Customer Service in a Shrinking Economy

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Consider No. 7, Zappos.com, the online shoe retailer whose devoted fans rave about its free shipping on both orders and returns. The retailer had typically upgraded both first-time and repeat customers to overnight shipping even though it wasn't advertising that perk. But starting in 2009, Zappos will no longer offer overnight upgrades to first-time visitors. Instead, CEO Tony Hsieh is moving those dollars into a new VIP service for Zappos' most loyal shoppers. Launched in December, the site, which for now can only be accessed by loyal customers who receive an invitation, promises overnight shipping and plans to offer earlier access to sales and new merchandise than the plain-vanilla site. (Repeat customers who aren't yet asked to join the VIP service will continue getting the overnight upgrade for now.) "We decided we wanted to invest more in repeat customers," says Hsieh. "We're shifting some of the costs that would have gone into new customers."

Some are also getting tougher on suppliers who serve their most frequent customers. No. 24 L.L. Bean dropped Bank of America (BAC) as its vendor of store-branded credit cards in July 2008. The outdoor outfitter says the bank wasn't measuring up in terms of its vaunted customer support. Complaints about long hold times and call transfers between the bank's customer service agents were "endless," says Terry Sutton, L.L. Bean's vice-president for customer satisfaction. (Bank of America says it doesn't comment on specific relationships but is "focused on providing competitive products and exceptional customer service.") L.L. Bean switched to Barclays (BCS), which meant customers had to reapply. The risk that some might not take the time was high. "From a service standpoint, it was loaded with land mines," says Sutton. But she felt the move was worth it, especially since Barclays gave them a say on agents' scripts and set up its call center in the retailer's home state of Maine. Over 60% of cardholders have already switched.

Some companies are experimenting more with cheap technology, such as responding to customers via Twitter after they broadcast their complaints to the world. Other tech upgrades for customers can deliver unexpected cost savings. When No. 22 BMW rolled out Wi-Fi service at its dealerships last year, the move was intended to give customers a cheap way to pass the time while their cars were serviced. The cost was next to nothing since BMW just expanded the broadband dealers already used to run their businesses. But now that customers can use their waiting time productively, fewer are opting for free loaner cars, which are pricey for dealers to maintain. BMW's Alan Harris says Wi-Fi, along with software that helps dealers better estimate loaner needs, has helped BMW cut its monthly loaner expenses by 10% to 15%.

When companies come up with simple, low-cost ways to trim costs while improving life for customers, they're likely to win in good times and bad. "I have a saying: 'Fix the customer before you fix the car,' " says Harris. "If you focus on fixing the customer's problem first, the rest is easy."

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McGregor is BusinessWeek's management editor. McConnon is a staff editor for BusinessWeek in New York. Kiley is a senior correspondent in BusinessWeek's Detroit bureau.