Globality: Harold L. Sirkin

How Not to Vex Your Best Customers


Some corporations seem to go out of their way to antagonize customers—even their best ones.

To avoid raising prices, a number of consumer-products makers have chosen to reduce quantity: A half-gallon carton of ice cream a few years ago became a quart-and-a-half carton, facial tissues were reduced in size so they now “rattle” around in oversized boxes, a 13.5-oz. box of crackers turned into a 12.25-oz. box of crackers, and so on. Do they think customers are stupid and won’t notice?

The airlines are among the worst offenders, almost seeming to work hard to make interstate bus travel look elegant.

The economics of an airline work like this: A small number of “premium” fliers pay five to 10 times the price of the cheapest ticket. Getting just one or two more premium passengers on a plane can make the difference between operating the flight at a profit or a loss. You’d think airlines would do everything they can to win full-fare customers and keep them happy.

Not so. Consider the story of a major European airline that in June of this year decided to limit first class and business class customers to just 8 kilograms (approximately 17.5 pounds) of carry-on luggage for each of their two bags. As one of the airline’s ticket-counter agents quietly told me, this didn’t happen arbitrarily. The airline realized that the bags of their U.S. customers typically weigh 4 to 5 kg empty. By setting the weight limit at just 8 kg, I was told, “we are making all of our U.S. customers check their luggage.” Practically speaking, the carrier is forcing even its best customers to check their bags, making them spend valuable time waiting around at baggage carousels.

Misinformation From Above

The airlines argue that high fuel costs and larger volumes of luggage dictate their policies. But the 50 or so premium customers on board a wide-body aircraft with 300 or more seats are not the ones causing “weight and balance” problems.

Another argument revolves around safety: concern that a heavy bag could tumble from an overhead bin and hurt someone. Again, this sounds more like an excuse than a reason. Of course a runaway 15-kg bag could seriously injure a passenger. But accidents of that nature rarely happen. If airlines considered them a serious threat, all would have banned carry-on bags long ago.

My guess is that this airline changed its baggage policy to accelerate the boarding process so it can fly the plane longer hours—with little or no regard as to how it affects customers, including its best ones. Airline management probably thinks passengers don’t care or won’t switch, just as the purchaser of a downsized box of wheat crackers or facial tissue won’t mind.

In truth, the management of this airline hasn’t done its homework. More than 10 years ago, another major European airline tried this very game, limiting the weight of carry-on bags to 8 kg. The policy lasted three years, during which time significant numbers of first class and business class passengers defected to competitors. Faced with this stark reality, the chief executive officer rescinded the policy and took out ads in every major newspaper in the carrier’s home country to apologize to premium customers for the unnecessary inconvenience.

I expect that in a few years—after audits show that it’s flying more low-paying customers and fewer high-paying customers—history will repeat itself and airline No. 2 will find itself eating humble pie, too.

While many corporate executives have bought into the “less is more” philosophy, others recognize the harm that this backhanded approach to customer “service” can do to the brand and company  profits. Rather than tempt customers to leave, these companies are enticing them to stay.

United Knows How to Please

In 2003, for example, United Airlines (UAL) established a program known as Global Services with a single purpose in mind: providing the airline’s best customers with the best service. One blogger describes it as “the crème de la crème of frequent flyer” programs, with members getting such benefits as “top of the list” upgrades, “automatic rebooking with highest priority,” early boarding (even when they weren’t flying first class), and use of showers at arrivals facilities in various international airports.

With its competitors unable to create equally good programs, United has increased its market share of high-paying travelers. When asked about this, rivals make excuses as to why they can’t do the same—or claim that customers don’t really want premium service—rather than make a serious effort to retain their best customers.

The need to keep the most profitable customers in mind is not limited to the airline industry and consumer-products companies. Every company’s most valuable asset is its customers (followed closely, perhaps, by its good name—if it still has one—and its best employees).

When will companies get in touch with reality? Is it really necessary to learn the “treat customers badly and they’ll go someplace else” lesson over and over again?

I guess so, because we see it all the time.

So what are the lessons for corporate executives?

Know Your Best Customers

First, top managers need to understand who their best customers are. For a discount retailer, that best customer may be the shopper who comes into the store every week, week after week, perhaps more than once, filling up the shopping cart. For a luxury retailer, it may be a customer that makes a major purchase on a regular basis. In many businesses, such as the airlines, 20% of the customers may generate almost all of the profits. If you antagonize these valuable customers, you might lose them forever and not even realize they left. If you really please them, you could win their loyalty forever. You might even lure away some of your competitors’ best customers. Segmenting customers is smart business; it enables you to focus on the best.

Second, listen to your customers. You can find all sorts of ways to gauge customers’ needs, desires, and preferences: by analyzing sales and service data, conducting surveys and focus groups, or evaluating the results of loyalty programs. You might even want to sit down and talk with your best customers—a novel idea to some jaded CEOs. Try spending a day per month with top customers. It will tell you a lot about their needs and concerns, exposing insights that you can’t get from any other source. It will also give you an opportunity to bounce ideas off them. Few changes go unnoticed. Small changes add up. Things that seem like great ideas to you might look like poison pills to them. You need to figure this out before you reach the tipping point—the moment they realize their box of tissues is emptying too fast or their airline’s carry-on policy is causing them to languish at the baggage carousel–causing your best customers to defect.

Third, understand that everything you do has economic consequences. You need to understand the economics. You may make decisions that will cause certain customers to take their business elsewhere. The worst decisions are those that alienate the small percentage of customers who generate the largest percentage of earnings.

Finally, leave yourself some wiggle room and be confident and mature enough to change your mind if  customers don’t react as you had anticipated. The rule of thumb is to “test and transition,” rather than cut hard. Change should come seamlessly, not as an abrupt shock.

You’ll never find a good reason to antagonize customers, especially your best ones. Sure, there will be times when some customers won’t like what you do. Before making a final decision, find out what consequences will likely result. And make sure you’ll gain more than you lose when you move ahead. Anything less is a form of corporate suicide.

Hal_sirkin
Harold L. Sirkin is a Chicago-based senior partner of The Boston Consulting Group (BCG), a professor at Northwestern University’s Kellogg School of Management, and co-author, most recently, of The U.S. Manufacturing Renaissance: How Shifting Global Economics Are Creating an American Comeback (Knowledge@Wharton, November 2012).

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