The best time to win customer loyalty is when you make a mistake

October 9, 2009

“The best time to win customer loyalty is when you make a mistake.”   I heard this from an IBM customer service representative who was speaking at a conference, and one of the best examples of this principle that I can cite is from IBM itself:

My IBM Thinkpad laptop would turn off intermittently.  I sent it in for warranty repair, and it was returned promptly . . . but after a short while I saw that the problem was still there.  I was leaving for Europe in a few days, and needed to take a reliable laptop with me.

I explained the situation to the IBM service rep on the phone, and she offered free expedited service — that should get my laptop back in time.  But I told her I was very nervous — really wanting to have it fixed locally and promptly.  She wasn’t sure what she could do, but offered to look for options.  A few hours later she called back to say that an IBM technician would be on a boat the next day,  coming to the island where I lived and worked. He was in a different division, she told me, but would be prepared to deal with my problem.

Sure enough he arrived the next morning, put his anti-static mat on our kitchen table, opened up the laptop, exclaimed that there was a loose ground wire causing our problem, fixed it, and left.  The problem was solved, and the customer was very happy.

The IBM speaker identified two costs in any customer service transaction — and particularly in one where the company made a mistake:

  1. The transaction cost.  In this case, IBM paid for several hours of a technician’s time — to accomplish a repair that could have been done more economically in their central repair depot.  That might have been a cost of several hundred dollars in this case.
  2. The opportunity cost.  I’ve never bought anything but an IBM laptop since, and whenever clients or friends have asked for my recommendation, I always tell them this story.  IBM has probably received tens or hundreds of thousands of dollars worth of sales as a result of this initiative.

Here another story with a very different ending:

A friend and I ate at a restaurant that  I’d enjoyed before.  We had a half bottle of wine, and didn’t notice that the wine we were served was not exactly what we had ordered.  However, I did notice the price on the bill.  We were charged about $5 more for the different wine.

When I asked the waitress to correct this mistake, she explained that they had to charge for what a customer consumed, and that I had nodded when they brought the wine to me.  I asked to speak with the manager, who later explained that, “We’re in business, and can’t just give away wine for free!”

Here the transaction cost was less than $5.  (The price difference was about $5, but the difference in wholesale prices was probably about half that.)  However, the opportunity cost was a huge negative.  I’d never been back there, and told all my friends to go anywhere but there. This restaurant is no longer in business.

When something has gone wrong, a business has a special opportunity to make things right for the customer.  Staff at IBM jumped through some hoops for me to fix my laptop and restore my confidence that I’d have it in time for my trip.  And the restaurant — well, communicated clearly that they don’t understand customers.

Here’s a less dramatic story of a company that won my loyalty:

I ordered my first computer from PC Connection.  I had specified several add-ons, from a premium manufacturer. Unfortunately, they installed lower price add-ons — probably just as good, but clearly not as expensive.

When I called customer service, they offered to replace the add-ons with exactly what I’d ordered.  However, I didn’t want to return the computer to them and wait.  “Could you just give me a credit?” I asked.  The answer I received really surprised me:  “How much do you think is reasonable?”.  I named a realistic amount, and her response was simply, “Would you prefer a merchandise credit, or a check?”.

PC Connection could have spent time and money trying to pay me a bit less.  But they chose to resolve the matter quickly, in a way that was sure to leave me satisfied.  (I trust that had my request been for an unreasonably large amount, they would have hesitated.)

What’s common to all these cases is that a problem one of their customers was experiencing became an opportunity for building — or destroying — customer loyalty.  Had I not experienced a problem with my IBM laptop and seen how IBM could respond, I’d never have become so attached to that brand.  And had the unnamed restaurant not tried to get me to pay for wine I’d not ordered, I might have continued to go and enjoy their good food.

Good customer service is the right thing to provide, and that may be reason enough.  But if you need to evaluate the real costs, be sure to measure both transaction and opportunity cost!

6 Responses to “The best time to win customer loyalty is when you make a mistake”

  1. A Pond said

    This is so true and great. When every thing runs smooth we might not notice. But when things go awry is when a good business can show its greatness. Same to be true for people?
    Or religions?

  2. Pam Rider said

    I have like stories, not directly personal.

    One is on billing. I worked in a public relations and advertising firm for a number of years. In the early days, the firm had shared office space with a colleague. That colleague represented a major local financial institution. One year there were numerous branch openings–providing hefty pr and advertising revenues. On what turn out to be the next-to-last billing from my employers’ officemate, he billed $0.50 for ribbon to be cut for a branch office opening. He lost the account because of pettiness.

    The other is a tale of two authors.

    The first, a favorite curmudgeon of my youngest son was at a book signing. In the preliminary remarks, he griped about publishers asking him to blurb other books. The fellow said he always refused: “Im’s a professional writer. Why should I give my words away for free?” He also griped alot about writing not providing a good income.

    The second, is Richard Lederer the wordsmith who has retired to my region. He spoke very generously at a local copyeditors’ group meeting. Lederer told of a friend who asked him to check out a book by a third party. Lederer read and actually provided help and further contacts. Later he gave a glowing blurb.

    A few months later, the mavin-punster got a call from “outta the blue” from a Caribbean cruise tour director. Lederer was offered a tour gig: He and his wife spent several seasons cruising the Caribbean and he gave a couple of (hilarious, I am certain) stand-ups.

    The tour director was the brother-in-law of the author Lederer had helped out of collegial goodness.

  3. Wonderful stories! I’ll add one…

    My wife’s car was recently broken into and she lost her Sirius satellite radio. If you’re a satellite radio subscriber, you know that once you go satellite there’s no going back!

    At any rate; we called to cancel the subscription on her unit until we replaced it. A Sirius rep started asking about what model we had lost. She said Sirius would send a refurbished replacement unit; all we needed to do was pay a $5.00 shipping fee.

    We gladly paid the $5.00 shipping fee and 3 days later recieved a new unit which was an upgrade from our original. The new unit was worth about $100 retail.

    It certainly wasn’t any fault on the part of Sirius that our unit was stolen. In fact, my wife had forgotten to lock her car for the first time in months, but Sirius stepped up with remarkable customer service and we’ve been talking about it ever since.

    They took advantage of our mistake and earned a customer for life!

    Best thoughts,

    Jim Bouchard
    Speaker, Excellence Coach and Author of Think Like a Black Belt

  4. Often when a mistake is made and customer service reps ask “What can I do to make this right?”, customers ask for less than what the company is willing to do.

    The “Name Your Solution” seems to be a powerful tool.

  5. So true! As hard as it may be to get past the egos, being upfront about something that could have gone better shows a tremendous amount of honesty and integrity.

  6. Jim Watson said

    Arthur, your point is spot-on. In fact, as I flew Jet Blue this past week, I recalled how they nearly destroyed their reputation and their business a few years ago, when they stranded thousands of passengers due to weather-related flight cancelations. But the entire company, from the CEO on down responded with immediacy and a “Customer Bill of Rights.” Their customer loyalty is now higher than it’s ever been.

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