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.

Who says you have to be customer centric to thrive?

Is it feasible that companies are not customer centred because it is possible to thrive without being customer centric?  Before you dismiss this out of hand consider the following examples.

Mary Portas: Secret Shopper – last nights episode on the furniture industry

On Wednesday I watched the tv program Mary Portas: Secret Shopper which took a look at the furniture retailing category and found that it was anything but customer centric.

The marketing across the category is either misleading or downright deceptive.   There is one kind of sale or another on almost around the year.  The discounted prices on the furniture are nothing of the kind.  And the price guarantees are absolutely worthless because the retailers know that it is simply not possible for the customer to buy the same product from another retailer.

The focus of the sales staff is selling irrespective of whether the furniture meets the needs of the customers.  The sales folks even convinced themselves that they were customer centric when it was blatantly clear that they simply did not get what it means to be customer centric: to put yourself in the shoes of the customer and thus help the customer to make smart purchasing choices that they will be happy with – no buyers remorse when they got home. In fact it can be argued that the sales folks were doing rather well by not being customer centric: one of them claimed to have earned £57,000 in commission just through standard selling.

Management simply wrote off the people who felt aggrieved about poor quality of the furniture and the poor customer service.  Yet despite the negative reviews on the internet on CSL (the furniture retailer featured on Mary Portas: Secret Shopper) I do not see it closing down because customers are running to its competitors.  Why is that?

Because all the furniture retailers are at it.  They are all misleading customers with their marketing and price promises.  They are all getting customers to buy whatever makes the most commission for the sales folks.  And they are all offering poor customer service.  I believe that I wrote about how easy it is to become customer centric by disrupting category practices

Tesco comes 8th in the latest Which? customer satisfaction survey

Tesco is the UKs most successful supermarket brand.  You might then assume that it would rank highly in any customer satisfaction survey.  Well Which? polled 12,000 consumers and placed Tesco 8th with a customer satisfaction rating of 48%.  Aldi scored 65%, Lidl scored 64%, Morrisons scored 59%.  You can find the full details here.

Does this mean that you can thrive without being customer centric?  Or does it mean that there is little or no correlation between customer satisfaction and financial success?  Perhaps it means that the Which? survey is flawed.  You decide.

BSkyB goes from strength to strength

As far as I am aware BSkyB is not a brand that is loved by consumers.  My own experience of dealing with BSkyB was less than positive.  And yet BSkyB keeps going from strength to strength.  Recently it announced that at the end of 2010 it had over 10m customers (thus hitting one of the key targets) and half-year profits were up 26% on last year.

Is it possible that BSkyB is thriving because it has an effective monopoly on pay tv?  So if you want what Sky has then you have to go and buy it from Sky.  That is to say that BSkyB owns strategic assets that allow it to deliver less than great customer service.  I believe I wrote a post on the value of strategic assets.

Is it because it has branched into adjacent areas: telephony and broadband?  Is it because it offers bundles (pay tv, telephony, broadband) that other players find hard to match?

Or am I wrong and BSkyB is a great example of a customer centric organisation?

TalkTalk continues to be the second largest broadband provider.

TalkTalk is the UKs second largest broadband provider.  The negative reviews posted on this company by customers are legion.  It is a company that was investigated twice by Ofcom (the industry regulator) last year as a result of customer complaints.   And Ofcom found it guilty of breaching telecoms regulations when it charged customers for cancelled services.

If customers are so dissatisfied then why is it that TalkTalk has not collapsed?  Or at least shrivelled significantly?

Is it because they are locked into existing contracts?  Or is it because far too many customers simply are not willing to go through the inconvenience of switching broadband suppliers because they consider them to be pretty much the same.  Does this remind you of the furniture retailing example that I started this post with?