When
I was attending BYU, one of my favorite professors told our class
about an experience he once had at a local dry cleaner. He felt that
he had been treated unfairly, and since the store owner did not rectify
the problem, he promised never to return. Little did the store owner
know, however, that for the next 15 or more years before he retired
as a professor, he would tell every class he taught about his bad
experience at the dry cleaner. I figure that he may have encouraged
as many as 6,000 students to avoid that particular cleaner!
A good friend of mine, Paul Timm, wrote about
the costs associated with losing an unhappy customer in his book,
"Customer Service: Career Success Through Customer Satisfaction."
Paul explains that the average unhappy customer will tell 10 to 20
people about his or her unpleasant experience. Even more alarming
is that those people will then typically tell an additional five people
each. So if all 6,000 people relayed the professor's story to five
people, then 30,000 people have heard about a poor experience with
this certain dry cleaner.
For argument's sake, however, let's assume a
typical example whereby one unhappy customer tells 10 people, who
then each tell five others. That is a total of 51 people who are now
a part of this bad experience with the dry cleaner.
What financial impact does this have on the store
owner? Let's assume that the experience is bad enough that 25 percent,
or 13 of the 51 people, actually stop using that particular dry cleaner.
If the average person spends $20 a month on dry cleaning, then the
cleaner has lost revenues of $260 per month, or $3,120 annually.
Paul also discusses in his book that it typically
costs about five times as much to attract a new customer as it does
to retain a current customer. How much do you think it would have
cost the store owner to resolve the problem with the professor? Maybe
$20 or $25 in free dry cleaning? It might cost the storeowner $100
in advertising, promotional and sales expenses to attract a new customer.
Therefore, to attract new customers to fill the void of the 13 who
left would cost $1,300. Remember, that cost is in addition to the
$3,120 of lost revenue, and all of it could have been avoided by a
mere $20 gift.
Too often business owners don't think about the
long-term impact of an unhappy customer. As our example shows, it
is much more expensive to allow a customer to be unhappy than it is
to quickly resolve the issue. |
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Because customers expect things to go wrong occasionally, having an
unhappy customer can be an opportunity to create a loyal customer.
Think about when you have been unhappy with a company but something
was done to immediately rectify the problem. If I had to guess, you
are still doing business with that company because it is willing to
resolve problems that may arise. You probably even told people about
the good experience you had with that particular company.
I encourage you to run a similar exercise that
is specific to your business. I am confident you will find that the
happiness of your customers can be critical to your bottom line. Once
you realize this, you may look at an unhappy customer in a whole new
way.
By the way, if my professor's experience was
heard by 30,000 people and only 1 percent decided not to use the cleaner,
then lost revenue could now be as high as $72,000 a year. In this
case, the businessman is clearly taking himself to the cleaners.
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