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Complaints
Necessary Evil or Opportunities?

If you are a parent, you may have sternly said to your children, “I’m really angry at you because you’re better than that.” Or when punishing them, you may have said, “Believe me, this hurts me more than it does you.” Children typically don’t believe this for a second, but once they have their own children, they have a different take on the negative feedback they received as children. At times, children drive their parents crazy because they don’t do what is expected of them. Children say one thing and do another. They forget to do what they promised. They speak out of turn. And as parents, we will not tolerate this behavior if we want our children to grow up to have good lives and be people we can be proud of. Sound familiar?

Fred Wiersema, business strategist and author, makes an interesting point about losing customers, saying that organizations have to be doing some pretty stupid things to lose them: “I disagree with the broad statement that says loyalty is dead . . . most customers are incredibly sticky . . . if you lose a customer, you have really messed up. Is there something wrong with your values? Is there something wrong with the day-to-day interaction of your people and their people? What’s wrong? Because you really have to mess up something to lose a customer.”¹

Considering the frequency at which organizations lose customers, it must be easy to be stupid. Jeffrey Pfeffer, in his book What Were They Thinking? says that when companies do stupid things, like driving customers away, it’s primarily because they aren’t looking at feedback. They just take a position and act without considering the impact of their decisions.² The Horizon Group found that retailers lose between 25 and 40 percent of their core customers every year. This means that most have to replace up to 40 percent of their business with new customers just to stay even.³

There are many ways to get customers to hang up on you or steam out of your doors, and some companies have tried them all. Two of the most common methods are to ignore negative feedback and to handle complaints poorly. Yet well-handled complaints can create strong bonds between customers and organizations. Sometimes, it’s a simple matter of letting customers know you value them.

Nurse Next Door, operating in Vancouver, British Columbia, uses the “humble pie” approach (acknowledging that it needs to learn something) to keep its customers. When it flubs, it sends a fresh-baked apple pie to the customer with a note that says, in effect, “We messed up and we are humbled.” This company estimates that it has kept $90,000 worth of customers with an expenditure of $1,300 on pies.⁴ The experience of Nurse Next Door is not unusual. Researchers some time ago demonstrated that effective complaint management can lower total marketing expenditures by substantially reducing the need for advertising. This savings in advertising can, in fact, offset the cost of compensating customers for their complaints. According to these researchers, you shouldn’t calculate just the profit margin on a single item of contention with a customer. Look at the whole picture—your total budget—they advise.⁵

In 2004, we received an excited e-mail from a gentleman who had attended one of our Complaint Is a Gift seminars. He told us about a telephone call that he answered as a favor to the Logistics team, who all went out together for a team lunch.⁶

The customer was furious and wanted service immediately. Unfortunately, there was no way she could get it over this particular lunch hour since the entire department was away for lunch. She ranted and raved about never buying another product from this major computer company. The representative listened carefully. In his assessment, the customer had been given “the royal runaround.” When she finally wound down, he hesitated a moment and then said, “My gosh! Thank you for calling and letting us know. This is a huge help to us. I’m so sorry you’ve had to experience this. We’re definitely a lot better than this. I’m going to do everything I can to fix this for you.” A long silence followed. He said that by the time the Logistics team came back and resolved her problem, the customer thought he was the greatest. He wrote, “If I hadn’t been exposed to the Gift Formula, I don’t know what would have happened. I probably would’ve said something that made her angrier. I also would’ve probably felt shell-shocked.”

Other times, a difficult situation provides an opportunity to wow the customer. Zappos, an online shoe company, learned that a customer purchased seven pairs of shoes for her mother, who was terminally ill. But because her mother had lost a lot of weight, the daughter wasn’t sure of the right shoe size. The mother passed away not long after the shoes arrived. Under the circumstances, returning shoes to an online retailer was at the bottom of the daughter’s immediate to-do list, even though the Zappos free return period expired after fifteen days. In the meantime, since Zappos knew that the size of these shoes had been a guess, a representative contacted the customer and asked whether she wanted to return any of them. The woman told the Zappos representative about her mother’s death and said she would send the shoes back as soon as she could.

Not exactly a complaint initiated by the grieving woman, but most customers hope that organizations will cut them a little slack when they face personal circumstances that make it difficult to comply with company policy. Zappos stepped up to the plate. It arranged for UPS to go to the woman’s house and pick up the shoes so the grieving daughter wouldn’t have to go to a UPS store herself. The next day, a big flower arrangement was delivered to her home—from Zappos. As the woman wrote online, “I burst into tears. I’m a sucker for kindness, and if that isn’t one of the nicest things I’ve ever had happen to me, I don’t know what is. So . . . IF YOU BUY SHOES ONLINE, GET THEM FROM ZAPPOS. With hearts like theirs, you know they’re good to do business with.”

A “wow” story if there ever was one. This comment was posted on July 7, 2007.⁷ Over the next four months, 181 responses were posted. The comment has been linked with literally thousands of other Web sites by people referring to Zappos’ heart; it’s been discussed in hundreds of blogs, and now you are reading it here.

Complaints Define What Customers Want

Customer complaints tell organizations how to improve services and products and thereby help them maintain market share. Leslie Byrne said that when she was the director of the U.S. Office of Consumer Affairs (OCA), she could tell which companies were doing a good job of pleasing customers and which ones were not by simply listening to the OCA helpline, where complaints come in about all sorts of companies. She cites a landmark study on complaint handling from which the OCA concluded, “far from being a pain in the neck as too many managers regard customer complaints, they are a marvelous source of crucial management information.” She advises, “Put a CEO on the company hotline. He will find out what customers think and he will find it out fast.”⁸ John Davis, former IBM representative, puts it in terms of competition: “The selling edge trick is to establish a continuously flowing pipeline from the customer’s mind to the salesperson’s ear. When you keep track of what customers want and do not want, what pleases and gripes them, you can adjust your sights accordingly and stay a step ahead of competitors.”⁹

Eileen McDargh, author and speaker, wanted to order an inflatable water bag that sits in a bathtub and can hold gallons of fresh water. It’s a great product idea for anyone living in hurricane-plagued Florida. McDargh, who lives in California, saw the product advertised in the Fort Lauderdale News and called to order one for her mother, who lives in Florida. The number in the ad was invalid, but McDargh thought the product was so great, she persisted, going online to try to order there. Unfortunately, she couldn’t order online because the product would be shipped to an address different from the one for her credit card. She found the company’s phone number and called directly. The operator reiterated that the company would not accept her order—period—if the product was for an address different from the credit card billing address!

This company missed valuable information as McDargh hung up in frustration. First, the incorrect toll-free line in its paid advertising isn’t going to get it any customers. Second, as McDargh pointed out, there are a lot of part-time residents in Florida. They are just as likely to be out of state when they see the ad but would want such a product for their Florida homes. McDargh pointed out, “With service like this, why would anyone even trust their product.”¹⁰ Fred Wiersema says that customers like McDargh may drive you nuts, but ultimately they are leading you to your future. He explains that these “lead” customers—if you listen to them—will take you places that in the future will seem perfectly normal.¹¹

If businesses are able to identify and meet customer wants and needs, customers will typically pay more for their products, even if they say they shop strictly on price. The companies, in turn, will spend money on developing products that they know their customers want. Repeat customers and their repeat business lower per-unit sales costs.

Customer complaints also provide an opportunity to form incredibly tight relationships with customers. A lack of them can result in the loss of customers. In simple language, one commenter on Matt Woodward’s blog stated the obvious: “Don’t you love companies that just get it? Companies that reach out and make an effort to be available and accountable to all of their customers inspire a real sense of trust and loyalty.”¹²

Peek in on Jim Norton, who blogs for Small Business Boomers, lamenting about the cost of not getting complaints.¹³ He describes a business-to-business situation that still bothers him after many years. A major error caused by his former company ended up making the client look very bad. No complaint was expressed, but as a result of the error, the client’s senior vice president decided to replace Norton’s company when the contract expired. The vice president swore his staff to secrecy. A year later, Norton’s company received a letter from the client’s lawyer indicating that the contract would not be renewed. Norton came to believe, “Those who say something about the short comings of your product or service want you to do better. The others want you to fail.” He says that that client was a dream to deal with in that final year, but as a consequence, he didn’t learn a thing about how to keep its business. He didn’t have a clue that the client was about to ditch his company.

A research group surveyed 1,179 department-store shoppers. It found that those satisfied with the department stores were more likely to complain than others. It also found, adding to a wide body of research literature that confirms these findings, that the complainers were more likely to remain loyal customers after they complained. This research group also compared so-called secure customers—those who were very satisfied with their shopping experience—with complainers. It found that the two groups had similar profiles in terms of age and frequency of shopping: forty-five years old and at least once-a-month shoppers.¹⁴ In other words, loyal customers and complaining customers look alike, even though they may not be the same people. If this is the case, then when you talk with a complaining customer, it would not hurt to assume that this is one of your loyal customers. That might impact how you deal with the customer under trying circumstances.

Time and time again, when companies listen to customers, they learn how to fashion products and services to meet customer needs, how to revamp internal processes for greater speed and accuracy, and how to lay the groundwork to better serve customers. Think about how many more inflatable water bags (there’s got to be a better name for this product!) the Fort Lauderdale company might sell if it could enable people to purchase from one part of the United States and have the product delivered to another. Amazon.com does it every day. This simple switch could mean the difference between death or survival of the business.

In many instances, the information a company obtains through customer complaints is impossible to get through any other means. Even if complaints are several levels away from a company executive who might act on a good idea (as in the case of the inflatable water bags where the complaint was made to the operator), companies can set up communication channels to learn about specific service gaps and product failures. Such an approach also enables the service provider to be able to say, “What a good idea. I’ll be sure to pass this along to our executive committee.” It is one of the easiest ways to make customers feel that they’re part of your business. Remember, your organization is being presented with an opportunity to prove its commitment to customers by addressing their concerns, even when a complaint seems minor. If your company wants to further engage customers, someone should contact them and tell them that their ideas were implemented.

Complaints: One of the Least Expensive Marketing Tools

Complaints brought directly to businesses are the most efficient and least costly way of getting information and an understanding of customer expectations about products and services. Other, more costly and less direct, methods include reviewing customer expectations in parallel industries; conducting transaction-based studies, such as using mystery shoppers or external auditors; and conducting comprehensive customer-expectation research, such as focus groups. And none of these methods will bring customers closer to you while the studies are being conducted. Further, while large companies can afford to conduct or commission market research of the type noted above, medium and small companies must rely on their customers to tell them what they think about their products and services.

Customers, in most cases, aren’t going to generate groundbreaking ideas for companies. They won’t come up with the idea for the Toyota Prius hybrid; they won’t think up the iPhone or the iPod, the Bose noise-reduction headset, or the Segway. Innovation is the purview of any company’s research and development department. But customer feedback can help fine-tune product concepts for particular groups of people. (Here’s a good example: call the product identified as an inflatable water bag a hurricane rescue pouch.) Richard Branson with Virgin Atlantic says that he gets a lot of implementable ideas by listening to Virgin passengers. For example, the idea for onboard massages came from his wife’s masseur, who flew with them.¹⁵

Furthermore, businesses may never understand customer needs until there is some kind of product or service failure. Complaining customers tell a company what does not work once its product has been invented and is being sold or serviced. But organizations must be willing to listen and have internal systems capable of integrating this type of feedback. Computer technology, for example, has been developed almost as much by users as by its owners.

For businesses that need to be responsive to quickly changing market conditions, listening and rapidly responding to complaints helps them stay in touch with customer expectations. Convenience stores, for instance, sell items that may remain in high demand for just a few months. Customer complaints (“Why aren’t you carrying . . . ?”) rapidly communicate changing marketplace interests. Other, less trendy businesses have learned this lesson as well. Market research can be static compared to the complaining, dynamic, talking marketplace. Notice how many times your own complaints actually contain a good idea for the organization. And when this happens, ask yourself whether you think there’s any chance that this idea will be presented to someone else and acted on inside the company. Chances are, it won’t.

The following is an example that we used in the first edition of this book, but it is a classic example of how important it is to listen to customers. In 1985, Coca-Cola was blasted with complaints on its 1-800-Get-Coke lines and protests at its Atlanta headquarters when it substituted its New Coke for what is today known as Coke Classic. Coca-Cola responded immediately to the outraged public, mollified shaken customers, and averted a potentially huge financial loss. When a company pays attention to its marketing research, it may hear only part of the story. After all, Coca-Cola had thoroughly researched the New Coke concept.

One of the most commonly talked about bad service experiences around dinner tables is the outsourcing of call centers. The trend to outsource this critical part of customer service seems to have turned a corner in 2007. Many American companies are beginning to realize that they lost customers because they outsourced call centers. Dell Computers, for one, brought back technical support to the United States for its corporate customers after hearing a numbing number of complaints about the quality.¹⁶

Alan Angelo with Afni, a call-center operation in Tucson, Arizona, points out, “We saw a lot of companies chase the low dollar overseas. But they weren’t seeing the level of customer service that Americans have come to expect. Now top companies are looking to bring things back to the U.S.”¹⁷ Most people know the comfort that comes from communicating with someone who shares their accent and cultural background. It is difficult for customers to understand how they can talk with someone in India to solve a billing question and then be transferred to someone in the Philippines to get a clarification on the question that the Indian call center couldn’t answer. Customer care is not a phrase that comes to mind when this happens. Albert Einstein summed it up nicely: “It has become appallingly obvious that our technology has exceeded our humanity.”

Some companies have been aware of the language barriers for some time and simply refused to outsource their call centers, among them Toyota Financial Services and Zappos. Because these companies resisted the urge to reduce costs in this way, they’ve had to make up for it on the service side. Both Zappos and Toyota Financial Services run top-notch call centers.

Marketing experts measure what they think is important when gathering customer feedback on a ratings feedback form. Hotels, for example, ask about cleanliness of rooms and friendliness of staff. Guests expect these things. What draws them in close, however, may be quiet rooms that have bright lightbulbs in the lamps next to the beds and alarm clocks that are easy to set so people can read themselves to sleep and know they’ll be awakened on time the next morning. Unfortunately, hotels almost never ask questions about lightbulb wattage or how easy their alarm clocks are to use or even quiet rooms. They don’t ask whether the point size in their room-service menus or the direct line of the hotel listed on the phone is large enough to read. But if hotels listen to complaints, and even encourage them from guests, they may learn about an entire array of good ideas. Market research can reveal these kinds of issues if carefully conducted, but complaints cut to the quick.

Hotels, in fact, create high numbers of problems for customers. One survey of people who have experienced service failures in hotels indicates that almost half of frequent-stay guests find it “common or frequent” to experience problems.¹⁸ The researchers, however, found that even with frequent problems, hotel guests can be won back. If guests believe that the hotel is not at fault or if an employee makes a mistake through carelessness, they are more willing to forgive. Nonetheless, speed of response to correct the problem is important—even in forgivable types of situations. Yet the researchers report that in 15 percent of the cases, the hotels studied did nothing when customers pointed out a problem. That’s not an option, according to customers. Guests are less likely to forgive when employee attitudes are inappropriate, when hotel policies are not clear (even if the customer misread them), and if service is slow or unavailable. Lack of cleanliness is the most difficult service failure to recover from. The researchers conclude, “The clear message here is that hotels need to review their policies and procedures with regard to service recovery and to ensure they are not falling into the traps identified.”¹⁹

In addition to calling attention to product defects, service shortcomings, and poorly designed systems, complaining customers can also alert managers to front-line personnel problems. Customers are usually the first to know when the company is being poorly represented by staff. In fact, managers may never learn about poor treatment of customers through simple observation of staff because employees generally behave better when their managers are around or when they know their telephone calls are being taped.

The Value of a Customer over a Lifetime of Buying

Loyal customers are not easily produced, though disloyal ones are. The multitude of statistics generated in this area suggest that if customers believe their complaints are welcomed and responded to, they will more likely repurchase.²⁰ In addition, long-term customers are not only easier to sell to but also easier to serve because they know how to get their needs met; they know your products, your people, and your systems for conducting business.

You might say that customers buying inexpensive services or buying where the margins are low are not worth significant sums of money. Besides which, the argument goes, if they have a complaint, there are always more customers where they came from. Here is where a long view is critical. If a customer purchases one $20 book on Amazon each month on average, the total payment to Amazon will be $240 each year and possibly $10,000 over that person’s lifetime. Each dry-cleaning exchange may only be $10 or $15. Over a lifetime, however, a customer can easily spend $30,000 on dry cleaning. And this says nothing about the number of friends or relatives a satisfied customer might send to a responsive dry-cleaning establishment. A household that spends $25 each weekend for pizza and sodas equals about $5,000 in just four years to the pizza company lucky enough to keep that household as a regular customer.²¹ It might not be a bad idea to imagine customers with Post-It notes on their foreheads with an estimated lifetime value number written on them. If staff imagine someone purchasing $5,000 worth of pizza, they might have a different reaction when an error occurs than if they see the person just as someone who comes in to purchase a medium-sized pepperoni pizza. Auto dealers really need to pay attention to this. The average American spends between $250,000 and $350,000 on automobiles in a lifetime.²² Automotive call centers could bring up a total dollar amount that a customer has already spent and potentially what will be spent. That might influence how a call center rep talks with the customer.

Some people refer to selling more to existing customers as customer share; market share refers to selling to as many customers as possible.²³ For most companies, about two-thirds of sales come from existing customers.²⁴ At a minimum, local store employees may recognize their frequent customers by face, but that doesn’t tell them the whole story about that customer. For example, in the early 2000s, the average Staples store customer spent between $600 and $700 per year.²⁵ If that customer also used a Staples catalog, he or she spent twice as much. Someone who used both the catalog and the store and also shopped online spent about four times as much as the store-only shopper.²⁶ Because of the volume a single customer can represent to a large retailer through several shopping media, and because no one can tell how much that customer is worth to the company by just looking at him or her, any customer complaints need to be handled very carefully and very quickly.

An IBM study suggests that if customers leave an establishment with an unresolved problem, less than half will repurchase. On the other hand, if customers feel their problems have been satisfactorily resolved, almost all will give the company another chance.²⁷ For every year customers are retained, they represent more in profits because marketing expenses can be amortized against long-term sales results.²⁸ Robert LaBant, senior vice president of IBM’s North American sales and marketing, indicates that for IBM, “every percentage-point variation in customer satisfaction scores translates into a gain or loss of $500 million in sales over five years.” He says that developing new business costs IBM three to five times as much as selling to its existing customers.²⁹

When Vonage, a VoIP (voice over Internet protocol) telephone company, went public with its stock, it released information to the Securities and Exchange Commission indicating a customer churn rate of 2.11 percent per month as of March 2006. That means seventy-seven thousand customers terminated service in the first three months of 2006. Vonage acknowledges that expending marketing revenues is essential to acquire seventy-seven thousand new customers every quarter to maintain revenue parity. Vonage was forced to report, “Therefore, if we are unsuccessful in retaining customers or are required to spend significant amounts to acquire new customers beyond those budgeted, our revenue could decrease and our net losses could increase.”³⁰ Vonage does not discuss the issue of retaining customers, but it does refer to the “significant amounts” required to acquire new customers. Since consumer research tells us that a high percentage of customers leave a business because of poor complaint handling,³¹ what easier way is there to retain customers than better handling their complaints?

The Danger in Setting Goals to Reduce Customer Complaints

Rather than trying to reduce the number of complaints, organizations need to encourage staff to seek out complaints. If a company’s goal is to have fewer complaints this year than last, it is easier to accomplish than you might imagine. Staff will get the message and simply not report complaints to management. How many times have you delivered a written complaint to the front desk staff of a hotel and wondered if your complaint was passed on to the general manager? Both authors have gone to the trouble to fill out response forms in hotels on a number of occasions, checked the box indicating that they would like a response to their complaint, and received nothing. Either this is extremely poor complaint handling or the complaint was never passed on in the first place. Glancing back after leaving the front desk, Janelle has actually seen hotel clerks tear up her feedback forms.

It’s possible that the desire to reduce complaints results in the statement “We never get complaints.” David Powley, an auditor for the ISO 9000 certification, says that when he hears that statement, he thinks the company probably would not know “how to recognize a customer complaint if it was staring them in the face.”³² Powley states, as do so many other researchers, that an “absence of dissent” doesn’t mean there were no complaints. Opinions count, even if they are not expressed.

Setting goals to reduce complaints can end up casting a pall over an otherwise excellent service experience. One of the finest automobile manufacturers in the world makes the number of cars available to its dealers dependent upon high numbers on surveys that customers complete after purchasing a new car. After a very fine sales experience from top to bottom, the salesperson tells the customers that they will receive a survey to evaluate their experience. Sometimes the salesperson asks, “Is there any reason why you won’t give me all 5s (the highest rating)?” or says, “Why don’t you bring the form back to me and I’ll fill it out for you to save you the inconvenience.” Some salespeople are even blunt: “We need 5 ratings from you in order to get enough cars to sell.” When we have told the salespeople that we wouldn’t give them straight 5s, they have bribed us for those higher ratings with free oil changes, tanks of gas, and in one situation, a complete set of upgraded tires. The genuinely pleasant experience of buying a new car just had dirt thrown on it. Organizations need to look carefully at the perks they attach to higher service ratings or lower complaint numbers. Staff members will figure out a way to deliver these numbers if it is in their interest to do so.

Shortly before Pan American Airways was sold to United Airlines, an angry staff member, in a letter to a newspaper editor, wrote that service had gotten so bad at Pan Am, customers simply stopped complaining. They knew it wouldn’t do any good. This writer told about a chartered Pan Am 747 jet filled to capacity with a group going to a weeklong Club Med vacation. The plane arrived at the resort a day late—with none of the passengers’ luggage! According to the frustrated former employee, not a single passenger complained.

Sometimes, a reduction in complaints can signal a positive trend. In such instances, the company is tabulating the number of complaints it receives about specific issues. For example, Brooks Brothers, Inc., enjoyed a positive reputation for producing high-quality clothing until the 1980s. Then management changed hands three times. The latest owners, Marks and Spencer, instituted new quality-improvement measures and saw specific complaints about the quality of goods reduced from 25 percent to 5 percent. That’s significant.³³ Still, Brooks Brothers knows only that complaints about quality are dropping; the figures do not tell the company exactly how customers evaluate its products overall. In 2003, Adelphia, a cable television provider, had the highest number of recorded complaints in the city of Los Angeles. The company went to work on the specific issues involved and a year later had reduced complaints by 54 percent. One reason this worked is that the company also set goals to improve communications. In Los Angeles, this meant hiring Spanish-speaking customer service reps who are available 24/7.³⁴

To Get the Complete Story, Go After Hidden Complaints

Sometimes complaints are hidden from companies because of the structure of their businesses. As a result, companies have to be creative in how they hear about customer complaints. Some amusement parks, for example, outsource critical aspects of their business. Many subcontract their food services, allowing park owners to concentrate on park management. Subsequently, food complaints decrease, or at least complaints reported by the food services to park management decrease.³⁵ From the perspective of those who attend one of these amusement parks, however, that bad hot dog or surly treatment by a vendor is still seen as the park’s responsibility. They don’t know that the restaurant is no longer directly managed by the park. The park, in turn, learns little about the bad service and, thus, is unable to fix it.

Some companies conduct customer satisfaction surveys to learn more about hidden complaints. This is a good idea, to a point. But who normally participates in such surveys? Existing customers. Unless a company makes a point to ask everyone who used to buy, it is polling only those people who are still buying. These customers are still sufficiently satisfied to stay. Customer satisfaction surveys are not representative of your dissatisfied customers. They may give you some ideas, but you need to go after the customers who have left and find out why they left. Then the company can find some real gifts.

If companies look only at the people who ordinarily complain, rather than seek out additional feedback from noncomplaining customers, they may not have a complete picture of who is dissatisfied or why. People who complain tend not to be typical of the total population with unvoiced complaints. In the United States overall, the person most likely to complain is a younger, well-educated white male with a higher-than-average income.³⁶ This may not be the same person who is most likely to buy from a particular business. For example, this person isn’t a typical McDonald’s customer.

Word of Mouth and Complaint Behavior

Businesses are understandably interested in what the public says about them. Word-of-mouth advertising can make or break a business or product, and every dissatisfied customer who leaves a business represents a potential threat in the marketplace with respect to word of mouth. Complaints can work for or against your company in the following ways:

• People are much more likely to believe a personal recommendation than an advertiser’s promotional statements.

• Effective complaint handling can be a powerful source of positive word of mouth.

• The more dissatisfied customers become, the more likely they are to use word of mouth to express their displeasure.

Let’s consider these factors one by one.

People Are Much More Likely to Believe a Personal Recommendation Than an Advertiser’s Promotional Statements

A General Electric study found that recommendations made by people that customers know carry twice the weight of advertising statements.³⁷ Perhaps you have seen a sale come to a halt as a person standing next to a shopper whispers, “I wouldn’t buy that. I have one and it breaks easily (or the colors run or the quality is bad after a single wearing or it doesn’t work the way they say it does or you can get a cheaper one somewhere else).” But the sale will likely be made if the person recommends, “Oh, I have one of those and it’s great. I love it. And the guarantee is a very good one. Definitely get it, and you’ll think it was one of the best buys you ever made.”

Every bad word told and retold about a business becomes that much more difficult to overcome through marketing promotions. People are far more willing to listen to the advice of a good friend, or even a perfect stranger, than they are to believe a multimillion-dollar advertising campaign. John DiJulius, with John Robert’s Spa in Cleveland, Ohio, talks about pulling out all stops to more likely create positive word of mouth when a customer has a complaint. One customer came into his salon for a hair coloring and ended up with a stained suit. DiJulius sent her a large check to cover the cost of the suit after a trip to the dry cleaner didn’t work. He also gave her a free facial and pedicure. DiJulius estimates that he’s gotten thirty additional customers from this gesture, and the customer is also now coming in for facials and pedicures on a regular basis. She says, “At first, I thought about never going back. Now I would never think of going anywhere else.”³⁸

Negative word of mouth can even affect an entire industry dramatically. Consider the insurance industry. Its image in the United States is at an all-time low. The Gallup Organization found that almost two-thirds of polled consumers believe that insurance companies over-charge auto, homeowner, and commercial-line policyholders. Gallup also found that an astounding 61 percent of Americans believe that profits are higher in the insurance industry than in other industries and that companies cheat on their financial reporting to hide excessive profits.³⁹ That’s bad press. Each ineffective claim-handling incident discussed in the wake of a multitude of natural disasters, especially the devastation left by Hurricane Katrina (2005), convinces thousands of people that when they deal with their insurance agencies, their claims are going to be poorly handled.

If you have this belief about your insurance company, it does not matter how many times you are told that you’re in good hands. You won’t believe it. Robert Hunter, director of insurance for the Consumer Federation of America, says, “You could have 10 fender benders and one totally destroyed car, and guess which one isn’t settled?” Insurance agencies consider a claim to be settled when some type of agreement has been reached. But Hunter points out, “An insurance company can say it’s ‘settled’ even if the guy is still yelling and reluctantly takes what he is offered.”⁴⁰ And television broadcasters love to put the yelling guy on the evening news.

Effective Complaint Handling Can Be a Powerful Source of Positive Word of Mouth

Spend some time on the Web reading all the personal service experiences that bloggers are having or are reading about on other blogs and repeating. Blogging sites are exploding in number. It’s estimated that, while most will not survive, every single day one hundred thousand new blogs go up on the Web. Customer service stories are intensely interesting for bloggers. They are very human stories and do not carry with them the instant controversy that blogs on politics do. If you’re not a blog reader, an interesting place to start looking is Vox, described as a free personal blogging service.⁴¹

Saska, a Vox blogger with a blog called Fiendish Glee Club, describes herself this way: “I’m a photographer, a writer, a reader, a gamer, a mother, and a geek. I refuse to grow up.”⁴² Saska posted a lengthy description of fantastic service she received from Nintendo. She bought a new Nintendo Wii on its 2007 launch day, and from the beginning the optical drive was noisy. When the noise persisted, Saska called Nintendo and was invited to come over to its offices since she lives close by and it would save her time. The service she received was “shockingly” good, and one small gesture after another added up to this: “So this is my Valentine to Nintendo. That was the most awesome customer service experience I have ever, ever had.” And she has uploaded some pictures to prove her point.⁴³ It’s a fun read, and to date ninety-five people have commented on her post, asking additional questions and making similarly strong positive statements about Nintendo. If you are thinking about the purchase of a video game unit, after reading this blog, you’d consider Nintendo. As it turns out, the Wii was the in-demand item for Christmas gifts in 2007.

The More Dissatisfied Customers Become, the More Likely They Are to Use Word of Mouth to Express Their Displeasure

If customers walk away angry with “expressed complaints that do not get handled,” there may not be much a company can do to stop their negative word of mouth.⁴⁴ But if companies make it easy for customers to complain and then handle these complaints well, dissatisfaction levels will decrease, negative word of mouth will lessen, and positive word of mouth may be generated. If you read the complaints posted on the web, you’ll see that they almost all involve complaints that were not handled well. It almost seems as if customers simply want to tell someone about their problems, and if the companies do not respond to them, they will find another audience.⁴⁵

In the case of companies that have easy exchange policies, we expect the public to say fewer negative things about them. Costco is a good example because part of its reputation is “We’ll take it back—no questions asked.” Costco will even take returns without a receipt. In other words, Costco is saying, “Bring us your complaints. We want to fix your problems with any products we make available.” Companies control negative word of mouth when they demonstrate to their customers that they are sincere about doing what it takes to create satisfaction.

The Negative Cycle of Poor Complaint Handling

Ineffective service recovery and an ineffective complaint policy can start a negative chain reaction leading to poorer quality service and products, as well as increased risk in the marketplace. Stated in its most damaging form, poor complaint handling starts with dissatisfied customers and ends up with customers and the business feeding into each other’s negative attitudes. Here’s the sequence that was applicable in the 1990s and still holds true in the 2000s:

1. Customers leave a business dissatisfied. They become “bad-will ambassadors,” who voice their displeasure to others.

2. More and more members of the public begin to identify the business as a place where it does no good to complain because nothing will happen.

3. Customers stop complaining and the company loses opportunities to learn what it can do to improve services or meet customer needs. (Or large numbers of customers complain, so the organization walls itself off from hearing them.)

4. Product and service quality are, therefore, not improved, leading to even more customer dissatisfaction.

5. The customers who still patronize this business will come for the lower prices the company has been forced to set to remain competitive. Customers also arrive with the mind-set that product and service quality will be minimal.

6. Staff do not feel good helping bad-natured customers. In fact, the staff may start to call the customers names. (We have heard flight attendants on cash-strapped airlines say as the passengers march up the jetway, “Here come the animals.”)

7. The staff feel more and more that they have “just a job,” and a bad one at that. Those who can find employment elsewhere will leave, thereby depriving the business of their experience and skills. The staff who remain are less motivated and less capable of gaining the confidence, trust, and loyalty of customers.

8. This, in turn, leads to more customers leaving the business dissatisfied and telling everyone in sight just what they think. They will not charge a penny for this advertising. And so the downward cycle starts anew.

Many companies do not appreciate the real cost of losing customers. They can tell you exactly what they are doing to attract new customers and how much this costs them, but they may not have a clue as to how many customers they are losing, why they are being lost, or how much this costs them. In 1989, benchmarking data for the first time let the U.S. marketplace see which airlines were doing well and which ones weren’t. Eastern Airlines and Pam Am had the highest complaint rates, and within two years both ceased operations. (In this study, complaints were identified as those that escalated to the Department of Transportation.) The next four on the list, TWA, America West, Continental, and US Airways, all sought out bankruptcy protection in the following years. Of these four airlines, only America West was able to reduce its cost per available seat mile. The airlines with the lowest complaint rates (United, Northwest, American, Alaska, Southwest, and Delta), while they have struggled since 2001, actually ended up with a better cost per available seat mile ten years after the original data was gathered. Here’s what this data means: lower complaint levels suggest higher quality levels, which can translate into lower costs.⁴⁶

Here’s another example. The Better Business Bureau (BBB) in eastern Missouri and southern Illinois sent out news releases about thirty-two firms over the years from 1997 to 2006. The BBB warned consumers to be careful about doing business with these companies because of their high levels of unresolved complaints. Of the thirty-two firms, twenty-six are no longer in business. The BBB also found that 70.4 percent of the companies that resolved 10 percent or less of the complaints that were registered with the BBB also went out of business. The BBB concludes that not resolving complaints puts a business at risk for going out of business. “It follows that each unresolved complaint, each dissatisfied customer may serve as a stepping stone in that direction for any business.”⁴⁷