Aftermarketing News: Play Nice, Make Money

Greetings!

This month’s newsletter is brief, but important (Ok, maybe only to me) and deals not only with marketing, but with the way you do business and maybe with the way you choose to live your life.

Let’s start here. Studies in several industries have shown that the cost of retaining an existing customer is only about 10% of the cost of acquiring a new customer. We all know this, right? Some studies show that the cost of acquiring a new customer is seven times the cost of selling additional goods to an existing customer. All of us tend to assume that our existing customers are being well served by our organizations and maybe they are.

Let’s look at some successful companies which have built their businesses on the basis of exceptional customer service.

Nordstrom
A number of years ago, I had the pleasure of buying a suit at the main Nordstrom’s store in downtown Seattle from a gentleman named Patrick D. McCarthy. Mr. McCarthy wrote The Nordstrom Way to Customer Service Excellence in which he describes Nordstrom’s unique approach to customer retention. Nordstrom has been described as the “world’s best customer service company”. The Nordstrom family, which still runs the business, says that there is nothing special or magical or difficult about what they do and that the system is embarrassingly simple. “We outservice, not outsmart,” is a typical Nordstromism. Once you’ve been “outserviced” at Nordstrom, you never forget it and you’ll tell anyone who cares to listen (kind of like I just told you).

Sewell Auto Dealerships
When Carl Sewell wrote “Customers for Life” he was the top luxury automobile dealer in the country doing more than $450 billion in sales. Chapter one of his book leads off with the crux of his marketing program, “Ask your customers what they want- and give it to ‘em”. Another of my favorite quotes from the book is, “You can shear a sheep many times, but you can only skin it once.”

The consensus seems to be that if you basically treat customers well, they’ll develop a sense of trust, a comfort zone, if you will, and you’ll have a strong competitive advantage. How many people are going to quit doing business with someone they trust and try another company? Here’s a chart that illustrates this. By the way, if we’re all doing such a great job at customer service then this chart applies only to industries other than ours, right?

Let’s extend this idea of ‘being nice to people’ to how you deal with your employees. In Hal’s Rosenbluth’s book, Customers Come Second, he claims that if you treat your employees badly, they aren’t going to be too concerned about how they treat your customers. What does that cost you? Take another look at that chart. If it costs you a bundle to acquire a new customer and then 73% of them leave due to poor customer service it’s got to be pretty significant, doesn’t it?

Herb Kelleher, executive chairman and founder of Southwest Airlines is famous for saying that stockholders come third, customers come second and employees come first. “I always felt people come first,” Kelleher said. “If you treat employees right, they will treat customers right and people will come back, and shareholders will be happy.” Soon after Southwest began flying in 1971, it faced a choice of laying off employees or selling an airplane. It unloaded a plane. The airline has never furloughed employees.

Here’s a great Sam Walton quote; "The way management treats the associates is exactly how the associates will then treat the customers. And if the associates treat the customers well, the customers will return again and again, and that is where the real profit in this business lies."

Costs of training and turn over have been comprehensively studied for many years. Estimates of the total cost of losing a single position to turnover range from 30 percent of the yearly salary of the position for hourly employees (Cornell University) to 150 percent, as estimated by the Saratoga Institute, and independently by Hewitt Associates. For a company with 100 employees at an average salary of $40,000 and a turnover rate of 10%, the cost of turnover at a conservative figure of 90% of annual salary is equal to $360,000 per year!

What do employees want, after all? Employers tend to think that money is the most important motivating factor, but what people really want after a living wage is some sort of recognition.

Do you remember a guy named Abraham Maslow from your college years? Maslow, who held a PhD in psychology, served as the chair of the psychology department at Brandeis University from 1951 to 1969. Maslow created the now famous hierarchy of needs in which he laid out five layers of human needs. He explained that once a person’s needs for things like food water, safety shelter and belonging were met, that the most important needs were for recognition and appreciation. Studies in the business arena have shown that employee loyalty is enhanced more by recognition and appreciation than it is by higher than average salaries. In light of what we’ve said about customer loyalty, this makes some sense. If 73% of customers leave a business due to poor customer service and only 25% leave due to price, why wouldn’t these same factors have a similar impact on employee turnover?

The bottom line here is that if you’re just nice to people it pays off financially and it’s the right thing to do. What a concept, huh? And isn’t that the way you’d like to be treated in similar circumstances?

This brings to mind a trite little saying that we all probably learned in kindergarten or Sunday school, “Do unto others as you would have them do unto you”. This so-called Golden Rule is stated in just about every ancient writing about behavioral precepts including the New Testament and the Jewish Talmud. It is the second of the Four Noble Truths of Buddhism, appears in Native American spirituality and in the Analects of Confucius. Among the earliest appearances in English is Earl Rivers' 1477 AD translation of a saying of Socrates: "Do to others as thou wouldst they should do to thee, and do to none other but as thou wouldst be done to."

I don’t know about you, but it seems to me like we are living in a time when people are less tolerant of each other, quicker to place blame and willing to allow the ends justify the means.

How about it, folks? The Golden Rule as applied to business seems to make good financial sense.

Maybe this is open to interpretation or discussion but whether it turns out to be right or wrong, it’s the way we run our business, the way we treat people and the way we prefer to live.

We wish you Joy and Peace this holiday season.

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