What exactly is the cost of poor customer service? TalkTalk provides an answer

What exactly is the cost of poor service?

In the main that question is difficult to answer because conducting experiments in the business world is not easy. Companies do not easily take up experiments that say “lets provide great service to this set of customers and poor services to another set and then lets study the impact over the next three years or so”.  Yet sometimes those experiments happen and we can learn from them.  So let’s take a look at the UK telecoms industry and TalkTalk in particular.

This week this piece of direct mail landed in my letterbox and took me by surprise: TalkTalk (a well known brand) is offering unlimited broadband for £3.25 a month plus line rental.  My first thought was ” So that is the cost of poor customer service!”.  Before I dive into this deeper and share with you the financial cost of poor customer service allow me to tell you a little about TalkTalk.

According to the latest UKCSI survey “Among landline providers BT is the most improved (up 2 points), while Talk Talk is the only telecoms provider to show a significant decrease in satisfaction.”

TalkTalk has been plagued by problems and customer complaints including being billed for services that customers had not asked for and/or did not receive.  And when the customers rang up and complained it looks like those complaints were not dealt with well.  So some of the unhappy customers complained to Ofcom (the regulator).  And after giving TalkTalk several warnings and time to clean up the mess Ofcom has hit TalkTalk with the largest fine ever imposed on a telecoms provider.  Whilst the fine is large (£3m) it is nowhere near the maximum (£150m – 10% of turnover).

So the first part of the financial cost of poor customer service comes to £5.5m: £2.5 m is the sum that TalkTalk has agreed to the customers affected and the remaining £3m is the Ofcom fine.  Yet there is more.

When I was teaching the value of marketing and service to a skeptical audience of engineering oriented analyticals I justified investments in these areas on the basis that it improves the customer experience and builds the brand.  And those in turn allow you to charge higher prices, spend less on getting new customers and make higher profits.  Was I justified in making that assertion?  I decided to take a look at the broadband market and the current deals that are on offer from the major players.   Here is what I found (disclosure – I have not done a detailed point by point examination of the functions, features, pricing.. yet where possible I have compared Apples with Apples):

Looking at the table it is immediately clear (at least to me) that if you deliver a poor customer experience though poor service then you pay a financial penalty in the form of a price discount – at least when it comes to the UK telecoms market.  Take a closer look and you will see the following:

  • O2 renowned for great customer service earns £100 more per customer per year – TalkTalk is charging 2/3 of the price that O2 is charging;
  • BT the biggest player in the broadband market and not particularly know for great service yet it can earn £67.50 more per customer per year whilst only allowing the customer to download 10GB of data per month.

The Bottom Line

By providing poor customer service and not dealing effectively with customer complaints TalkTalk has delivered a poor customer experience and tarnished its reputation.  The financial penalty has come in several flavours:

  • compensation to existing customers;
  • fine by Ofcom;
  • higher marketing costs to get new customers; and
  • having to substantially discount the price in order to lure new customers.

Service (how you treat the customer) in its many facets is critical to value you deliver to the customer.  I spelled this out indirectly in the following post which is worth revisiting: “Thinking strategically about customer experience: the five components of customer value”.  In a nutshell, in the informed customer’s mind there is more risk in doing business with a supplier that offers poor service and so the supplier has to offer a price discount and may be forced to do business with price sensitive customers rather than service centred customers.

Last words

Does your business focus on providing great customer service?  Do you treat customer complaints seriously?  No.  Then you may be the next TalkTalk.  Yes, then you may become the next O2.  As always the choice is yours.

Author: Maz Iqbal

Experienced management consultant working at the intersection of strategy, customer, and technology. Combine a tendency to think strategically with a penchant for getting my hands dirty at the coalface of implementation.

11 thoughts on “What exactly is the cost of poor customer service? TalkTalk provides an answer”

  1. Hello Maz, very interesting set of numbers, they certainly show something.

    I guess across talk talk’s customer base that makes a nice big financial whole

    Accepting that it is a problem, the question is how to solve it. Is it a people problem, a training problem, a process problem, a management problem, all of the above or something else?

    Where wouldd you start? I’d love to know.

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    1. Hello James

      What is the source of TalkTalk’s poor performance in handing customer concerns? A good question. The honest answer, Zen answer, is that I do not know as I have not been / am not embedded within TalkTalk to know what exactly has been going on. So anything that I write is simple a guess based on prior experience of working in business for the last 20+ years. Here goes.

      In the early days of business (and management consulting) I would have picked an element – people, process, technology…..- and say that is the factor that is responsible. Now that I am older and wiser (and there appears to be plenty of science) I tend to think in terms of ‘systems and structure’. And so I’d say that it is the interaction of leadership, management style, culture (accepted ways of being, thinking, doing), policies, people, process, data and technology that is the cause of this failure to do right by the customer. Great you say – that is useless as it really does not help me to address this issue. So lets attack this in another way.

      The source of the original problem appears to be the migration of customers from one billing system on to another. Clearly something went wrong in that process. But who designed the process? People. Specifically managers. Now why did the managers not get this right? From prior experience I suspect that the managers may have been under considerable pressure to ‘go-live’ on a particular date to appease The Tops. One or more people figured out they were unlikely to make that date. They sounded out the Tops and it became clear that the date was not negotiable (in one way or another). So the managers ploughed on and implemented the system on / by the given date even though they knew there were likely to be problems after go-live. Why does this happen? Because of fear. And fear is ripe in most organisations as they run on the ‘command and control’ system where you are do as you are told or you are toast – your career comes to an end. In such a climate there is no space for honesty, dialogue, questioning, collaboration.

      Moving forward lets imagine that customers are complaining about their bills by calling the contact centres. I have spent time in call-centres and my view is that some of the most powerless people (possibly next to the cleaners) are the call centre agents. They are simply told what to do and they do it. So they are unlikely to be the cause of the issue. But who sets up their terms of reference. The call centre managers. Why did they do this? Because they are viewed as a cost centre and their job is to keep the cost of handling customer interactions to a minimum. Follow the chain further and you ultimately end up with the following: leadership, culture and the performance management system as a whole incentivised people to do what is right for the company (as codified in company centred policies, KPI, processes) and not what is right for the customer. What is the word for that? I call it Policy. Policy is always articulated and enforced by those that have power – the Tops. What do I mean by policy? Think about Mao’s cultural revolution. Or India’s govt deciding to invest heavily in IT education back in the 70s and 80s.

      Final word, in the traditional product centred (push on to the customer, transactional model) the Tops excel at giving order (Command). In a customer-centric model the Tops have to excel at Listening ( to the customer, to the frontline staff). Yet that is a tall mountain to climb.

      What do you think?

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  2. Hi Maz,
    I think that I am right in saying that Talk Talk ever since its entry onto the the phone and broadband scene has always been beset with customer issues. All the way back to launching with free calls or broadband or something and then not being able to service the demand, their customers or needs.

    Competing at the low price end of the market is hard, particularly with rising customer expectations. If they want to stay in that segment of the market maybe they should concentrate on doing two things: setting the right expectations and getting extraordinarily good at delivering what they promise. Neither is easy and they seem to be failing at both.

    Adrian

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    1. Hello James
      As ridiculous as it sounds the Tops have little more autonomy and freedom than the contact centre agents. What do I mean? The Tops are embedded in the public company structure: make the short term (quarterly, half-yearly, yearly) numbers that the analysts are expecting. And on top of that the Tops are hostage to having grown up in a world of command and control where the company had all the power and the customer had no voice – no power at all. Which kind of explains why many of the companies that are groundbreaking (in my opinion) – Build a Bear, Zappos, Toms Shoes, Zane’s Cycles – are under private ownership. Or they were tending towards deaths door or a steady decline and so radical surgery was needed: Apple, Starbucks, IBM.

      Thanks for co-creating this conversation!

      Maz

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      1. Agreed. It’s a lot to do with incentives, tenure, ownership and timeline of horizon. I would throw in most family businesses into your mix too, Maz. They take a markedly different view of business growth.

        Adrian

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  3. Just to clarify a few points Maz, on an otherwise great article, BT’s Line Rental as you advertised is only so cheap if taken with their Line Rental Saver option (so Apples with Apples comparison is a bit misleading, BT’s standard Line Rental is £13.90 a month, rising to £14.60 in December).

    TalkTalk have, since BT announced their recent price increases for December, followed suit by issuing their own £9.50 “Value Line Rental” option for the 12 months up front from October 1st.

    I would otherwise agree 100% that loss of public confidence in your products is critical. However worse so, particularly in an industry like this, is the loss of public standing in relation to your conduct. If you are seen to be cheating, or concealing something, bad news can snowball.

    On another note, I was a billing platform project lead on a TalkTalk migration (business only) back in 2006 without any such issues cropping up. However it took a dedicated month to break down the complex data of another company in order to enable the recreation on a separate platform a new billing structure and hierarchy – and that’s without considering the impact on the customers (and that was for a few hundred thousand customers).

    I am no longer associated with TalkTalk in any way, though I can probably provide some insight if you ever wish to follow up your analysis of the company.

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    1. Hello David
      I thank you for taking the time to educate me – I really appreciate it. And I totally get the fact that technical projects can go wrong – I have been involved in some and at other times I have been bought in to turn them around!

      Maz

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      1. You’re welcome Maz

        With regards to migrations – as the old adage goes: “To err is human. To really make a mess of things, it takes a computer”.

        Reflecting on the current TalkTalk stigma, from my own perspective, they are no more at fault or billing incorrectly than say BT or recent mover and shaker in the industry – Daisy. The role of managing migrations is understated in many articles dealing with their woes and as you observed in your article, the Tops are often working to time-scales far out of synch with the technical difficulty of the projects.

        That the Tops appear out of touch with the actual impact of delivering these products badly (rather than simply delayed) is indicative of their rapid expansion and acquisition of multiple bases. The Tops are focused on the bottom line that they are/were employing 1000+ staff with the Tiscali brand, and 500+ with the AOL brands, plus maintenance of those facilities / billing platform / licenses etc. If the average wage is £15,000 then £35,000,000 a year in wages alone were saved culling those old segments. What proportion of that £35,000,000 shortfall in customer support was injected back into the 1st tier Customer Support I wonder? Is the £5m in fines and refunds significant in the face of these cost savings?

        A pertinent factor is the issue with their role as interlopers. It is vital when you are not as established a name in the market to not just be as good as the old supplier (or rely on goodwill) but to exceed the old supplier. Their are few analogies that can be made that compare to the kind of knife edge customer experience in telecoms (the energy industry probably most comparable) where simple mistakes can snowball.

        Customer focus, as a result, is vital for TalkTalk as is managing public perception. Unfortunately for TT at the moment, even closing down the redundant old AOL support centre in Waterford, Ireland, is spun into a tale of evil intent by the press when it’s simply a process of culling jobs that are duplicated many times over already (although I have much sympathy for those that lost their jobs). Their best attempts to counter BT’s PR machine fall flat, or can look petty and strident.

        TalkTalk as a result are focusing where it matters – in the wallet. To be £10+ cheaper a month on equivalent broadband packages is more important to tempt the 1 in 10 that will eventually leave BT this year.

        In stark contrast BT, rather vitally, do not have to migrate acquired customer bases between suppliers (and enjoy a synchronicity with the Openreach wholesale billing platform no other supplier has) so despite their customer services being no better (or worse) and their products more expensive they are more than able to manage public opinion by avoiding complex migration disasters and wholesale mass billing errors (at least those made public).

        A current BBC article deals with public reticence to move their services – and this is down to the feeling of comfort with their incumbent provider. BT may be billing wrong. BT may be more expensive. But without a negative experience of BT, what other motivation can be generated to get those people onto the web to find these competitive offers?

        When you see, as I do, dozens of people in their 70’s still being charged £3 a quarter for ye olde Binatone phones 30 years after they started “leasing” them from BT you get the feeling that if TalkTalk could keep their name out of the press for a few minutes, they could develop serious traction by focusing on the areas BT fall short by offering a more dedicated customer experience.

        I apologise for the meandering.

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      2. Hello David
        Once again I thank you for taking the time to inform me: you have opened up a view of the telecoms world that I did not have. And I am grateful as I love to learn! If I can return the favour then do let me know.

        Maz

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