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.