Naturally, quite a few employees specialized in
"hijacking" customers. This was rife around customer fitting rooms (but
could even happen on a dual cash desk - if you weren't fast enough!)
went like this: As customers exited the fitting rooms, and whilst the
employee was hanging the unwanted garments on a rack (a company rule),
a poacher would slip in and whisk the customer off to the till. She/he
would process the transaction before you could say "Jack Robinson" -
responding to incentives. The poacher received someone else's
commission - someone who may have spent considerable time and effort
helping that customer.
to say a spirit of co-operation was absent within the business. The
trendy preaching about teamwork was there, but the practice wasn't. Any
supervisors on duty would usually turn a blind eye - they poached too.
Staff turnover was high throughout the company.
Not surprisingly, the chain soon filed for "Chapter 11"
The other chain I worked with operated a Theory "Y" style (people are
basically good and want to work). They managed the risk of customer
drift by developing excitement and innovation, founded on a sound and
well-communicated strategy. Management created an entrepreneurial
culture, with strong staff "buy in" to the vision, values and spirit of
So during the "tough times" when the Theory "X" chain went
Theory "Y" chain (Nordstrom) achieved growth in earnings, and 3 times
more profit per square foot of space than their competitors.
Their success was based on ideas like these:
Communicate the vision
At Nordstrom's, staff are left in no doubt about the vision, values and
priorities of the organisation. After careful recruiting (with
"attitude" more important than experience or product knowledge), staff
are welcomed to the company and told: "Our number one goal is to
provide outstanding customer service. Set both your personal and
professional goals high…"
number 1 rule is to use your good judgement in all situations. There
will be no additional rules. Please feel free to ask your department
manager, store manager, or division manager any question any time.
an amazing experience - to be part of an organisation in which people
are encouraged to achieve their goals and their department's - in
whatever way they feel is most appropriate. And it works!
What we're talking about is empowerment - a trendy word but a real
concept. To me empowerment is sending staff on a drive to somewhere
they want to go - somewhere wonderful. You've made sure they are all
driving reliable vehicles (recruitment), from spunky 4-wheel-drives to
nifty compact cars. Each knows the destination and the expectations
(vision, values, goals). You've provided them with the information and
support they need to get there (tools and coaching), so they can plan
their personal route.
they arrive at their destination, each can feel achievement and
exhilaration. Their planning and navigation were successful - despite
highly variable individual approaches.
don't worry if over the years the vision changes. The world is changing
fast, so it's not surprising if your vision changes too. Just keep on
communicating, capturing the imagination and enlisting commitment.
To be successful, individuals and teams need to measure and monitor
their performance, and set and evaluate goals. At Nordstrom's there was
open access to all the data needed for this. Each individual could have
a clear personal, team-wide, store-wide and (even) organisation-wide
understanding of performance. New sales figures were put on display
each week, not only for the particular store you were in, but across
the entire chain. There was also frank discussion about why targets may
or may not have been met. Positive strategies were shared. Coaching was
a key part of every manager's job.
Nordstrom's distinguishes itself from its competitors by its clarity of
purpose and direction and its commitment to staff empowerment and
entrepreneurship. However, staff are great team players too. The
incentives and recognition programmes, including one in which staff are
encouraged to praise and to document outstanding service delivery they
see in their colleagues, help build individual and team commitment.
Recognising and celebrating individual and team wins is a core
strategy, not a feel-good "clip-on"!
Lead by example
Getting buy-in from staff and creating the culture to sustain
excellence in customer service (every day!) is a challenge. Staff need
management to walk the talk and treat them with the same dignity they
would treat customers. In some of the better banks today, you will see
managers on the front line, helping out their staff during busy
periods. Try and imagine the "branch manager" of the 1970's doing that!
Encourage openness, demonstrate humility and learn
Encouraging honest "appraisal" of one another and of problems and
opportunities, and being open about one's own mistakes, helps cement a
positive culture. Culture is "caught" not "taught". It is founded on
honesty, humility and leadership. You can learn from your staff, just
as much as they can learn from you. Learning to recognize that is a
powerful step in the right direction for any organization.
Another key to managing customer risk is to think like a customer - and
get your staff to do the same. Your systems must also be tuned to such
thinking. I recently received an invoice from an insurance company for
a significant sum. Nowhere on the document was there a heading to say
what the Policy was - just a policy number and an amount due. I have a
number of policies, so I felt frustrated. The solitary statement
"Amount due" wasn't a warm fuzzy either!
Customers have choices. Without groveling, this should be acknowledged.
A simple concluding phrase like: "We value your custom" or "Thank you
for your custom", would help renew the positive "glow" of that earlier
Achieve consistency - across the whole experience
The chain of customer service is only as strong as its weakest link.
For example, at the payment part of the sales cycle you are still
vulnerable to customer "drift". This is a moment of truth. Your
customer forms an impression of your company here which colours
(positively or negatively) the whole service experience he or she has
had. To manage the risk of not achieving customer "delight" (and
therefore jeopardizing customer loyalty), you need to ensure this part
of your service matches the quality of the rest. Is your customer in a
hurry to do something else, standing there frustrated because of your
procedures or slow technology? Are you annoying them by "adding 30c for
Show courage and perseverance
Trusting people is an act of faith. Occasionally you'll be let down,
especially when moving from a control culture to one of empowerment.
But if you've got the strategy "sussed", communicated it well, gained
commitment, provided support and empowered your staff, they will
perform heroics for you and the bottom line will show results.
business risk through leadership in customer service requires real
stamina and courage. In the words of Peter Drucker, "In every success
story, you find someone has made a courageous decision". It's scary -
but it's worth it!