Net Promoter Score Methodology Is Popular But Has Many Vocal Critics

Measuring customer satisfaction is a critical yet surprisingly complex endeavor for a company that wants to deliver "Perfect Service." It is the process that measures accomplishment in acheiving vision-critical goals, while fueling improvement initiatives in priority areas.

Obviously, asking customers how satisfied they are with a recent transaction is the most basic question of all, but for it to be truly meaningful, the question(s) itself must be just right....simple and specific.

One measurement technique, Net Promoter, has become increasingly popular over the past few years. According to its website, Net Promoter was developed by Satmetrix, Bain & Company, and Fred Reichheld, and the concept was first popularized through Reichheld's book "The Ultimate Question." The link to the site is http://www.netpromoter.com/np/index.jsp

In short, Net Promoter "is based on the fundamental perspective that every company's customers can be divided into three categories: Promoters, Passives, and Detractors.

By asking one simple question — How likely is it that you would recommend [Company X] to a friend or colleague? — you can track these groups and get a clear measure of your company's performance through its customers' eyes.

Customers respond on a 0-to-10 point rating scale and are categorized as follows:

---Promoters (score 9-10) are loyal enthusiasts who will keep buying and refer others, fueling growth.
---Passives (score 7-8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
---Detractors (score 0-6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.

To calculate your company's Net Promoter Score (NPS), take the percentage of customers who are Promoters and subtract the percentage who are Detractors."

For example, if a company's survey results found that out of 100 surveys, 50% scored 9-10, and 30% were 7-8, and the remaining 20% were 0-6, then the company's Net Promoter Score would be 30. The higher the score, the better. A negative score indicates real trouble. (Almost every Healthcare company scored a negative NPS, with CIGNA scoring a low -30.)

Companies use this score to determine, on a relative basis, how well they are satisfying their customers. It is a simple, easy-to-understand, method. Customer Satisfaction surveys around the world now include this one question.

However, the score methodology has numerous critics, citing flaws in its approach and lack of depth of information.

Barry Dalton, in a recent post from his blog "Customer Service Stories...And Other Posts", declared "there seems to still be an increasing number of customer service practitioners talking about NPS and staking a significant portion of their customer service time and resources on collecting it. At the same time, oversimplification of the concept is epidemic, creating a clouded view of the company's performance vis-a-vis the customer's perception." http://custservicestories.blogspot.com/2010/04/ultimate-question.html#comments

His main criticism is that the information gathered from this question is too generic to be meaningful. He believes that surveys should evaluate the specific interaction that took place, and not the intended bahavior (the recommendation to friend or colleague) after the fact.

Taking the critique a step further, Ron Shevlin, posted a scathing comment on Dalton's blog:

Net Promoter Score is the biggest bunch of snake oil to come to the world of management in 25 years. There's so much wrong with the metric, it would take a couple of hours to just begin to list the reasons.

Shevlin goes into detail on his objections with the score in his blog "Marketing Whims." http://marketingroi.wordpress.com/2007/01/11/stop-measuring-your-net-promoter-score/

In his post, he lists the reasons why companies should stop using Net Promoter Score in their surveys:

• Doesn’t help explain WHY a customer would recommend the firm.
• Measures intention, not behavior.
• Doesn’t capture inherent consumer differences.
• Can incent undesirable behavior.
• Uses funds better deployed elsewhere

"It’s been said that you can’t manage what you don’t measure. But a metric that doesn’t help you manage isn’t worth measuring. And the Net Promoter Score is a measure that doesn’t help you manage."

Next Post: My View On Net Promoter Score

Important Lessons In Collecting Satisfaction Feedback--Purchasing A Used Car From CarMax

After looking at the prices of larger, well-equipped new cars at local dealerships, my wife and I decided it made sense to check out CarMax, where we thought we could find what we wanted at a reasonable price.

Of course, we were nervous about buying used...I always think I am being taken advantage of whenever I am buying a car. The end result is typically an expensive nice car with expensive extra features I don't want and expensive warranties I don't need.....but at least we have a nice car. With a used car, I'm not even sure we'll get that!

So three weeks later, we are driving home in our newly-purchased auto from CarMax. (Yes, I bought the warranty....but the car price was fixed so I knew I wasn't paying more than anyone else...).

My wife was happy that she is now driving a nice car, and I was happy that I didn't have to pay a new car price for the "luxury" vehicle. I was also intrigued by the business model at CarMax and was overall pleased by the process that didn't make me feel like prey waiting to be pounced on by carnivorous salesmen.

So now it is several weeks later, and the CarMax Customer Satisfaction Survey arrives in the mail. When my wife and I sit at the kitchen table this morning to evaluate, I begin to understand that we view the experience very differently. And rating CarMax was not going to be easy.

What Is Being Evaluated?

CarMax's stated mission is to sell "great quality cars at low prices with exceptional customer service." To achieve that goal, the survey states that our "honest assessment" of the buying experience was needed. On the survey is our name, our salesman's name, and some coding presumably tracking back to the purchase...so nothing anonymous here. Also of note is that the survey is from CarMax itself, and not a third party like Dalbar.

My approach to the survey is to evaluate the "buying experience," using past miserable transactions as my benchmark. In that regard, I found the experience positive.

My wife's approach is to evaluate her satisfaction with "the car" as her primary satisfaction criterium, presumably using a problem-free new car as her benchmark. Since her car has been in the shop for a week fixing things we did not see on the lot, she is finding the experience problematic.

Both are legitimate approaches, based on the customer's expectations and definitions of satisfaction. And both viewpoints must be addressed for CarMax to achieve its stated mission.

The CarMax Survey

The CarMax mission can be broken down into three parts: great quality cars, low prices, exceptional customer service. Presumably, satisfaction must be evaluated across all three categories. Of course, CarMax may view the three categories with unequal weighting, such as focusing mostly on "exceptional customer service." If they did, they might be missing something important!

CarMax's survey starts with Satisfaction and Loyalty questions, including the ubiquitous "How likely is it that you would recommend CarMax to a friend or colleague?"

The survey then dissects the buying experience:

• Greeting at the Store
• Wait List
• Selecting A Vehicle
• Product Knowledge
• Communication Skills
• Appraisal Process (in case I wanted to sell my car to CarMax)
• Competitive Performance (versus other dealerships)
• Business Office/Paperwork

Then the survey veers into gathering information about how we became aware of CarMax and our shopping process and past experiences with CarMax, none of which evaluate our experience.

The survey, using a quantitative bubble answer format, leaves no room for explanation. In its instructions, however, the respondent is told he or she may use a separate piece of paper or log onto the website.

Clearly, CarMax has a business formula that is carefuly crafted in its mission statement: great quality cars at low prices with exceptional customer service. I am wondering, however, whether the survey will capture what it is looking for? No survey questions asked about our satisfaction with the vehicle we bought. Only one question asked about the price, and that only in relation to other dealers.

Our response to the survey?

Experience with sales process--Very positive (5 out of 5).
Will we recommend CarMax?--Not at all likely (1 out of 11).
We we buy from CarMax in future?--Not at all likely (1 out of 11).

My View

CarMax has identified the right buttons to push for a great buying experience. Its mission is simple and clear: great cars, low prices, exceptional customer experience. But all of these elements must be working in order for the customer to be truly satisfied. If one of these traits goes awry, then the whole experience is sour.

It appears that CarMax has focused its attention on its service, and has done a great job at making used cars sales a "less risky" and more "professional" transaction. Clearly the sales process has been carefully scripted and choreographed, and its survey asks for evaluation of each step. Good job here.

But it also appears that the other two elements of its mission (price and quality of car) may need additional attention. The best way to understand this is to ask. And CarMax missed the opportunity in its survey.

CarMax customer experience analysts will scratch their heads when they read our survey. It will say:

You did everything great BUT we are not satisfied nor loyal.

And they will not know why.

Can Healthcare Insurance Companies Transform Their Poor Image? CIGNA Is Going To Try!

There is no question that the Health Benefits, Insurance and Delivery industries are in major flux...increasingly expensive and seemingly not making anyone happy.

For example:

My health plan with United Healthcare simply can't get my dependents right. I have twin sons and the insurance company struggles with their having the same birthday. I also have a junior Christopher and we are constantly letting them know we are not the same person, which was a real problem when we both had the H1N1 flu and needed medicine. Just silly administrative nonsense that gets in the way of a bigger discussion.

Much in the same way that my son tried to order a "Hi C" from the drive-thru at McDonalds and instead received an "Iced T." A nuisance, but almost understandable.

Apparently Health Insurance Companies are beginning to wake up and understand that they have to address this high pay-low service reputation or their very existence may be in jeopardy. For example, CIGNA has enbarked on a mission to improve the clarity of its communications, as one step in its overall service transformation.

According to Linda Ireland, co-owner and partner of Aveus LLC, a global strategy and operational change firm, CIGNA set up a Customer Experience team whose mission is:

To help individuals enrolled in CIGNA plans achieve their health goals with helpful information, trusted support and excellent service. To do that we must: communicate simply, consistently, and in ways they find personally relevant, compelling and easy to understand.

In her blog, Customer Experience For Profit, she writes:

What I like so much about the CIGNA approach is that
they’ve articulated why they’re changing, what the plan is, and what’s been done
so far. I like that the changes they’re working on should strengthen their
experience while improving financial performance – fewer questions and problems
will drive down the cost to serve customers. And I imagine there was
some candid fact sharing in the conversation that triggered this effort, about
how they got to where they are.

You can read the full text of her work at http://www.ceforprofit.com/2010/03/will-cigna-free-its-customers-of-insurance-ese/

My View

The CIGNA focus on its service experience seems to come at a good time. Not only is the industry on an unsustainable path, but its performance has opened the door to government intervention.

CIGNA's Net Performance Scores (NPS), a measure of satisfaction (more on that measuring technique in other posts), is very low.

In late March, 2010, Satmetrix released its annual Industry Benchmark survey. According to the press release, Blue Cross Blue Shield of Illinois was the only health insurance company profiled with a positive NPS, scoring 5% in a sector with an average of negative 13%. CIGNA ranked last among major health insurers with an NPS of negative 28%. Full reports are available for purchase on http://www.satmetrix.com/and http://www.netpromoter.com/. A summary of the press release can be read at :http://www.customerthink.com/news/satmetrix_releases_net_promoter_benchmarks_for_customer_loyalty
A negative score means that more people rate their satisfaction poorly than acceptable. In an industry of major dissatisfaction, CIGNA ranked the worst.

I hope the efforts that CIGNA is undertaking are truly meaningful, not only for their millions of insured, but also to establish a new benchmark for the industry. As a former employee of this company, I hope it works.

This is one industry that can use Perfect Service.

Return on Satisfaction: Experts Struggle With Establishing Financial Metrics

There is a lot of thinking going on regarding establishing a financial Return on Satisfaction metric for companies looking to invest to improve customer service. While returns are tangible for productivity (expense) and features (sales), companies struggle to find the right metric that captures improving satisfaction.

In John Oswald's Buzz Tank blog, he captures the research that companies that deliver satisfaction are also more profitable. http://www.buzz-tank.com/2010/02/11/on-measuring-the-return-on-customer-experience/

Within the comments section is a challenge by Don Peppers, a principal at Peppers and Rogers, about taking these economic concepts down to the project level. These comments are below:

Financial success that seems to be correlated with better customer experience at a company is certainly welcome news, but it hardly helps a marketing executive during a debate with other executives at the firm about how much investment a company should make in which kinds of experience-improving services. It has become fairly easy to “prove” that good customer experiences have some kind of impact on a company’s results, but Martha Rogers and I have always been struck by the fact that all these indicators are inherently non-financial metrics. Using these kinds of indicators, you still can’t actually quantify the financial benefit of, say, investing an extra $25 million in contact center training, or installing software and re-engineering a system for $50 million, in order to do a better job of treating different customers differently more effectively.

And, if your marketing exec says, well if we want a good customer experience then we should just DO these kinds of things, then our question is: What if the cost is $100 million? Or $500 million? See the problem? At some point a balance has to be struck, but where? Simply saying that CXP leaders tend to have better financial results than CXP laggards won’t solve the hard problem of resource allocation. To solve this problem you need a metric for the benefits of customer-experience-management that can be converted to dollars and cents.

----------------------------------

Peppers and Rogers have developed a Return on Customer metric that uses many of the same principles as the Return on Satifaction metric in the Perfect Service construct. I will study the Return on Customer metric and determine its benefits/shortcomings for the financial/benefits industries.

My View

My comments on Buzz Tank blog in response to Don Pepper's post is as follows> (Shortened for convenience of readers....for full post, link is posted above)

Don/John:

I think the ultimate question for Customer Service specialists is the exact question you pose: how can I calculate a Return on Investment for ncreasing the satisfaction of customers. Ultimately, to improve experiences, a company must invest capital, and that capital must have return. As you state, in the macro, it all makes sense, but how about the micro…in the world of competing priorities…how do you get a customer satisfaction project funded? Productivity projects promise reduced expenses, feature enhancement projects promise increased sales and revenue. But what about satisfaction?

I have worked on this problem in the past and developed an ROI metric for translating increased satisfaction into financial return. While developed for financial and benefits servicing markets, I think it works in concept for others.

In short, for those clients impacted:
–Probability of retention of the prevent value of current profit margins

--Probability of additional sales to that customer at the present value of current profit margins

–Probability of additional sales from referrals from that customer at the present value of current profit margins

The return on the requested investment is how many levels of satisfaction will be increased through the execution of a specific project.

One can quickly see how the math sorts itself out. By determining the clients impacted, the improvement in satisfaction metric from a 3 to a 4 will result in financial gain for the company. The more clients impacted, the better the financial return.

Customer Service Starts With Caring

"Perfect Sales " Process: Finding Those Prospects Who Already Want Your Service

Part 2--Targeting Potential "Perfect Service" Disciples

As president of your company, you have already focused the company to differentiate using a premier service approach. You have implemented many of the tenets of "Perfect Service," have begun delighting your current customers, and beginning to focus on profitable growth.

Remember, the magic "Perfect Service" success formula: Satisfied customers will stay with you at premium prices, buy more services when appropriate, and serve as enthusiastic references for new customers. The sales idea, then, is to find more customers who will act as disciples for your success.

You have now segmented your market into three sets of buyers:

1. Low Cost Buyers
2. Rich Features Buyers
3. Premium Service Buyers

Customers who value your key proposition--Premium Service--will appreciate the unique nuances of your offering, and be willing to pay higher fees. Your growth strategy should be to dominate the Premium Service segment, while working to grow that segment overall. Larger slice of a growing pie, so to speak.

There are a few categories of potential customers upon which a sales organization may target. For expediency, I will call them all "Service Prospects.":

• Prospects who value your service proposition and are willing to buy from you;
• Prospects who value your service proposition but don't know you exist;
• Prospects who don't know if they value your service proposition but know who you are;
• Prospects who don't know if they value your service proposition and don't know you exist;
• Prospects who don't value premium service but know who you are;
• Prospects who don't value premium service and don't know you exist.

An effective sales effort needs to quickly determine into which of these categories a prospect falls. Depending upon sales situations and service offered, once the category is determined, sales efforts must be targeted and proportional. Selling a service requires intimate understanding of the prospects specific needs, so the correct solution/service may be offered. Cost of sales effort is likely to be high, and also requires a high close rate. This requires time and resources, and must be focused on those prospects that already value what your company offers.

The prospects you should see out include:

• Prospects who value your service offering, and who already know you;
• Prospects who value your service offering, and who don't know you;
• Prospects who are unsure about the value of service, but who know you;
• Prospects who are unsure about the value of service, and don't know you.

Once identified, it is not useful to pursue those customers who do not value your service proposition. You will spend a lot of time convincing them that service matters, and will likely entice them with lower pricing for service that they will not value over the long run. They will never be "Perfect Service" disciples. Therefore, do not pursue:

• Prospects who do not value service, but who know you;
• Prospects who do not value service, and don't know you.

It may seem elementary, but few companies are so focused on their competencies that they are willing to cede potential sales on the grounds that the sales efforts will be wasteful, and the subsequent relationship will never be totally fruitful.

My View:

Targeting the right customers is an essential first step for the "Perfect Service" organization. Creating customized service solutions requires time and effort to understand each potential customer's situation, needs, and desires. (More on that process in future posts.) So it is critical that there is a high probability for a successful sale.

How does a firm determine the prospect's buying criteria? It is not cookie cutter, but there are a few indicators:

How is the prospect currently being served, and from whom? This is often an indication of past buying criteria, as well as an understanding of the service the prospect is currently experiencing.

Why is the prospect undertaking the search? Oft times, it is merely a due diligence search required by a purchasing department. Other times, this question uncovers a dissatisfaction with current service. If the dissatisfaction is with price, it is strong indication of a commodity shopper...but not always. Price dissatisfaction could also be a prospect currently paying for service not valued.

Why is the prospect willing to talk to us? Somehow, the prospect is communicating with your company. If you called, then they took the call. If they called, there is something they want to know. Either way, the prospect is most likely willing to learn, either about your service proposition, or about your company.

By identifying the type of buyer, a sales organization can now get to work on finding service solutions for this company's unqiue issues. This is where "Perfect Service" is first demonstrated.

Designing A Customer-Centric Store: Thoughts About Best Buy

A Harvard Business Review blog entry http://blogs.hbr.org/hbsfaculty/2010/04/inside-best-buys-customer-cent.html describes how the electronics store Best Buy has seriously focused on designing its stores around the customer. Working on research about electronics purchasers, store management found that most buyers were women, and that women bought differently than men. They designed solution for women buyers. For example:

• women care about installation; men think they can do it themselves. Best Buy bought Geek Squad and packaged installation with all purchases.


• women care about bundles, like plugs and wire accessories; men think of these items as discrete purchases. Best Buy arranges its stores so accessories are conveniently located with the electronics.


• women often shop with children; men mostly solo. Best Buy has play areas in each store so Mom can get some quiet shopping time.

From shopping assistants greeting customers to selling solutions rather than products, Best Buy has transformed its experience in a way that has enabled it to survive the recent economic downturn in good shape.

The key to Best Buy's insight? It is the commitment of management to declare that to remain relevant in today's electronics marketplace, Best Buy needed to see the world throught he customer's eyes. Author Ranjay Gulati describes:

"Becoming customer-centric means looking at an enterprise from the outside-in rather than the inside-out — that is, through the lens of the customer rather than the producer. It's about understanding what problems customers face in their lives and then providing mutually advantageous solutions.

"It's the approach Best Buy took and it's a key reason why the company has survived in the tumultuous consumer-electronics marketplace, while Circuit City is gone. Best Buy took the time to understand who its customers are and what they need and then started selling solutions instead of products."

My View

As we examine the role that Perfect Service design plays in creating a successful sales process, it is useful to look at companies who have done so. Best Buy decided to take a traditionally price and features sales process and turn it into a needs and solutions process. It even targeted a specific buyer to make the experience even more specific!

The wisdom to do this is bold...and rare in business these days. Awareness is only part of the equation, since even with the knowledge, most managers do not commit to transform! States the writer:

"Even when a company and its employees try to make sense of what they are hearing from their customers, they often find themselves immobilized by their own organizational architecture — the internal "silos" that inevitably grow around specific units and functions.

"I hasten to add that there is nothing intrinsically wrong with silos. Division of labor, specialization, and departmental responsibility are necessities in any operation. But most firms today are still structured around product and geography. They have excellent perspectives on what they make and where they distribute and sell it, but poor views of customers and their problems. And these inadequate sight lines impede coordinated action toward solving these problems."

It appears that most companies desire to deliver a premium customer experience, some may even organize to gain insight as to what that experience entails. But too few actually do what is necessary to deliver that experience as a matter of competitive differentiation.

My comment on the HBR Blog:

"Great insight into a company that is taking its delivery of customer experience seriously. I took particular note of the comment that "it would be hard to find a CEO who would tell you that his or her firm isn't customer-centric already. And that's exactly where mass delusion begins for most companies."

"I have also found that many companies want to think of themselves this way, but do not have the nerve to walk away from any part of the market in order to focus on this perspective. So these campanies become pretty good at the customer experience, pretty competitive when pricing their products, and fast followers when it comes to product/service features. In short, they are pretty good companies on their way to long-term extinction.

"For companies to stay relevant and viable (read non-commodity), they must decide their market, and fully fill that market's needs in some dimension. For Best Buy, it may be service; for Apple, it may be product; for WalMart, it may be price. But in the end, management must decide and act."

Question: Are Sales And Great Service Really The Same Thing? Isn't It All About Meeting Needs?

PART 1

I've been questioned recently about the sales process, and have been thinking a lot about the similarities and differences between Sales and Perfect Service. That is, when a company designs its practices to deliver premier services, what does this practice do for the sales process?

Quality expert Joseph Juran observed, "There should be no reason our familiar principles of quality and process engineering would not work in the sales process." Juran was speaking mostly about efficiency and error-reduction, and many of his metrics are about productivity. But if we substitute the words "Perfect Service" , I believe we can get to a similar conclusion:

"There should be no reason our principles of "Delivering Perfect Service" would not work in the sale process." Further, for those companies who embark on designing a premier service offering, I would emphatically state that it is a requirement to align service and sales practices. One step even further, premier service and sales practices are the same thing!

Sales Training books identify specific steps or stages in a sales process. These generally include the following elements. I am going to group these into three broader categories:

Prospecting
Initial Contact
Application of Initial Fit Criteria

Consultative Approaches
Sales Lead
Need Identification
Proposal

Closing
Negotiation
Closing Deal Transaction

In my next few posts, I am going to examine some of these characteristics.

Hampton Inn Gets Its Guarantee Right, And Customers And Staff Know It!

The Hampton Inn, a mid-priced, value national chain of hotels, is obviously trying to be thought of as a "satisfaction leader." When you stay at one of their locations, they are going out of their way to make you feel comfortable, with free hot breakfast, or even a breakfast bag for those who don't have the time to sit down and eat, free high-speed internet service, and comfy, fluffy pillows, mattresses and blankets. It is clear from all of the signage and messaging, they want you to enjoy your experience.

But it is the guarantee that separates Hampton from the pack:

100% Hampton Guarantee

Read Our Lips:

100% satisfaction or you don't pay. When it comes to guaranteeing your satisfaction, we're much more than lip service. Since 1989 we've offering the 100% Satisfaction Guarantee to each of our guests: Friendly service, clean rooms, friendly service, every time. If you are not satisfied, we don't expect you to pay. Real value from your friends at Hampton.

Think about this. This is not about the cheapest room or the plushest amenities. This is about pure satisfaction, against a presumed Perfect Hotel Service model. One can only imagine the satisfaction categories that are being measured: clean comfortable room, convenient breakfast, basics like breakfast and internet included in price, friendly desk people.

Also think about this. The employees at each Hampton Inn know what is important, and knows the consequence of failing to perform. It is as clear as can be for staff and customers.

My View

My parents and their friends are from the car-trip generation where everyone piles in the vehicles and drive to vacation spots or to family who live out-of-state. They have recommended Hampton Inn to me for years, mostly because it is a good room at a good value and you get free breakfast. It is not a resort or a destination hotel, but they feel it is a good one or two-day transit experience.

I took a look at TripAdvisor (http://www.tripadvisor.com/) to see how travelers write about their experiences. It is one thing to say you want to service customers, it is another to deliver it in a way that customers want to talk about it.

Bartlesville, Oklahoma:
I like Hampton Inns, because you know what to expect, and almost all of them adhere to at least a certain minimum standard of cleanliness and comfort. The Hampton Inn in Bartlesville, however, is one of the best Hamptons I've ever stayed in. I think it is a fairly new facility - maybe 4 or 5 years old, but it has been very well maintained. The pool, breakfast room and common areas are all very clean and neat. The rooms are spotless and the staff are very friendly and helpful. I rate this one as excellent, because they deliver in every category of what this type of hotel strives to deliver. Like all Hamptons, it is not a luxurious, full-amenity hotel, but is a nice, reasonably-priced road hotel, that delivers great value for the price paid. It wouldn't stack up favorably against a well-run luxury hotel (in any category except price), but then it doesn't try to, so I give them an "excellent" rating, for being very good at what they are trying to be.

Quite simply, Hampton Inn is an example of a company that has figured out the path to excellence. Can your company be as clear in its mission, its priorities, and its commitment?

"The Appeals Practice"--A Growing Yet Short-Sighted Approach To Customer Service

My last post discussed two personal incidents that pointed out service lessons:

--don't just strive to be better than the competition; strive for perfection;
--service your customers always, not just when they threaten to leave.

The second "lesson" triggered some additional thinking about what seems to be a growing model of customer service, one that I will formally label "The Appeal Practice." This is the intentional business design to maximize the financial outcomes of the firm through excessive fees and reduced service, while enabling a "white gloves" team to do whatever possible to satisfy complaining customers.

In a recent Harvard Business Review blog, Peter Bregman (CEO of Bregman Partners, a global management consulting firm) discusses his recent poor service experience with his exclusive NYC health club. http://blogs.hbr.org/bregman/2009/10/the-price-of-a-poor-experience.html The lack of service to this member was clearly unacceptable. But what caught my eye was what happened next:

"A few weeks after I was refused entry into my gym, I canceled my membership. The way my situation had been handled put the gym, in my mind, in a category of cheaper gyms. The fees I was paying were no longer worth it to me. Once I canceled my membership, I received tremendous customer service — apologizing, putting me in touch with the general manager, offering to freeze my membership for another month without charge so I could think about it — but it was too late. I was already gone."

The health club business model (and Poland Springs in my earlier example) was betting that it could charge high fees, minimize service, and then recover enough to retain its business. In Peter Bregman's case, they lost. In my Poland Springs case, they may still have me as a customer, but likely it won't be for long.

My View

The "Appeal Practice" service model is as follows:


--Promise financial deals, exclusive image, and exemplary service to entice potential customers to purchase your product/service;

--After initial deal expires, deliver veneer of promised features/service while maximizing financials from client base through extra fees and streamlined service offerings;

--Most customers, once committed to the service/purchase, will not take the time to challenge, and the company will achieve short-term finacial success;

--For those customers who do challenge, provide extraordinary service and financial deals to retain them.

This practice is common, and growing. It is not, however, how companies that want to compete on delivering premier service should be designed. There is a lack of respect and trust between customer and company that makes this fail.

I commented on Peter Bregman's blog as follows:
---------------------
Peter--

I recently experienced (and wrote about) an interesting phenomenon that I believe is becoming common practice. I call this "The Appeal Practice." http://deliveringperfectservice.blogspot.com/2010/03/yesterday-i-had-two-experiences-that.html

"The Appeal Practice" is based on the model that a company can push outrageous financial practices (ie, raising fees, charging penalties, a la carte selling of basics, etc.) or deliver unresponsive services (automated services, denial of health insurance or prescription coverage, etc.)to maximize short-term financial outcomes.

Many customers will just go along with the offering, figuring the switching costs or time wasted in challenging is not worth the effort. These companies depend on those the passivity of customers for their practice to work.

However, to limit any potential negative impact, "The Appeal Practice" companies design elaborate safety nets to catch any customer who DOES have issue, or who wishes to terminate the relationship. As in the case of your Health Club, when you expressed a desire to leave, suddenly the service red carpet is being rolled out, including fees waived and new permissions granted.

This practice, which is increasingly being used by Credit Card companies and banks (for annual fees and late payment penalties), health insurance companies (for initially denying claims), hotels loyalty programs(for designating elite status), is spreading.

The result? The "passive" consumer is being served poorly and paying more for that service than the "complaining" customer.

The "Appeal Practice" maximizes short-term financial outcomes, yet clearly erodes any loyalty a customer may have for the company he or she deals with.
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Companies that deploy these types of service models are not interested in competing based on service, but rather are more interesting in the perpetuating a fraudulent relationship with their customers for as long as they can get away with it.