From the January 1997 issue of Entrepreneur

For more than a decade, American businesses have promised--often in loud advertisements--to deliver top-notch customer service. But good as that sounds, it's not reality, says John Tschohl, author of Achieving Excellence Through Customer Service (Bestsellers Publishing).

"The general level of service remains poor. Top management thinks they are doing great--but customers know otherwise," says Tschohl.

And those customers are more demanding now than ever. "The companies that don't deliver service will be crowded out of the marketplace," warns Tschohl, owner of Bloomington, Minnesota, Service Quality Institute, a training company that has put on programs for businesses as diverse as Eastman Kodak and Miller Brewing.

But the good news is that "the fastest, least expensive way to make more money and grow your business is to become a service leader," says Tschohl.

Just how can a business deliver excellent service without denting its profit margins? Tschohl tells exactly how.

Entrepreneur:What's the state of customer service today?

John Tschohl: Ironically, we've moved into a service economy where the only thing lacking is service. Some 95 percent of all business owners believe they rate at least a 9 on a scale of 1 to 10 in customer service, but their customers wouldn't rate them anywhere near that.

For many years, customers accepted bad service as a matter of course, but now they are much less tolerant. With customer expectations much higher, it behooves companies that want to stay in business to be on the leading edge and to be service-driven in transactions with customers. The least expensive way to make more money and grow faster is to be perceived as a service leader.

Entrepreneur:To deliver better service, don't you need to hire more employees?

Tschohl: That's one of the two biggest myths about service. What you need instead is to get the employees you have working on eight cylinders instead of two. The other big myth is that to give good service, you've got to pay employees more.

Entrepreneur:What's an example of a company that really understands service?

Tschohl: Wal-Mart does two things very differently from other mass merchandisers. It truly values its employees, and it truly values its customers.

Wal-Mart is leanly staffed, and it charges low prices, but it still has created a culture that believes in the importance of really helping its customers. Before Wal-Mart, customers expected no service from discounters. Sam Walton changed all that--and he did it without raising prices, without adding staff, and without hurting profits.

Wal-Mart last year achieved sales of $338 per square foot, compared with Kmart's $185. They sell the same merchandise at similar prices, but Wal-Mart is winning--and the difference is its culture of valuing employees and customers.

Entrepreneur:What can a small business do to meet today's demand for fast, efficient service?

Tschohl: There are two crucial points to always keep in mind. First, when customers come in or call, satisfy them as quickly as possible so they can go about their day's business. Second, really listen to the customer and find out what he or she wants and needs and by when.

What irritates customers? It's not doing basic stuff--having a caring attitude, following through on promises, taking the little steps to help customers buy what they want and get out of the store faster. You don't need a Ph.D. to do it. What you need is a motivated staff with good interpersonal skills.

Entrepreneur:What's the first step in delivering better service?

Tschohl: The most critical element is to involve all employees in a service strategy. This needs the CEO's support. The trouble is, so many top managers are so busy doing administrative tasks that they never look at what their employees do. They're totally unaware of a customer's-eye view of their business.

Entrepreneur:Are you saying a customer service philosophy starts with the CEO?

Tschohl: It's extremely important to have commitment to service be a strong message from top management. But the CEO cannot just send out a memo saying "This is the Year of the Customer." Employees will forget that almost immediately--unless there is constant reinforcement from the top.

Entrepreneur:Why do businesses need to train everybody, even employees who don't have customer contact?

Tschohl: Today, you never know who the customer will interface with--it can be employees in sales, shipping, accounting, even product development. That's why a service program cannot be segmented into a special department or limited to certain employees. It has to be everybody's job.

Worse, many employees just don't know that their tone of voice and attitude communicate a lack of caring to the customer. People aren't born knowing how to deliver good service, although management often acts as if they are. Customer service is a learned skill.

Entrepreneur:What are the basics?

Tschohl: In our seminars, we teach six steps for delivering excellent service. First is to build the employee's self-esteem. The better employees feel about themselves, the more effective they are in a service arena. Within seconds, customers know if this is a positive employee. They can tell on the phone, in person, even by mail. For the boss, this means letting employees know how much you value them and how important they are to the business' success.

The second step is to practice being courteous with customers. We cannot be self-centered or preoccupied with our own work. We have to show courtesy in every contact with customers, whether it's in person, on the phone or by mail.

Third, give customers positive communication, both verbally and nonverbally--smiling, for instance, and telling them how much you value their business.

The fourth step is to perform for the customer. You've got to get the job done right. Being friendly doesn't matter if you fall down on quality.

The fifth factor is listening carefully. Pay attention to what the customer wants.

The last step is to learn and grow in your job. Learn about the company, its products and its customers. Customers like dealing with people who know what they're doing, and managers need to encourage workers to keep learning and getting better at their jobs.

Entrepreneur:Isn't doing all that expensive?

Tschohl: If you think of how much it costs to stay open every day--just overhead such as lights, rent, payroll--the cost of having a customer walk in or call and not get good service is very high. It doesn't take extra time or money to be friendly. But it takes considerable time and money to handle complaints and constantly replace lost customers.

Bottom line: A business--even one that can't afford extensive advertising--can still differentiate itself from competitors on the basis of exceptional customer service.

Entrepreneur:You're saying customer service directly contributes to profitability?

Tschohl: I'm saying customer service is a matter of survival. Think about this: It costs five to 10 times more money to get a new customer than it does to keep the customers you already have. Most companies spend substantial amounts on winning new customers but rarely spend any time or money trying to keep the customers they already have. Just a small investment in making them feel precious and wanted will give you a lot of business.

Entrepreneur:What should we do with the customer who has a complaint?

Tschohl: This is a very delicate, very important interaction. If an angry customer isn't satisfied, and it's a big-ticket purchase, there's a 91 percent chance he or she will never do business with you again. Even if it's a small purchase, 63 percent will never do business with you again.

On the other hand, there is a potentially huge payoff in satisfying that angry customer. I've seen new research that shows if you can cut your defection rate--that's customers who get angry and never come back--by just 5 percent, you can increase profits by as much as 100 percent. That's proof of exactly how profitable good service can be.

Entrepreneur:So how should an angry customer be handled?

Tschohl: We've developed a six-step program. The first step is to listen carefully and with interest to what the customer is saying. The second is to empathize. Put yourself in the customer's place, and use positive strokes to let the customer know you appreciate his or her business.

Third, ask questions in a mature, nonthreatening way--and make them questions that require the customer to think about his or her answers. That will cool the customer down; a person can't logically respond to questions in a highly charged emotional state.

The fourth step is to suggest one or more alternatives to resolve the customer's concerns. Number five: Apologize without blaming anybody. Sometimes we'll try to put the blame elsewhere--on another employee, the owner, a third-party business. Don't do that.

Finally, solve the problem. Identify solutions, or find somebody who can. It is very important the customer walk away feeling he or she came out on top, even if this costs you money. If a customer walks away unhappy, 87 percent of unhappy customers will tell their story to nine or 10 other people. Thirteen percent will tell as many as 20 other people. What will that negative word-of-mouth do to a business?

Follow the six steps, and you'll have a satisfied customer. Typically, however, employees aren't trained in these steps. When an angry customer comes in, the employee just wants to get rid of the customer. If that happens, you'll never see that customer again--and you may not see the friends he tells, either.

Entrepreneur:Can a business justify training lower-level employees in service--particularly when many of them are likely just short-term hires?

Tschohl: Customer service is like cleanliness: Both require daily attention. The difference is that a company doesn't say "Let's not clean the floors today. Customers will just come in and dirty them again." But companies do say "Why train employees? They're just going to leave."

That thinking doesn't work--especially in today's economy, where lower-level job vacancies just aren't getting filled. Employee retention has become a driving theme. Companies that never before considered employees important are waking up and treating their people better.

And I'm not talking about compensation. Recognition and appreciation are often what's crucial. And you know what? Companies with superior service programs also tend to have higher employee retention. It's simple. When you train employees, you send a signal that they're important. And they respond to that.

Entrepreneur:Isn't price what brings customers into a store?

Tschohl: Competing on price is no way to build a loyal customer base. Competing on price assures that, in the long run, the biggest businesses will prevail because they have the deep pockets to sustain this war.

Entrepreneur:Will customers pay higher rates if you deliver service?

Tschohl: Disney proves it. Disney's theme parks are priced higher than competitors--and people are happy to pay Disney more because to them Disney means service and quality. Any business can charge more if it excels at service. Yes, to compete in the world market, you need to figure out how to get things done for less money than ever before--but if you are extraordinarily good at service, you can demand and get a premium price from customers.

Contact Sources

Service Quality Institute, fax: (612) 884-8901, (http://www.customer-service.com).