Why Analog Customer Service Is Costing You Money and Customers

By Larry Friedberg, CMO, Modria — April 17, 2017

As a fashion retailer you crave connection with your customers.  You want to curate the best assortment for your target customers, stand out with style, absorb the cost of having your customers order five items and return four, and scale your business to the moon.  Because of the personal nature of your business, you also offer live in-person customer services — of the analog (human) variety.

This is where the dissonance comes in.  All your efforts to make it personal and effortless on the search, find and purchase side are all but missing when a transaction goes bad.  The transaction problem experience is essentially tossed over the transom for the customer service (CS) team to handle but the CS team is often a victim of insufficient technology.  The result is your customers feel anxious and poised for conflict (a situation they deeply resent).

Think about how you feel as a customer when you experience a transaction problem.  You ordered a red sweater but received a green one.  The scarf felt like crepe paper, not merino wool.  Or maybe you are still waiting after three weeks to receive that new Eileen Fisher dress.  Do you want to talk to a customer service agent — assuming you can actually find the 800 number or easily report the problem on the website?  If you're like most people, the answer is NO.  You just want the issue resolved.  And in fact, calling that customer service means you have to practice your argument and get ready to be tough to get what you want.

What we know by studying online shopping behavior is that customers want a fast and fair resolution 24/7 in the same way they shop: online, on their phone, at the touch of a button.  What's more, chatbots are still learning to talk but you don't have the luxury of waiting for them to be perfected enough to actually engage with customers who have transaction issues.  

Transaction problems are different
Unlike simple customer service contacts, such as asking for store directions or hours, transaction problems are much more complex.  The problem is that when a transaction goes bad, 1) companies believe the customer actually wants to talk to their service reps and  2) they make it so difficult for their customers to report the problem in the first place.  For some reason they either don't or can't trust technology to resolve the customer's problem.  So, while the customer's search/find and order experience was simple and digital, the transaction problem goes analog.  The result is the well-known problems of negligible efficiency gains, lack of scalability, and inconsistency of customer service representative (CSR) skill all converge. The most common systems we have focus on the metrics of call length, call queues, and CSR skill/satisfaction ratings.

Yet, these metrics can miss the most important problem of "going analog" for transactions problems: the costs associated with the analog handling of these issues is far higher than just about any other kind of customer service rep action! And few organizations are gathering the detailed information that would alert them to this fact, never mind building systems to replace high-cost analog interaction.

The costs of transaction problems
Basic common sense makes it clear that handling problems and disputes in this manner is going to cost much more than other phone/chat interactions. This type of contact is going to demand more time, unless brands, etailers and marketplaces immediately "give away the store" by providing a full refund, return shipping, and/or a credit with no questions asked.  While the aim of delivering customer satisfaction is appropriate, the approach puts tremendous burdens on a company's financial performance, particularly as it scales in both customers and contacts. 

Many of the activities that drive up customer support center costs in "analog mode" are well-known. Others, however, are less visible and, regrettably, in some cases difficult to ascertain. Some of the most obvious include:

  • Longer calls – Most transaction problems aren't simple, there's a lot of back and forth, gathering of information, checking warranty/refund policies, and listening to the customer complaint.
  • "Policy pushing" – When the customer doesn't like the outcome, there is a natural tendency for the customer to push the CSR to go "beyond" the policies in place. Costly minutes of whining, threatening, and other chatter may result. In addition, the CSR must take the time, often repeatedly to explain the policy.
  • Re-contacts – A leading contributor to contact volumes because the issue was not resolved properly, the customer didn't understand the resolution or customer service didn't anticipate the next problem that invariably arises from the first problem.
  • Escalation costs – While it's not 100 percent true, about 99.99 percent of all escalations are due to a transaction problem. And the cost of management or better trained staff to handle escalations are much higher than the first level customer service representative.
  • Stringent policies on returns – Many commerce companies have the same return policies for a $10 pair of socks as they do for a $3,500 Armani suit. Despite the fact that they are very different animals. At the opposite ends of the price scale, calls can be longer because the "one-size-fits-all" returns policy fits poorly.
  • Cost of compensating the customer – Finally, at the end of the transaction problem, the customer is typically compensated for her trouble and the merchant frequently takes back what are often unsalable goods. Even restocking fees (which create more friction with the customer) might not help merchants recapture the cost of reselling the item. This is just one more cost, often a large one that makes transaction problems much more expensive.
Stop trying to delight your customers
We've all heard the legendary Nordstrom story of the elderly women who got a refund on the tires she claimed to have purchased them (Nordstrom never sold tires). 

Then there's the Zappos story in which one of their customer service agents spent more than 10 hours on the phone with a single customer. 

Perhaps a lesser-known story but no less compelling is described in the best-selling book The Effortless Experience by Matt Dixon.  The book begins with a story about "Joshy the Giraffe" whose 6-year-old owner left him at a Four Seasons Hotel in Hawaii, only to return home startled and bereft to find Joshy missing.  His parents anxiously contacted the Four Seasons and, to their great relief, learned that the staff had, in fact, found Joshy.  But they didn't merely package up Joshy and send him home.  They staged a series of scenes showing Joshy enjoying a vacation (on the beach, getting a massage, etc.).  Several staff members spend hours carefully constructing this adventure for the young boy and his parents. 

These are legendary stories.  And while they make for great storytelling, they are pretty much a waste of a customer service rep's time.  

Dixon and his colleagues at CBE found that "any customer service interaction is four times more likely to drive disloyalty than to drive loyalty."  Taking this one step further, Dixon's team learned that "when you try to delight your customers, your chances for success is only 16 percent. 

Moreover, "delighting" customers increases operating costs 10 percent to 20 percent. 

The ROI on resolutions is imperative
Brands, etailers and marketplaces must focus on the true cost of transaction problems and how using analog approaches only adds to the cost of resolving them.  The typical approach of focusing on the value of customer loyalty and the amount of lost sales goes only part of the way in developing a true understanding of the issue.

It also makes it abundantly clear that digital systems for handling transaction problems (referred to as resolutions platforms), will, to quote the head of customer care for a major UK brand, "help keep resolutions consistent and fair, keep policies up to date with legal and business changes, enable quicker resolution time to customers and provide 24/7 support to human teams."

Doing backflips for your customers after a bad transaction can create legendary stories but they kill margins and don't result in customer retention that means truly incremental revenue for the company. 

How do you measure the ROI on resolutions?
Research shows that when transaction problem volumes reach 300 to 1,000 per month, it's time to act on the "make vs. buy" solution to improve the resolution journey for customers while at the same time reducing costs. The question is, "What is the return on my investment in a resolutions platform?" The best way to look at this is as follows:

> If today, I spend X dollars on labor and Y dollars on "protection payments" (reimbursing a customer with cash, store credit or exchange)

> Then, after adopting a resolutions platform, will the savings in labor and/or protection payments be more than what I end up spending on the resolutions platform investment? If so, by how much?

When brands, etailers and online marketplaces build their resolutions platforms, they succeed in taking a big chunk of cost out of their operations while allowing their CS teams to dedicate their time to productive tasks like upselling or more complex revenue-driving challenges.  


Larry Friedberg is CMO of Modria, a provider of dispute resolution software for e-commerce companies.

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