Bad Service Can Be Good Business - Bill Taylor - Harvard Business ...

by Bill Taylor??|?? 9:30 AM August 8, 2012

It's hard not to be surprised by what you read in the newspapers these days, but a recent report in the New York Times left me downright floored. Richard Bove, a high-profile securities analyst who focuses on bank stocks, wrote a commentary that excoriated Wells Fargo for lousy service ? so much so that he announced he'd moved his business to a different bank. But that same commentary praised Wells Fargo as a company and upgraded its stock to a buy!

Bove's basic argument? Lousy service can be good business. "I'm struck by the fact that the service is so bad, and yet the company is so good," he told the Times, which devoted an entire article to his conclusion. "Whatever it is that drives people to do business with a given bank, in my mind, now has to be rethought."

Fair enough, let's rethink. There are, I suppose, a few situations where bad service and good business go hand-in-hand. The first is when companies are explicit with customers that service is not part of what they're signing up for ? in fact, that what the company offers requires a rough-and-tumble relationship with customers. A few years back, I wrote about the remarkable performance of Ryanair, the high-flying Irish airline that make no bones about its refusal to go the extra mile ? to the point where the company contemplated installing coin slots in on-board bathroom doors and charging customers one British pound to use the facilities.

But there is a method to the no-frills madness of CEO Michael O'Leary and his colleagues. Ryanair has reshaped air travel in Europe, with a business model that is relentless about cutting costs. By being draconian on expenses, Ryanair keeps its fares astonishingly low. As The Economist put it back in 2007, the company "has brought flying within the reach of people of the most limited means. It has helped to change the economic prospects of neglected parts of Europe by bringing passengers and their money to underused provincial airports. But at the same time Ryanair has become a byword for appalling customer service, misleading advertising claims, and jeering rudeness towards anyone or anything that gets in the way."

You don't have to like Ryanair to love its strategic confidence ? and to understand why it treats customers the way it does. The company, by definition, is not for everybody. Customers who value pillows and blankets, cheerful flight attendants, and apologies for late arrivals will take their business elsewhere ? and pay more for the privilege. That's the deal.

There's a second category of companies for whom lousy service may be good business ? companies whose offerings are so compelling, and whose reach is so vast, that making the investments required to deliver high-tough service would be making a big strategic mistake. One obvious example are young, fast-growing social-media companies such as LinkedIn, Twitter, and Quora. These companies offer global reach, attract tens of millions of users ? yet provide virtually no way for customers with questions to interact with them over the telephone, which has raised hackles in some circles. "All these companies stay away from phone support," one customer-service expert told the Times, which devoted a different article to this phenomenon. "People get aggressive or aggravated; people are depressed or crying. It's just hard talking to customers."

Not talking to customers certainly makes it hard for certain categories of customers, especially older users who aren't adept at online interactions. And yet, for now, high-touch service seems like an impossible dream. According to the Times, Facebook has one employee for every 300,000 users, and it handles two million online customer requests every day. Is it even possible to imagine a way in which Facebook could handle customer questions as if it were USAA or American Express?

But back to Richard Bove. What strikes me about the situation he describes is that Wells Fargo (or any big bank, for that matter) does not conform to either of these two categories. It is not such a one-of-a-kind competitor, such a game-changer in its field, that customers are willing to suspend their normal expectations because of the unique value proposition it offers. Nor is it pioneering new services that are so irresistible, or growing so quickly, that high-touch service is not in the realm of possibility.

Here's my question for investors: What is so compelling about what Wells Fargo offers that over the long run, the company can expect to deliver outstanding results if it can't deliver outstanding service? Bove's answer is that it may not be good at service ? but it's great at selling. He told the Times about what happened in his local branch after Wells bought Wachovia, the bank with which he formerly did business. The old branch featured a booth where a manager "used to stand to greet customers." After Wells took over, the greeter was replaced "by a desk where an employee was selling bank products." "Spending time solving problems with people is not selling products," Bove concluded. "It's wasting time." Or, as the Times paraphrased, "Catering to customers may actually distract from the pursuit of making money..."

I'm sorry, but I think this is backwards. When your company offers products that are pretty much indistinguishable from what your rivals offer, the only way to stand out from the crowd is to stand for something special. What do you offer that no one else offers? What do you deliver that no one else in your industry can deliver? Those are the questions that companies have to be able to answer ? and so few ever do.

Sure, in rare circumstances, bad service can be good business. But most of the time, companies that aspire to be great at selling must first be great at service ? to give customers, who have a vast array of decent products and prices from which to choose, a reason to come back and do more and feel good about their long-term commitment to the enterprise.

Source: http://blogs.hbr.org/taylor/2012/08/when_bad_service_is_good_busin.html

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