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 impacts the long-term outlook for product sales. This dual influence causes both 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 Quality 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: Strategic Customer Service: Managing the Customer Experience to Increase Positive Word of Mouth, Build Loyalty, and Maximize Profits
In this chart, we see how the way a problem is handled can make a significant difference in the amount of repeat business the company will enjoy. While the data is for B2C commerce, since all business is personnel, the same trends are likely to be found in the B2B space.
For example, a major problem that is quickly solved will result in about 80% of the customer likely repurchasing from you. If the problem is fixed slowly, the likelihood to repurchase 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 goes to 0% unless your product is totally unique. Then they will repurchase but demand an extra long warranty period or insist on a Service Level Agreement with penalties for “poor” service. Anyway, you look at it; frustrated B2B customers do not make for a pleasant experience for anyone.
Mess up the handling of a customer problem and the business is very likely to spend a lot less with you than they did before the incident. Conversely, handle the problem 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 company’s ability to increase prices is impacted by the number of problems the customer experiences. These prices may be for the product and/or 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.
From this data, we see that about 10% of customers will be dissatisfied by any price increase, even with having experienced no problems. (I am in that group.) If they have as few as two problems, the percent 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 of your customers are imposing a penalty on your company for “stuff that happens” and quickly gets 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 resulted in a significant amount of lost revenue. As an example, when I was the VP of Service for a data communications company in the early 1990’s, one of our customers was the New York Stock Exchange. Their Network Director told me that if the network was unavailable for greater than a total of 40 minutes during trading hours during any calendar year, he had to report this fact to Congress. It also had a very serious 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 tried 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 Impacts Service Revenue
There are a number of ways that poor service quality impacts service revenue in addition to the examples discussed above.
The most important impact is on your time. Let’s say you head up the service business and you have a number of dissatisfied customers for a few different reasons. I bet a large portion of each day is spent talking with or visiting customers and trying to ‘talk them off the ledge.” You appease them, write some notes about what went wrong, and then get ready for the next one.
Eventually, you get time to consolidate your notes and start identifying the common issues your customer reported. Great! Now you can start the problem identification and solution process. You do a deep dive, identify the root cause of the problem, identify the best person in the organization to take in implementing a solution, and then move on to the next issue. And all the while, you are not helping your service marketing and sales people 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 just after the solution was implemented but while the customer is still unhappy. Since most service selling occurs in the last 3 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 for such a long time 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.
Poor service quality is a really big deal for both your customers and your own company. If you are not actively working to improve quality, you should start now. In fact, 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.