"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:
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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.