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.

How do you transform customer service? 7 lessons from Undercover Boss: npower

npower is supplies gas and/or electricity to some 6.5 million residential and business customers based in the UK.  It is a well know brand.  It is also a brand that is known for over charging customers and is facing fines of up to £2m if it does not comply with Ofcom’s order to stop silent and abandoned calls.  And according to the Undercover Boss that I watched this evening it has (or had) the worst customer satisfaction score according to Which?

In this post I simply want to share with you the stuff that struck me as being noteworthy as a result of yesterdays Undercover Boss programme that was shown on UK tv.

“Perfect for getting that insight that I just would not have seen in any other way”

Kevin McCullough, the COO of npower, who went undercover to work in and experience some of the key customer touchpoints (call centre, replacing meters, boiler services) and work in one of the coal-fired power stations made the following statement at the end of undercover stint: “This has been perfect for getting that insight that I just would not have seen in any other way”.

This is key insight and one that is not acted upon by most executives for most of the time.  Data and reports can be useful if they are used correctly yet too often they are used incorrectly.  Take the instance where Kevin accidentally deleted the customer record.  How would that experience be captured in a report?  That experience had the impact that it did have because Kevin experienced it – he lived it: he did not simply read about. What is likely to have happened if he had read about it?  It would probably have gone through one ear and immediately out of the other ear.  It might even have been coated with a particular attitude: people in the call centre whining again / they just don’t know how to use the system.

Lesson 1:  there is no substitute for walking in the shoes of your employees and customers.  Data and reports can be used to complement that experience yet they can never replace it.  Looking at the world of the customer and the employee simply through the data lens is like trying to capture a 360 panoramic view with a 35mm lens.  If you are a photographer you know exactly what I mean.

“Human element to it all”

When Kevin, the COO, was talking about decision making in Head Office and specifically about when the management team will close the coal fired power stations he because made the statement that the senior management tend to forget that there is “a human element to it all”.  Business is game between people: a game between flesh and blood human beings who have hopes, ambitions, fears, hardships, frustrations…..  And if organisations are going to be customer-centred or simply customer-friendly then these senior executives and all the managers who report into them need to get (at an experiential level) that customers are human beings.  And their staff – front office and back office – are human beings too.  Why?

If you fail to take into account this simple fact then you tend to do all kinds of dumb stuff like treating human beings as objects.  And this has consequences.  It means that most employees do the minimum they need to do.  It also means that customers do not feel any connection with the company because connection is an emotional bond.  And that is the very thing that executives are not present to because they live in a world of  ‘management by Excel’ where emotions are forbidden.

Lesson 2: the ‘age of the customer’ is the age of ‘human centred business’ – they are one and the same.  If you don’t  get that or that fills you with dread then you are better of playing a different game perhaps cost reduction or the next killer product.

“Impressed by the people”

In summing up his undercover experience the npower COO said that he was “Impressed by the people”.  He was impressed by the lady in the Complaints dept that was getting one call after another, day after day, from upset and emotionally charged customers.  Let me blunt – many of the customers are frustrated and angry and the dump that on the call centre staff.  You and I struggle if one person dumps on us.  Yet the Complaints folks experience endless dumping. Yet they are not responsible and in fact can only do so much to fix the problem.

Lesson 3: most employees want to do a good job even a great job – they want to matter, to make a difference.  If your employees are not doing that then take a good hard look at the management style and environment you have created.  Behaviour is a function of the context in which people are embedded.  And the strongest influence on that context is management style. Deming made this point brilliantly when he separated the performance of the worker from the structure of the system in which the worker worked.

Lesson 4: most failures in performance are the failures of senior management not employees.  As the npower COO said “I have seen it, I have lived it. It is my job to put anything wrong right.”  So stop looking toward customer facing staff as convenient scapegoats and take a good hard look at management practices and their impact on employees and customers.

“Most customers need a hero”

The npower chap who was replacing old meters with new meters made a great statement “Most customers need a hero”.  Most of us most of the time take our world for granted: it is a black box and that is fine because it works.  However when it does breakdown then we not only experience the breakdown as a disruption we also experience being powerless.  That puts us in a vulnerable position and we look for help: we look for a hero.

Lesson 5: most executive suites, despite the customer rhetoric, do not get (or do not care) that when customers are ringing customer service or waiting for the field service guys to arrive are looking for a hero – a competent and compassionate human being that will help them out with their problem so that the ‘glitch in the matrix’ can be fixed and everyday life restored.  Oddly enough, many employees on the front line do get that – at least before they reach the stage of ‘learned helplessness’.

Call centres are a key touchpoint and ‘failure’ is built into these call centres

The lady in Complaints (call centre) made three interesting comments.  Firstly, that one experienced (knowledgeable) person is worth hundreds of novices.  Second, that one of the most frustrating things for her was knowing what needed to be done to fix customer problems but not having the authority to do so.  Third, the customer care IT system had a glitch – badly designed.

This fits in with my experience.  Most call centres are staffed with people who have the absolute bare minimum knowledge/expertise.  Companies pay the bare minimum and there is a high turnover of staff.  Because there is a high turnover of staff call centre management do not invest in training.  After all why invest if the agents will be leaving you.  Furthermore classroom based training is not enough – most of the knowledge and skills you need come from on the job experience and you can only get that if you stay there long enough and many don’t.       The systems that call centre agents have to use are inadequate at best and woeful at worst.  In any case they are often a hindrance rather than help to the time pressed call centre agent who is being monitored on AHT.  Finally, you would be amazed at how much the call centre agents actually have on what matters to customers and what stuff is broken in the enterprise – from a customer perspective.  Yet, this knowledge is rarely tapped by the senior management suite.

Lesson 6: if you really want to improve the customer experience then take a radical look at one of your critical touchpoints – the call centre.  Don’t change what you are doing instead completely rethink and transform this focal touchpoint. 

Unrealistic performance targets

One of the points that became clear was that the boiler service guys were given some 45 minutes to do the job.  Yet even a simple job took over an hour.  Furthermore, travelling a distance of some two miles could take well over an hour due to the London traffic.  Yet, this reality clearly had not been factored in by the managers who had set up the 45 minute performance target.

Over 20+ years have experience have taught me that the vast majority of performance targets are ‘pie in the sky’ or ‘aspirational’ – choose whichever term you like.  The reality is the same: people who have to live with these targets either ignore them like the field engineer was doing as he was putting quality and safety first or people game the system.  When customer facing staff game the system then the person that suffers is the customer and if he is like me then he terminates the contract and looks for another supplier: The curse of the functional-activity-efficiency mindset: my British Gas experience

Lesson 7: the functional-efficiency orientated metrics are one of the key drivers of poor customer experience.  There is world of difference between efficiency and effectiveness: too many performance metrics drive efficiency (doing things right) and in the process drive out effectiveness (doing things right).  The impact is felt by the customer and incentivizes him to find another supplier – one that cares (more) about the customer.