In the B2B world, capital equipment aftermarket service is unique. The quality of the service recovery not only impacts the revenue the service business produces; it affects the long-term outlook for product sales. This dual influence causes the CFO and Head of Sales to demand different outcomes from the service business. The CFO wants her service revenue NOW. The Sales head wants better service so she can sell more products to existing customers. And we Service Executives are caught square in the middle of them.
Impact of Service Recovery on Future Sales
Let’s talk about the impact of service quality on product sales first. Here is an interesting chart from Strategic Customer Service: Managing the Customer Experience to Increase Positive Word of Mouth, Build Loyalty, and Maximize Profits
In this chart, we see how a problem is handled can significantly affect the amount of repeat business the company will enjoy. While the data is for B2C commerce, the same trends will likely be found in the B2B space since all business is personnel.
For example, a significant problem that is quickly solved (fact recovery) will result in about 80% of the customer likely repurchasing from you. If the problem is fixed slowly, the likelihood of repurchasing drops to about 55%, and never fixing the problem means you only stand a 20% chance of selling to them again. In my experience, the likelihood of reselling if you never fix the problem is 0% unless your product is unique. Then they will repurchase but demand an extra long warranty period or insist on a Service Level Agreement with penalties for “poor” service. You look at it; frustrated B2B customers do not make for a pleasant experience.
Mess up the handling of a customer problem (poor recovery), and the business is likely to spend much less with you than they did before the incident. Conversely, handle the situation well, and your business will see an increase in purchases from the customer.
Impact Of Product Or Service Quality On Ability To Increase Prices
Let’s look at how the number of problems the customer experiences impacts a company’s ability to increase prices. These prices may be for the product and service. While many companies hold the price of their products, most service businesses increase hourly rates or service contract costs by a few percent every year to offset labor, benefits, and travel increases. Note: this data is from a TARP Worldwide survey of retail banking customers published in Customer Experience 3.0: High-Profit Strategies in the Age of Techno Service again by John Goodman. The actual numbers may not translate to your business, but the concept will.
This data shows that about 10% of customers will be dissatisfied with any price increase, even with having experienced no problems. (I am in that group.) If they have as few as two problems, the percentage of people dissatisfied with a price increase jumps to 40+%.
Think about this. Of those customers who have to take any action to correct as few as two problems in a year, 40+% will push back on any price increase. In other words, many customers penalize your company for “stuff that happens” and quickly get fixed under a service contract.
And, to add fuel to the fire, bad things happen if the fix takes a while, requires unusual effort from the customer, and results in a significant amount of lost revenue. For example, when I was the VP of Service for a data communications company in the early 1990s, one of our customers was the New York Stock Exchange. Their Network Director told me that if the network was unavailable for more than 40 minutes during trading hours during any calendar year, he had to report this fact to Congress. It also had a severe impact on his bonus. Can you imagine if we had ever caused such a situation and then tried to increase prices in January? Or what would have happened if we introduced a new product and wanted to get them to be an early adopter? My Christmas gift from the Sales department would have been a lump of coal!
What Happens If Your Customers Are Not Satisfied With The Way They Are Treated By The Service Team?
Poor CSAT is frequently described as, “You don’t care about us.” “You don’t take good care of me.” “It’s just too hard to work with you.” “It takes me too much effort to get anything done.”
What is the impact of these kinds of feelings?
Another lump of coal in your Christmas stocking!
How Poor Service Quality and Recovery Impacts Service Revenue
In addition to the examples discussed above, poor service quality impacts service revenue in several ways.
The most significant impact is on your time. Let’s say you head up the service business and have several dissatisfied customers for a few different reasons. You appease them, write notes about what went wrong, and then prepare for the next one. I bet a large portion of each day is spent talking with or visiting customers and trying to ‘talk them off the ledge.”
Eventually, you get time to consolidate your notes and identify the common issues your customer reported. Great! Now you can start the problem identification and solution process. You do a deep dive, identify the problem’s root cause, identify the organization’s best person to implement a solution, and then move on to the next issue. And all the while, you are not helping your service marketing and salespeople close business.
Another fact of selling is that you don’t want to place a sales call either while a problem is being corrected or after the solution was implemented while the customer is still unhappy. Since most service selling occurs in the last three months of the contract, any problems in that timeframe will delay or even jeopardize booking the renewal. Your salespeople may have to defer the sales call so long that the customer eventually says, “why did you wait so long to start the renewal process? You know our purchasing department requires three weeks for service contracts, and if there is any delay, we may have to initiate a new contract instead of renewing an existing one.” So, you caused another problem for the customer.
Key Takeaway
Poor service quality and recovery are a massive deal for your customers and your company. You should start now if you are not actively working to improve quality. Making and keeping a New Year’s resolution to improve your customer’s experiences with your business is one of the best resolutions you can make. As good as losing 20 pounds, stopping smoking, or being more considerate to your significant other.
About Middlesex Consulting
Middlesex Consulting is an experienced team of professionals with the primary goal of helping capital equipment companies create more value for their clients and stakeholders. Middlesex Consulting continues to provide superior solutions to meet the needs of its clients by focusing on our strengths in Services, Manufacturing, Customer Experience, and Engineering. If you want to learn more about how we can help your organization improve service quality and recovery, please contact us or check out some of our free articles and white papers here.