Competing on Service: Eleven Ways to Beat the Competition by “Hugging” Your Customers

by Edward D. Hess, author of “Growing an Entrepreneurial Business“

The U.S. economy is still in a deep funk, and for many small business owners that means business isn’t exactly booming. Forced to do more with much less, the small businesses that have managed to survive and even thrive during these tough times have recognized one important factor: You can’t always compete on price, but you can compete on service. And the best thing about great customer service is that providing it doesn’t cost you an extra penny. When your competition is scrounging for customers, you have to hold yours close, and that starts with great customer service.

Today’s small business owners need to understand that cutting costs will not save their business.

Remember, customers are concerned about their own financial security. When they walk into a business, they need to feel cherished and special. They need to be ‘hugged’ by great customer service. Customers don’t expect to get bottom-of-the-barrel prices everywhere they go, but they do expect to be treated with respect.”

Great customer service doesn’t just happen. It starts with employees who have been trained in the science of service.

Your employees will treat your customers as they have been treated by their leaders. Treat employees in a respectful, caring manner, and that will be transferred to customers. The business research done at Harvard, Stanford, Michigan, and my research at Darden Business School all finds that happy employees make for happy customers.

Many major companies, such as Southwest Airlines, UPS, Chick-fil-A, Best Buy, Yum! Brands, Room & Board, Starbucks, Ritz-Carlton, Levy Restaurants, Costco, Zappos, and Whole Foods, understand the importance of great employee relations. In the Best Buy culture, for example, customers are “kings and queens,” employees are “royalty,” and managers and leaders are “servant leaders” serving employees and customers. At Ritz-Carlton, employees are “Ladies and Gentlemen serving Ladies and Gentlemen.”

Today, not every business is getting customer service right, but not every business is getting it wrong, either. Fortunately, for any small business owner looking to improve his customer service, valuable lessons can be learned from both the good and the bad. Here are some examples from my own experience and what can be learned from the good and bad sides of customer service:

The Bad: The Local Coffee Shop

In tough economic times, small business owners should have a laser-sharp focus on great customer service, doing everything they can to ensure their customers feel respected and loved. After all, studies have shown that it costs much more to attract a new customer than it does to keep an existing one. So it is important that business owners do everything they can to keep their current customers happy. Unfortunately, that isn’t always the case.

I recently went into a local coffee shop to get my wife her favorite latte. I ordered, paid, and waited for the drink to be made. When the employee gave it to me, she said she was sorry but they had run out of skim milk and as a result the cup was less than 2/3 full. And that was it. She turned and went on to the next customer. I stood there thinking, But I paid for a full cup!Instead of making her problem my problem, she should have offered to refund part of my money, or even better, she could have given me a coupon for a free drink on another day. Nope. Nothing. Pay for a full cup; get 2/3s of a cup…better luck next time. Needless to say, I have not been back to that coffee shop.

Learning from the “Bad”:

Remember, disgruntled customers won’t complain; they just won’t come back.

If you don’t give your customers the courtesy of taking the time to provide them with excellent service, they are not going to take the time to tell you how to improve your business. Remember, too, that in addition to not coming back to your business, unhappy customers will likely tell others about their bad experience. The ripple effect of just one bad customer service experience can be very damaging. Be sure your employees are providing consistently great customer service.

Provide special training for frontline employees.

The employees who interact directly with customers are essential for your business. Their attitudes, communication skills, and style of service are what your customers are going to associate with your business. Make sure your employees are trained to handle the potentially stressful task of working with customers.

Make sure a customer is happy before moving on to the next customer.

At many small businesses, like the coffee shop in the example above, customers value quick service just as much as they value quality service. But you can’t sacrifice one for the other. It’s important to make sure one customer is satisfied before you move on to the next guy. That can be as simple as asking, ‘Is there anything else I can do for you today?’ Remember, you’re not done serving the customer when you think you’re done. You’re done serving the customer when the customer is completely satisfied.

Compensate for mistakes.

Never, ever shortchange your customers. If a mistake was made or some other circumstance is preventing you from providing the best level of customer service, find a way to make it up to your customer. I would have gladly continued going to the coffee shop in the above example if the store’s employee had offered to make amends for the fact that I was getting less than what I had ordered. But the employee allowed me to feel shortchanged, and that isn’t a feeling that any customer is going to want to repeat.

Provide solutions.

Never make your business’s problem or an employee’s problem your customer’s problem. At the coffee shop, the employee who served me probably isn’t the one who does the store’s inventory. So maybe she didn’t think there was anything she could do to remedy the situation. But that really isn’t the case. Allow your employees to have the latitude to provide your customers with solutions when they can’t satisfy a need. For example, as I mentioned above, she could have offered a coupon for a free drink or even a free pastry. She could have told me about the problem before making my order and asked if there was a beverage I would like to substitute. Any offer would have been better than simply having a better-luck-next-time attitude.

The Good: Zappos.com

Companies that know great customer service do exist, and Zappos.com is one of them. Recently I ordered some shoes from Zappos that ended up not fitting. I sent them back using the provided prepaid shipping form. I immediately got an e-mail acknowledging that my shoes were being shipped back to Zappos, and I could follow their progress on the Internet. When they were received at Zappos, I got another e-mail telling me my refund was being processed and thanking me for shopping at Zappos. I sent them a response thanking them for the great service. Quickly thereafter, I got a personal e-mail from a customer service rep thanking me and telling me that Zappos loves its customers. She upgraded me to the Zappos VIP site. Wow! I felt cared about and appreciated. And guess what? I went online and ordered a different pair of shoes. Zappos truly gets it.

Learning from the “Good”:

Happy employees = Happy customers.

Zappos understands that employee satisfaction translates to great customer service. I can’t say for sure if the customer service rep who upgraded me to the VIP site was completely satisfied with her job. But I can say that she took the initiative to go the extra mile for a customer when she really didn’t have to. She cared enough to provide me with high-level service, which makes me think that she also cares about the company where she works. Creating that feeling in your employees will pay you back exponentially.

Always respond quickly.

Your customers are busy. They have big concerns of their own. They don’t deserve to be left wondering what kind of service they are going to receive or when they are going to receive it. “Address customer questions and problems as quickly as possible. Even if it’s just a message to say, ‘I am looking into this for you,’ the customer will appreciate being told where they are in the process.”

Make it easy to do business with you.

Never make your customers jump through hoops to do business with you. Have a return policy that is easy to understand and that puts the interests of the customer first. Provide refunds quickly and efficiently. My experience with Zappos was great. Sure, the shoes didn’t fit, but everything after that was so easy that it made me want to do more business with them. That is the kind of customer service that can keep you afloat during tough times.

Keep customers informed of what’s happening.

When customers know what’s happening with their order, it reduces their anxiety. And when they’re less anxious, they enjoy doing business with you. Zappos has a great system for keeping customers informed online, but it’s also easy to do in face-to-face customer service. For example, instead of just leaving the counter area, you might explain to a customer, ‘I am going to check to see if we have what you need in our stock room.’ Or if you’re handling a return and typing information into a computer, you might explain to the customer, ‘I’m just entering the date of purchase and the product number so that we can make sure we give you the maximum refund possible.’

Use technology to provide quick, efficient customer service.

It’s the twenty-first century, and email, message boards, and online stores provide us with the means to provide service more quickly than ever before. Small business owners might sometimes make the assumption that customers don’t like to be communicated with online. And for some older customers that might be the case. But by and large, I think people appreciate the ease that online shopping and communication provide. As long as you make sure your messaging is detailed and easy to understand, your customers will appreciate the quick service these technologies provide.

Make your customers feel valued.

Understand that each and every one of your customers is special. As the late business guru Peter Drucker said: The sole purpose of business is to serve customers. Make sure your employees understand this, and that above all else they must focus on making your customers feel valued and appreciated. As you saw with Zappos’s upgrading me to VIP status, there is never a bad time to throw in a special perk for a customer, to shake a customer’s hand, or to provide a metaphorical hug with great customer service.

Today’s small business owners must understand that their business is not about ‘me’; it’s about ‘them’: your employees and customers. Making cuts to employee perks or customer service perks is not a long-term plan for survival. It might buy you the opportunity to stay in the game a little bit longer, but it won’t make you a winner. In today’s economy, you have to do everything you can to hang on to your customers and to encourage them to keep coming back to your business. There’s no better way to do that than through consistently great customer service.

You might not always be able to slash your prices lower than those of your competitors. But you can make the experience of doing business with you superior to all others. Never be afraid to take your customer service up a notch!

Edward D. Hess is author of ”Growing an Entrepreneurial Business” and is a professor of business administration and Batten Executive-in-Residence at the Darden School of Business, University of Virginia. He is the author of nine books, over 60 cases, and over 60 articles. His work has appeared in over 200 media outlets around the world including CNBC, Fox Business News, Dow Jones Radio, WSJ Radio, MSNBC Radio, NPR, Forbes, Bloomberg, BusinessWeek, CFO magazine, Financial Executive, Journal of Applied Corporate Finance, Big Think, the Washington Post, and Financial Times. His book “Smart Growth: Building an Enduring Business” was named a 2010 Top 25 Business Book for Business Owners by Inc. magazine.