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

September 15, 2010

“The best time to win customer loyalty is when you make a mistake.”  I heard this surprising comment from an IBM executive speaking at a professional conference, and not long after that had an experience that demonstrated everything he said.

My IBM Thinkpad laptop had developed a persistent but intermittent problem.  I’d sent it in for warranty repair, but it was returned with the problem still present.  When I called IBM they offered to expedite another repair, again paying FedEx overnight both ways.  But I was flying off to Europe in four days, explained that I needed a working laptop, and that this was cutting it too close for my comfort.  The IBM representative promised to see what she could do.  A few hours later, she called back, to say that she was working on it.  And a bit later she informed me that an IBM repair person would be coming out (by boat) the next day to our island home to repair the computer.  This wasn’t normal practice, and she had to “borrow” somebody from another department.  But no matter — I was visited by a knowledgeable repair person who quickly found the real problem, fixed it, and got back on the boat.

The transaction cost here was the cost of sending a repair person to our home — perhaps a half day of his time.  IBM certainly didn’t have to incur this cost, but they chose to.

But the much bigger cost (or benefit) was the opportunity cost.  For years after that I was raving to my colleagues and clients about IBM Thinkpad service.  I know this generated more than few additional Thinkpad sales.  Had IBM not come through, my comments might have been cautionary rather than congratulatory — even though I know that finding an intermittent problem can often be very difficult.

How often we think of the transaction cost, and totally neglect the opportunity cost!  And yet it’s been at those times when something was wrong and a vendor or restaurant or service provider came through that have really cemented my loyalty.

Here’s a very different story — of exactly what should not happen:

I went with a friend to a restaurant (that should remain unnamed) for lunch.  The food was excellent, and we thoroughly enjoyed the $8 half bottle of wine.  However, I was dismayed to find that we were then charged $10 for that wine.  I protested, and asked the waitress to correct it.  Instead, she explained that we’d be served the wrong wine, that its cost was $10, and that we should be paying for that wine. “You did nod when I showed you the wine bottle”, she noted.  When I told her to check with the manager, she left, and returned to put a new check on our table and then leave very quickly.  This time we were charged $12!  The manager later explained to me that, “We’re not in business to give away wine!”

Here the transaction cost was only $2 or $4, but the opportunity cost represents meals purchased by a large number of diners (myself included) who avoided patronizing this restaurant from that time on.  I was not surprised when they closed the following year.  Clearly the transaction cost was minuscule compared to the opportunity cost.

Making a “mistake” may not seem like a good thing, but recovering from one, or even from what the customer sees as a “mistake” can become a wonderful opportunity.  I could tell many more stories about businesses that have more than made up for something that appeared to have been done wrong.  However, just doing something positive, and incurring a transaction cost, may not be enough — as the following story demonstrates:

Years ago I had photographed a wedding for a well to do young couple.  My fee included a base rate, and then a charge per image proof that I delivered to them.  Several months after they received their proofs, the wife called me to order prints.  I noticed that at every step she was trying to bargain on price, as if she was annoyed at paying for the prints she wanted.  When I asked what was strong, she blurted out, “We told you we didn’t want pictures of people eating, but there were all these pictures of [and she named lots of relatives] eating.  And we wanted some good pictures of us, but you took so many.  We didn’t need all of those, but you’re charging us for them”.  It didn’t matter that there were some wonderful pictures of the bride and groom, or that  along with the people eating were some great portraits that could easily be cropped.

I immediately offered to refund the per-print charges for as many images as she felt I shouldn’t have taken.  “But what would I do with all those prints?” she exclaimed.  “I don’t want pictures of …”.  “Throw them out”, I suggested, “and just let me know whether you want a cash refund, or credit toward proofs.”  “But I can’t throw out good pictures”, she answered.

The irrationality of this was clear, but her upset was just as clear.  I suggested that she send me all the pictures she didn’t want to be charged for, promising  that I give her a refund for each and that I would then throw them out for her.  This, finally, was acceptable.  I scratched my head, but had a satisfied customer.

The lesson here is about listening.  This customer needed more than a dollar refund for the amount she felt she was overcharged.  She needed to be relieved of objects she had paid for that felt burdensome to her.  While the dollar cost  to receive and destroy some photos. was minor, the effort to determine this course of action was the significant part of this story.

People are not always forthcoming about how they feel they were wronged, or about what will make it right.  Our task is to listen carefully, to uncover the story, and to act boldly on their behalf.  Such listening is a particular challenge, for we must hear from somebody who is not our clone — who probably does not think as we do, and who may not have the same understandings or expectations.  It’s an exercise in empathy — in getting outside of our own conceptual and emotional space to enter into theirs.  Often, such careful listening is all that is required.  The customer wants to be heard, and may not require a particular settlement.

So, “The best time to win customer loyalty is when you make a mistake”.  That’s when the customers needs are greatest, the expectations are highest, and there is the greatest variation in how different vendors might respond.  You have a chance to make things right — or even more than right — even though the immediate transaction cost might be significantly greater than the profit made in the sale.  In the long run, over many experiences, the opportunity cost benefit will be the significant result.

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