PLAYING PERCENTAGES CAUSED CONFUSION (UNDO); NEXT TIME, I’LL MAKE THE GRADE
I spent an interesting and enjoyable Thursday morning last week presenting a session on Marketing Myths and Concrete Promotion with the memberships of the Michigan Concrete Association (MCA) and the Michigan Aggregates Association (MAA) at MCA’s 2008 Winter Conference.
The morning was enjoyable, because I enjoy the constructive tension between audiences and speakers, the ‘heck you say!’ mentality of engaged meeting attendees, and the adamant look in an audience’s collective eyes as it challenges the speaker to wrest its confidence and sympathy.
As the keynote speaker for the opening session, I felt it was my duty to set the tone for the conference. I decided to begin my presentation by provoking conference attendees, confidently intoning:
"Marketing drives your concrete or aggregate business, responsible for identifying, cultivating, retaining, and helping you to profitably serve an increasing base of repeat and referral customers."
This provocation startled no one. With a number of MCA members nodding their heads in sympathetic agreement, I began preaching to the choir, working interactively with MCA and MAA members to identify and debunk common marketing myths.
Be Careful What You Wish For
The morning was interesting, because while debunking a myth about customer service, I suddenly, and with no intent or malice, became quite provocative.
In contention, was my assertion one-hundred-percent customer satisfaction is not a practical, profitable objective for your business.
I shared pleasing customers is something every business must do. I also shared research by Kevin J. Clancy and Robert S. Shulman showing that something less-than-perfect service is the most profitable position for a company.
Shulman and Clancy, in their book Marketing Myths that are Killing Business, proffer the average customer satisfaction level for most industries is 82%. They maintain companies able to improve this grade to 90% will blow their competition away and move to the head of the class. But they contend – and my experience in the ready-mix industry supports their contention – the money and effort required to move from 90% to 100% is often enormous, relative to the benefits.
Studies by Clancy and Shulman and others show as customer satisfaction increases, sales and profits also increase. But this holds true only to a point.
As the cost of satisfying customers moves beyond that point … Shulman and Clancy suggest 92% … the costs associated with increasing levels of satisfaction begin to erode profits.
For Instance
I shared this example with MCA and MAA members:
When I worked for Alby Materials in the 1990s, the expertise and strong service attitude of our dispatchers and ready-mix driver professionals resulted in an on-time delivery rates for our two plants exceeding 90 percent. This on-time rate percentage was significantly higher than our competition could manage, and one of the key reasons contractors were willing to pay more for concrete from Alby Materials.
Because of the expertise and strong service attitude of our employees, Alby Materials had a legitimate shot at achieving a 100% on-time delivery rate for a given annual customer volume.
But to do so would have required adding two-to-three additional trucks, three-to-five drivers, and serious cross-training of additional employees to be reserve dispatchers … and would also have required company-wide discipline to turn down additional work and hold the additional trucks and drivers in reserve, should problems arise in serving our existing customer base and annual project volume.
The cost of the trucks alone would exceed $300,000, significantly more than the pricing premium the market would be willing to pay for a 100 percent on-time delivery service promise from Alby Materials. Thus, moving from 90-plus percent to 100 percent on-time delivery for our existing, loyal, and delighted-with-our current-on-time-delivery-rate customers would have simply eroded profits.
It’s Not Always Wise to Play by the Numbers
Reading supporting arguments regarding how the costs associated with increasing levels of satisfaction beyond a given point will begin to erode profits does put the concept in solid perspective. But hearing those same supporting arguments can, and did, cause confusion.
Some MCA and MAA members perceived I was advocating providing good customer service only 82 percent of the time – that it was okay to provide ‘less-than-good service’ (my paraphrase of their sentiment) 18% of the time. They maintained one-hundred-percent customer satisfaction is indeed a practical, profitable objective for a business … that to establish a lower goal is counter-productive, even though 100% is almost (always) impossible – or at least impractical to expect to achieve.
Food for Thought
It is a long drive from Kalamazoo, Michigan, to my home base in 53172, and I had a lot of time to replay the confusion this portion of my presentation caused.
To MCA and MAA members:
A strong customer-service attitude is a key competitive advantage for your company and should be pursued 100 percent.
Every customer deserves your company’s best effort, in every customer contact.
But because service involves people, realize 100 percent customer satisfaction – though a great company attitude – is not practical.
In industries like aggregate and ready-mixed concrete, where the average customer service grade is a “B-minus,” achieving consistent “A” grades for customer service will move you to the head of your class and allow you to achieve higher margins in your market.
Customers cannot distinguish between consistently excellent service and perfect service. The costs associated with increasing levels of customer satisfaction from an “A” grade to an “A-plus” will indeed erode profits.
Because we are human, service mistakes will happen. When they happen, your company’s ability to implement, 100 percent of the time, an effective service recovery program, will keep your company at the head of its class.
I Stand By My Testimony
One-hundred-percent customer satisfaction is not a practical, profitable objective for your business.
An objective of providing consistently excellent service, though difficult to quantify, is a much more practical and profitable objective for your company.
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PS: The MCA Winter Conference was held at the Radisson Plaza Hotel in Kalamazoo, which promises 100% Customer Satisfaction. Should the hotel staff fall short of perfection, they pledge to make things right, or you don’t pay.