Frequent Flyer Bile

One of my blog role-models, Kottke.org, relayed an amusing comparison between an interaction he had on Twitter with a corporate representative of Zappos, and one that an unlucky customer had with a representative of United Airlines.  The punchline isn’t too surprising: unlike the slick new-generation retailer (with which, by the way, I’ve only had good experiences), the old corporate dinosaur manages not only to create misery for the customer but also to very publicly bungle the follow-up.

Kottke avoids the easy commentary (i.e., the Seinfeld-ian “what is the deal with airlines??”) and gets to the heart of the matter by suggesting that the “customer communication problems” at United “originate higher up the pay scale” than whatever front-line rep was responsible for the Twitter faux pas (can I coin the phrase ‘dim twit’ here?).  I’ve certainly experienced the frustration of unsatisfying service, but I also tend to give the benefit of the doubt to the people on the front lines if it’s obvious that they’re many layers removed from any real authority (as opposed to, say, an inept waiter).  I’ve seen a couple of call centers first-hand and they can be about the most dehumanizing and miserable work environments that don’t require manual labor.  Imagine being asked to placate angry people all day when you most likely have insufficient information about the situation that causes the customer’s problem, very little discretion in practice to resolve it, and numerous competing objectives to meet in terms of call volume and quality.

I’m going to go a step further than Kottke and say that this evidence doesn’t necessarily indicate a customer communication “problem.”  I think it’s amazing that I ever get efficient customer service from most companies.  I also think it’s amazing that most people seem to expect that they can (and should!) get efficient customer service when they also demand low prices, high convenience, seamless execution and — and this is the big ‘and’ — actually aren’t willing to change their behavior when they don’t get it.

“The Customer Is Always Right” is a maxim that is probably about 80-90% true, but that we like to believe is 100% true.  (I’d posit that lots of rules for health and personal finance are in this category, like “Eating Your Vegetables Protects You From Illness” and “Stocks Deliver Meaningfully Positive Returns in the Long Run”.)  It is certainly true insofar as a business will fail if it doesn’t satisfy a real need in the marketplace (even if it is the enterprise itself that manufactures the need, like Apple and its magical little devices).  It’s also excellent guidance for newer businesses, and/or businesses in very specialized niches, that can learn a lot about how to refine their product and their pitch based on feedback from key customers.  It’s also probably a good rule for avoiding PR embarrassments or, worse, litigation or the scrutiny of sound-bite-seeking politicians.

The 10-20% untruth to this maxim is that it only applies to customers who are worth serving.  This isn’t a moral distinction.  Some customers (or types of customer) are unprofitable for businesses to serve.  You might be one of them!

I suspect it doesn’t often occur to people that they might be something other than a valued customer.  To be blunt, a valued customer is one that is profitable for the business to serve.  There’s some room for nuance — for example, offering different levels of service for different types of customer, or even explicitly charging for better service.  But, generally, a business serves profitable customers well because there is incentive for them to do so, and it’s probably priced into their product anyway.  Similarly, if a customer places disproportionate and costly demands on a business that operates on an insufficient margin to bear them, it literally destroys value for the business to transact with such a customer.  And if it would turn a profitable customer into an unprofitable customer to give them service at the level they claim to demand, the business is probably better off calling the customer’s bluff.  In the case of airlines, I suspect that price, convenience, and availability of flights are by far the biggest drivers of purchase decisions, so it would not obviously give a competitor an advantage to incur greater costs in providing service.

Some examples may help illustrate this concept.  I am clearly a valued customer of American Express.  Even though I never carry a balance, I generate hundreds if not thousands of dollars in interchange fees for them every year just for swiping my card.  The incremental cost of serving me is very low: I’d imagine their costs are pretty fixed in terms of maintaining their actual payment network, and I don’t have weekly calls with a customer service rep to see how they’re doing, so my revenue stream is very profitable for Amex.  If I ever lose my card, they will (and should) fall over themselves to get one back in my hands as soon as humanly possible. But if I ask them for a break on my annual fee, that’s a tougher business case to make, and they probably should call my bluff as to whether I’m really going to change all my recurring payments just to spite Amex out of a tiny percentage of my overall spending (not to mention the horror of having to present a plebian Visa on dates!)

I am not, however, a valued customer of Chase (although I don’t think they realize this).  I keep a pretty small balance in my checking account at most times.  They have the privilege of paying me nothing on my deposits, and they can go out and earn some sort of return by lending or investing them.  Based on the numbers in question, though, I’d be surprised if they earned more than $50 a year on this funding game – and then they have to maintain all these ATMs and branches and personnel and a snazzy website on top of all that.  I’m guessing I’m somewhere between break-even and modestly unprofitable for them.  For a customer like me to be profitable, the bank has to bet either that I’ll decide to buy other financial products for them on a basis other than price (the idea that I will pay for a banking ‘relationship’ is vaguely hilarious to me) or that I’ll screw up and give them reason to charge me a fee.  Is it any wonder that people think their banks are out to screw them?  They are!  It’s how you become a profitable customer!  (By the way, I’ve not had any explicitly bad experiences with Chase’s customer service, mostly because I’ve rarely needed it.)

If you are the customer of an international airline that, in a banner year, would be pushing a 5% profit margin: in how many circumstances will it really be worth it for them to make exceptions to their global logistics enterprise to make your life incrementally easier?

I think our intuitive notion of being a “good customer” goes like this: I’ve been a customer for N years.  I’ve endured various indignities and inconveniences to consume your product or service.  I tell my friends how great your product is.  And I even follow you on Twitter!  There are important nuggets in this narrative that suggest we should take a fairly broad interpretation of what it means for a customer to be profitable.  It’s nice to have loyal customers because you don’t have to keep incurring costs to acquire them.  It’s nice to have customers that have revealed that they are willing to accept less-than-perfect execution, even though they might complain about it.  These features are relevant to the bottom line — but only up to a point.

There are a couple of other confluent explanations for why people persist in having unrealistic expectations for customer service.  One is that it is possible to get excellent customer service from many businesses — namely, the businesses for which you are a profitable customer, and where you might actually walk away from bad service.  Another is that, well, most of us (myself included) like to think of ourselves as special little snowflakes and we don’t like being reminded (even implicitly) that we’re just another entry on a business’ revenue and expense lines.  Nevertheless, I think a dose of economic humility can help us waste less of our time, energy, and emotional capital railing against the service we get from companies that elect not to offer better service for sound business reasons – or at least encourage us to follow up on our threats to pay a little more for better service somewhere else.

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