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Customer Service Champs


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Bob Emig was flying home from St. Louis on Southwest Airlines this past December when an all-too-familiar travel nightmare began to unfold. After his airplane backed away from the gate, he and his fellow passengers were told the plane would need to be de-iced. When the aircraft was ready to fly two and a half hours later, the pilot had reached the hour limit set by the Federal Aviation Administration, and a new pilot was required. By that time, the plane had to be de-iced again. Five hours after the scheduled departure time, Emig's flight was finally ready for takeoff.

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A customer service disaster, right? Not to hear Emig tell it. The pilot walked the aisles, answering questions and offering constant updates. Flight attendants, who Emig says "really seemed like they cared," kept up with the news on connecting flights. And within a couple of days of arriving home, Emig, who travels frequently, received a letter from Southwest that included two free round-trip ticket vouchers. "I could not believe they acknowledged the situation and apologized," says Emig. "Then they gave me a gift, for all intents and purposes, to make up for the time spent sitting on the runway."

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Emig's "gift" from the airline was not the result of an unusually kind customer service agent who took pity on his plight. Nor was it a scramble to make amends after a disastrous operational fiasco, as JetBlue Airways Corp. experienced recently--leading us, after much debate, to remove it from our first customer service ranking. Rather, it was standard procedure for Southwest Airlines, which almost six years ago created a new high-level job that oversees all proactive customer communications with customers. Fred Taylor, who was plucked from the field by President Colleen C. Barrett to fill the role in 2001, coordinates information that's sent to all frontline reps in the event of major flight disruptions. But he's also charged with sending out letters, and in many cases flight vouchers, to customers caught in major storms, air traffic snarls, or other travel messes--even those beyond Southwest's control--that would fry the nerves of a seasoned traveler. "It's not something we had to do," says Taylor. "It's just something we feel our customers deserve."

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As Southwest recognizes, providing great customer service is much more than just a job for the front lines or the call centers. It takes coordination from the top, bringing together people, management, technology, and processes to put customers' needs first. That's true today more than ever. Technology is leveling the barriers between alpha companies and also-rans, making great customer service one of the few ways companies can distinguish themselves. Retail, online, and phone shopping channels are expanding, increasingly prompting customers to demand a seamless--and painless--experience. Refining time-tested concepts and coming up with cutting-edge ideas is critical for managing rank-and-file workers and measuring what customers think.

In BusinessWeek's first-ever ranking of the best providers of customer service, we set out to find the service champions, but also to dig into the techniques, strategies, and tools they use to make the customer king. To launch the process, we created a list based largely on brands in J.D. Power & Associates' (MHP) database. In addition, we polled 3,000 of our readers, generating a pool of names most associated with treating customers well. We then asked J.D. Power, which, like BusinessWeek, is owned by The McGraw-Hill Companies, to survey customers about the brands that were nominated by readers but not already in its database.

THE RESULTING LIST HAS ITS SHARE OF service legends--our No.1 company, insurance provider USAA, has long been hailed for the way it treats its predominantly military customers and their families. Most of the names fell into one of three camps. There are industry disrupters, such as No.14 Washington Mutual Inc. (WM), that offer a customer-friendly alternative in fields long plagued by poor service. Many are privately held or family-run, such as regional supermarket Publix Super Markets Inc. (PUSH), No.19 on our list, and view great customer service as a founding, fundamental principle. Finally, there's a sprinkling of luxury brands, such as No.7 Lexus (TM), for which attentive, personal service is just part of the price of entry.

Despite their differences, most of the names on our list share a few important traits. They emphasize employee loyalty as much as customer loyalty, keeping their people happy with generous benefits and perks. Since 1984, No.5 Wegmans has given away $59 million in scholarships to 19,000 employees. And senior management logs hours on the front lines, listening in on phones in the call center or working by staffers' sides. At No.15 Cabela's Inc. (CAB), for instance, Vice-Chairman James W. Cabela spends hours each morning reading through the retailer's customer comments, and hand-delivering them to each department, circling the issues he'd like to have addressed. While treating employees right and staying close to the front lines may sound like simplistic platitudes, they're also the hard truth about the hard work of getting service right.

Most of the companies on our list also know how to respond when service goes wrong, as Southwest did in Emig's case. Even customers of the best companies suffer the occasional long wait, crabby rep, or mishandled billing statement. Much rarer is the sort of spectacular service catastrophe that befell JetBlue (JBLU) recently, when an ice storm stranded passengers on planes for as long as 10 1/2 hours at New York's John F. Kennedy International Airport. A disastrous cocktail of aircraft congestion, frozen equipment, and poor decision-making led to a massive airport snarl and days of cancelled flights that could have a lasting impact on the airline's customer-friendly reputation. The airline originally came in at No. 4 on our list--J.D. Power surveyed customers in early 2006--and it has a history of great service. But in the wake of such a massive operational meltdown, we decided to take a wait-and-see approach this year before naming it one of our Customer Service Champs. The airline is working hard to repair its image with customers and promising a vast overhaul of procedures. But the true test will be how it executes on those commitments in the months and years ahead. "They're going to be suffering from this for a long time," says Valarie Zeithaml, a professor of marketing at the University of North Carolina's Kenan-Flagler Business School, who has written about service recovery. "But I trust that this CEO and this organization is going to come up with some new ways to recover."

That hardly means the other names on our list are perfect. Seeing a cell-phone carrier on our top 25 is sure to raise eyebrows--the wireless industry is notorious for poor customer service. In our view, however, comparing phone companies to luxury hotel chains is a little like pitting a Division III art school against perennial powerhouse Duke University in the last round of the Final Four. So we instituted a bonus system that gives brands credit for doing well within their industries, catapulting names like No.23 T-Mobile (DT) and No. 18 Apple Inc. (AAPL) into the mix. While Apple's customer service shows its bruises--device problems frequently erupt just after warranties expire--the in-person support offered at the "Genius Bars" in the electronics maker's more than 170 stores sets it apart from its peers.

That more equitable approach pushed some well-known service brands just below our top 25. Low-cost brokerage firm Vanguard, whose top executives are each trained to man the phones during heavy call periods, showed up at No. 26. Just below came Saturn, which built its brand on no-hassle sales and service for the average American car buyer. Another strong contender? Reader nominee Ace Hardware, which beat out Home Depot Inc. by a mile. Ace came in at No. 32, while the big-box retailer, whose service has come under fire in recent years, landed decidedly in the bottom half.

Perhaps the most repeated theme we heard from the brands on our list was the need to improve continuously, no matter how many accolades they receive. Nordstrom (No. 4) initially declined to speak with us entirely, saying "we don't consider ourselves experts." Four Seasons Hotels & Resorts (No. 2) has been trying to enhance the check-in process for customers, a service that's in little need of improvement. "We call it having a healthy paranoia," says Craig Reid, senior vice-president of operations for the Americas. So over the last 18 months the hotel has been quietly extending curbside check-in. It aims in advance to identify customers who've stayed at the hotel as infrequently as five times and literally hand them their room keys as they step out of the car.

THE RITZ-CARLTON HOTEL CO., NO. 11 ON our list, is raising the bar, too, layering on a richer, more customized experience to its traditional service standards. The luxury hotel chain has long been heralded for the consistency of its service. So much so that managers from other companies flock to its Leadership Center, where Ritz managers share their secrets. Both Starbucks Corp. (SBUX) and Lexus have sent executive pilgrims.

But that consistency also has a downside. Until recently, both Ritz' (MAR) service and its hotels could be, well, too consistent. Its exacting 20 service standards could be too formal--the "certainly, my pleasure" treatment didn't always sit well with the thirtysomething venture capitalist in jeans tapping away on his BlackBerry. Slavish devotion to consistency also led to some design dissonance: The chain's modern South Beach property in Miami had a harp--a stock piece of decor--sitting in the sleek Art Deco hotel. "We were a little too cookie-cutter and robotic," says John Timmerman, vice-president of quality and productivity.

In addition to adding flexibility to its service standards, Ritz executives decided they needed a "scenographer"--someone who, as with a play, could help them direct "scenes" for the customer, but through customized service, rather than lighting or props. The luxury chain tapped Palo Alto (Calif.) design firm IDEO. "We wanted to bring a little something extra out of each hotel that helps to make the experience personal, unique, and memorable," says Len Wolin, senior director of program management for Ritz-Carlton. "But most of all, we wanted it to be subtle."

IDEO went to work creating a set of "scenography" workbooks. These helped a group of each hotel's most creative staffers brainstorm localized service scenes, such as a warm, personalized check-in process or a "big night in," in which the executive chef might send up a handwritten note, a champagne toast, and a sample from the night's menu for guests with restaurant reservations. At San Francisco's Half Moon Bay hotel, guests are now invited to an intimate wine tasting at check-in. As a reminder to keep the ideas understated, IDEO's worksheets urged staffers to come up with ways the changes could get out of hand. The localized touches "should be almost subliminal," says IDEO's Dana Cho, who led the project. "You never actually say it out loud to the customer."

While such personalized treatment may sound dreamy, for most of us customer service is an aggravating maze of automated phone trees and scripted voices resonating from halfway around the world. But while offshoring call-center work is still growing steadily, companies are getting smarter about what they send overseas. "I think we're seeing some backlash," says Bruce Temkin, Forrester Research Inc.'s (FORR) principal analyst for customer experience. "Companies are pulling some [more complex types of calls] back from offshore, and in other cases are recognizing they need to invest more in those facilities to give reps more tools and training."

One encouraging alternative trend, at least for those of us on the other end of the phone line, is "homeshoring," in which service agents armed with a broadband line, a computer, and a quiet corner in their spare bedroom respond to calls at their homes. Service can be better for customers because homeshoring attracts more experienced workers with more education than do regular call centers. Stay-at-home moms are a big part of the labor pool and like the flexibility and nonexistent commuting costs of the home-based model. That makes them more loyal, keeping turnover lower and experience levels higher. Companies that outsource calls to home-based agents report turnover rates in the 10% to 30% range, compared with anywhere from 60% to 100% in the average call center.

It should be encouraging for companies, too: Between overhead, pay, and training, home-based agents cost companies about $21 per rep per hour, vs. $31 in a stateside call center, says Stephen Loynd, program manager for contact center services at market research firm IDC. Loynd expects homeshoring to be a booming trend this year, reaching 328,000 home-based agents by 2010, up from just 138,000 last year.

One other upside to homeshoring is that heavy call volumes can be quickly addressed by sending out an all-points bulletin, urging home-based agents to sign on. Still, there has to be good communication with agents and incentives for them to log the extra hours. For instance, during JetBlue's recent operational snarl, customers quickly overwhelmed the reservations system at the company, which employs reservation agents that work from home. While the airline says it has the capability to "flex up" its number of agents, it also had trouble reaching them during the crisis and staffing up. As a result, the airline is instituting a "Code Red" signal that will require agents to work an extra three to four hours a day during occasional emergencies and pay them double for that time.

The home-based outsourcing model, with its more experienced agents working at home in jeans and slippers, fits well with the idea that happier frontline folks will make for happier customers. That's not just true for call centers. While No. 19 Publix Super Markets Inc., a popular grocery chain in the Southeast, is privately owned, it bestows shares in the company to employees as part of a profit-sharing plan and gives them the opportunity to buy more. That may seem like a ho-hum benefit, but the company's shares have appreciated 29% annually for the last three years. Publix management works hard to convince workers that if they treat the customer well, they'll be rewarded through the stock. "Don't look for a reason why you can't take care of a customer--look for ways you can," says Bob Moore, vice-president for Publix. The grocery chain also says it pays employees more than competitors, including average salaries for managers that are 20% to 25% higher.

The connection between satisfied employees and contented customers is hardly a new concept: Any business-school student can recite by heart the concept of the "service-profit chain," which draws the inextricable link between the front line and satisfied customers. But new research from Katzenbach Partners offers an updated metaphor. The firm stresses the importance of an "empathy engine," which looks at the role of the entire organization, including middle and senior management, in providing great service. If that engine is thought of as a heart, "the whole company has to pump the customer through it," says Traci Entel, a principal at Katzenbach Partners who recently studied 13 leading service companies' best practices. "It starts much further back, with how they organize themselves, and how they place value on thinking about the customer."

Helping employees become more empathetic with customers was a common focus among the brands on our list. For instance, USAA, whose home and auto insurance are only open to military members and their families, serves new employees MREs (meals ready to eat) during orientation so they can better identify with military life. All frontline workers at Cabela's, the outfitter famous for its massive retail shrines to hunting, fishing, and camping, partake in a free product-loaner program. Staffers are encouraged to borrow any of the company's more than 200,000 products for up to two months, so long as they write a review that's shared via a companywide software system when the goods are returned. That's not only a perk for employees; it also helps them better empathize with product issues customers might have.

But few places make empathizing with customers quite as luxurious an experience as Four Seasons Hotels. At most of its properties, the final piece of the seven-step employee orientation is something the chain's executives call a "familiarization stay" or "fam trip." Each worker in these hotels, from housekeepers to front-desk clerks, is given a free night's stay for themselves and a guest, along with free dining.

While there, employees are asked to grade the hotels on such measures as the number of times the phone rings when calling room service to how long it takes to get items to a room. "We bill it as a training session," says Ellen Dubois du Bellay, vice-president of learning and development. "They're learning what it looks like to receive service from the other side."

That's key when your product is out of range for many employees--a $400 room rate isn't exactly easy to swing on a housekeeper's budget. But the perk doesn't stop at orientation: After six months of service, employees may stay up to three nights a year for free. By 10 years, they get 20 free stays. As you'd imagine, "there's a very healthy uptake," says du Bellay. Four Seasons' creative but practical approach reveals one of the most powerful secrets of world-class service: helping employees to understand what it feels like to be a customer. Thinking like that distinguishes our Customer Service Champs from the rest of the field.

For our Top 25 list, click here.

By Jena McGregor, with Frederick F. Jespersen and Megan Tucker in New York and Dean Foust in Atlanta


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