Sleeping Partner Number 4: Why do you treat me that way?
How do you treat your customers? And more importantly, why? Accepted wisdom says that a happy customer is a loyal customer. Loyal customers mean repeat business. We all want more more-loyal customers, so make ’em happy and the job’s done. Or is it? Can you imagine a situation where you would deliberately get rid of a loyal customer? Do you really know why you give some customers discounts and not others? There are commonly held beliefs that relate how much a customer spends with the sort of treatment he can expect from a supplier. The man in the street would say the more money you spend or the more goods or services you purchase, the better you should be treated. But is this always what does or should happen? Let’s look at some examples –
A local couple go regularly and frequently to their nearest Italian restaurant (loyal, see?). Every time they go, they leave a £5 tip. All the waiters know them and they make a great fuss of recognising them
“Aah, signora is looking bellissima tonight” they greet.
“The usual, signor?” they ask with the wine list, the whole show.
Another couple come in. They are not regulars, but they are there often enough to be known. They don’t leave a tip every time. In fact they probably only leave a tip once in 10 visits. All of a sudden, service dries up at the first table, and the waiters can’t do enough for this second couple. How come?
With the first pair, experience has shown the waiters that no matter how obsequious and sycophantic they are they will never get more than the £5 tip. With the second couple, although they don’t tip often, they do drop £50 on the table once every so often. Now that is worth having, and worth fighting for. So who gets the service? And the second couple know this. It doesn’t cost them any more money over the course of a year’s visits, but by giving out large amounts irregularly they keep the waiters on their toes and are assured of attention every time.
Question : Why do the waiters differentiate their treatment so much?
Next scene, an imaginary supplier. This company has two types of customer, and one type typically purchases in quantities 10-20 times greater than the other. So which customer gets the special treatment from the supplier? Of course, the small one. They get preferential delivery, special service etc. I’m joking surely? Surely? The big customers wouldn’t stand for this. Well they do. Literally. I’m talking about a typical supermarket. Take a large trolley round the aisles, fill it up with £150 of goods and you have to stand in line behind 6 other similarly large slow trolleys in order to have the privilege of paying for it. But buy a tenth of that, and you’ll have an express checkout dedicated to you and your kind which leaves the others standing.
Question : Why should the supermarket treat its big customers so shabbily?
Finally, an old joke: What’s the difference between a sales promotion and a loyalty card? With a sales promotion it’s “buy one, get one free”, with a loyalty card it’s “buy a hundred, get one free”. This is typical of say banks, building societies, insurance companies etc. To attract new customers, fantastic new offers are thrillingly bundled every month: higher (or lower, depending on whether you’re saving or borrowing) interest rates, plus free pen & pencil sets, plus, plus … However, once you have an account, and are contributing to the profits of these organisations through all the standard but somehow never-quite-standard-enough-to-break-through-in-to-large-print charges, try getting all these new deals to apply to you.
“Oh, no sir. We couldn’t possibly increase your savings’ interest. That’s for new account holders only”.Absolute madness, surely
Question : Why are the existing customers treated so badly?
The answer to all of these questions lies in imprisonment. For one reason or another, either by choice or circumstance, all of these customers are captive to their suppliers.
The dining couple have presumably for some reason decided that they like this restaurant: it may be convenience, it may the cooking, perhaps the fluctuating service doesn’t bother them, perhaps they don’t even notice it. Whatever the reason, the waiters do as little as is required to maintain the relationship.
With the supermarkets, they know that their competition for small purchases is small shops where you can be in and out in a few minutes. So they have to fight on the terms dictated by these small shops. However, on large purchases, where else would you go to spend £150+ pounds? Only to a competing supermarket, and they all know that queuing is a common problem. Nobody can fix it easily, so effectively they ignore it and compete on easier issues, like squeezing suppliers for a few extra percentage points.
Finally, the great British financial institutions have organised life over the years such that the cost and aggravation of moving banking, mortgage or insurance services is enormously high. Once they have a customer, they really have to treat them very badly indeed to lose them. As a chemist (n.b. not a pharmacist!) would put it, the activation energy to break out of the existing account and in to a new one is too high. So all the effort is put in to acquiring the new customers. New regulations and non-traditional sources of financial services are changing this business rapidly, but the forces of tradition still have substantial influence in the market.
The big danger to all or any of these suppliers is if someone takes a radical new look at the provision of customer service in their market. If the prison walls are broken there will be an immediate free-for-all. Not always because the newer services are better, but simply because they are different. Customers will have the “I’m free, I’m free!” mentality. “I want to run a hundred miles. Not to get anywhere, but just because I can.” Just look at what happened when the regulations regarding the supply of electricity, gas, telephone services etc were relaxed. All of a sudden you had people in Cornwall buying their gas from East Midlands Gas and their electricity from Scottish Power. What kind of nonsense was that? The gas they used came from the same compressor station it always had, through the same pipes, and burnt no better and no worse than it used to. Well it couldn’t, could it. There’s legislation governing that kind of thing. But the bills, ahhh the bills. Oh, they came from a different office all right. And that was it. They hadn’t swapped gas suppliers really, they’d swapped gas accountants. Of course you now find that, say, British Telecom, (sorry, BT) are proudly advertising that 76.2% of the 31.7% of customers who deserted them have now returned to them within 3.7 billing periods on average or by the next calendar month with fewer Mondays than the mean of the previous quarter, as estimated in advance based on previous years ….. drone drone
Oh, I’m sorry – think I might have dropped off there. So, how would you assess your business and its treatment of your customers? Do you know why you treat them as you do? Why you differentiate between them? How sure are you the current situation will last? Are you seeking new ways to disrupt your competitors, or simply waiting to react to whatever they do first? Are you open to change, or simply ajar to change?
In the next “Sleeping Partner”, I’ll expand on this and, picking up from the lower-left square in the matrix in ‘Sleeping Partner 2’ (hey, it sounds like a movie!) look at whether you would ever actively and intentionally discourage customers from trading with you – now, there’s a radical thought!