When Customer Service and Profits Collide

A former colleague of mine was a store manager during the Great Recession, and it was imperative that he kept a tight grip on the thin strands of customer loyalty for his store. His employer’s philosophy: Keep a customer happy and they’ll keep coming back. But truth be told, there were instances when he didn’t want some of them back. Call it greedy, but he wanted to make money, and some customers made that difficult.

He was telling me a story about a repetitive occurrence in the photo lab that resided within his store. If you take the time to think about it, there are immense costs involved in operating a photo lab. Consider the investment of the photo processing equipment alone: the servers, the kiosks, the processors; an ROI that takes months, if not years, to achieve. Second, there are the various chemicals that go into the machines. Third, the photo paper itself is exorbitant in price. If the clerk who makes $7.50 an hour doesn’t properly spool the paper “in the bag,” they risk exposing it to light and destroying the entire roll (a $500 mistake). And once the remarkably short warranty is over, it’s amazing how many things break on the machines and require skilled technicians to visit the stores to make repairs. One bill could wipe out a month’s worth of photo sales.

Some customers refuse to pay

So imagine the not-uncommon customer who inserts their SD media card into the kiosk and wants double prints on 500 pictures. Although highly automated, the lab still requires a decent amount of human intervention to put together a photo order. Labor costs chip away at the profit margins that remain after all of these other expenses.

When the customer returns to the store, one of two responses was likely: “Thank you,” or “Can I look at them first?” The latter response was the sound was the one my colleague dreaded the more.  It was the sound of any profits he had hoped to achieve slipping away.

Let me explain. What this customer is going to do is make two piles: pictures they keep and pictures they refuse. Using the quantity of 500 as an example, it was quite common for the customer to keep 50 and refuse the rest. And then they make an off-hand comment, “I don’t know what I was thinking, I only wanted single prints.” Since the company’s policy was to please the customer, the customer wouldn’t be charged for ones they refused pictures.

Apparently, this became routine for a few select customers; the result was that the manager virtually had a panic attack whenever he saw them enter the store.

You may be tempted to ask: “But how much money did they spend throughout the rest of the store?” More often than not, their purchases never exceeded $10.

Trading profits for loyalty

A company’s stance on customer service hardly ever wavers. If it does, it will mostly always be in favor of the customer. In these tough times, retailers are clamoring for every dollar they can get and will do almost anything to earn and keep a customer’s business. The risk is that companies begin to trade in profits for loyalty. Customer service and profits can coexist but for every opportunity to service a customer there needs to be a corresponding opportunity to maximize profits.

So what can retailers do to extract profits from a culture that explicitly endorses “the costs of doing business?” They can look deeper into the business to track down additional profits and free up the human element to focus on customers. The result is a more effective and efficient organization.

Guy Yehiav is CEO of Profitect.

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