Why Service Stinks
By: Diane Brady
October 23, 2000
Companies know just how good a customer you are--and unless you're a high roller, they would rather lose
you than take the time to fix your problem
When Tom Unger of New Haven started banking at First Union
Corp. several years ago, he knew he wasn't top of the heap. But
Unger didn't realize just how dispensable he was until mysterious
service charges started showing up on his account. He called the
bank's toll-free number, only to reach a bored service
representative who brushed him off. Then he wrote two letters,
neither of which received a response. A First Union spokeswoman,
Mary Eshet, says the bank doesn't discuss individual accounts but
notes that customer service has been steadily improving. Not for
Unger. He left. ''They wouldn't even give me the courtesy of
listening to my complaint,'' he says.
And Unger ought to know bad service when he sees it. He works as
a customer-service representative at an electric utility where the
top 350 business clients are served by six people. The next tier of
700 are handled by six more, and 30,000 others get Unger and one
other rep to serve their needs. Meanwhile, the 300,000 residential
customers at the lowest end are left with an 800 number. As Unger
explains: ''We don't ignore anyone, but our biggest customers
certainly get more attention than the rest.''
As time goes on, that service gap is only growing wider. Studies by groups ranging from the Council of Better
Business Bureaus Inc. to the University of Michigan vividly detail what consumers already know: Good service is
increasingly rare (charts). From passengers languishing in airport queues to bank clients caught in voice-mail hell,
most consumers feel they're getting squeezed by Corporate America's push for profits and productivity. The result is
more efficiencies for companies--and more frustration for their less valuable customers. ''Time saved for them is not
time saved for us,'' says Claes Fornell, a University of Michigan professor who created the school's consumer
satisfaction index, which shows broad declines across an array of industries. Fornell points to slight improvements
in areas like autos and computers.
Andrew Chan's experience with Ikea is typical. The Manhattan artist recently hauled a table home from an Ikea store
in New Jersey only to discover that all the screws and brackets were missing. When he called to complain, the giant
furniture retailer refused to send out the missing items and insisted he come back to pick them up himself, even
though he doesn't own a car. Maybe he just reached the wrong guy, says Tom Cox, customer-service manager for
Ikea North America, noting that the usual procedure is to mail small items out within a couple of days.
NO ELEPHANT? Life isn't so tough for everyone, though. Roy Sharda, a Chicago Internet executive and road
warrior is a ''platinum'' customer of Starwood Hotels & Resorts Worldwide. When he wanted to propose to his
girlfriend, Starwood's Sheraton Agra in India arranged entry to the Taj Mahal after hours so he could pop the
question in private. Starwood also threw in a horse-drawn carriage, flowers, a personalized meal, upgrades to the
presidential suite, and a cheering reception line led by the general manager. It's no wonder Sharda feels he was
''treated like true royalty.''
Welcome to the new consumer apartheid. Those long lines and frustrating telephone trees aren't always the result of
companies simply not caring about pleasing the customer anymore. Increasingly, companies have made a deliberate
decision to give some people skimpy service because that's all their business is worth. Call it the dark side of the
technology boom, where marketers can amass a mountain of data that gives them an almost Orwellian view of each
buyer. Consumers have become commodities to pamper, squeeze, or toss away, according to Leonard L. Berry,
marketing professor at Texas A&M University. He sees ''a decline in the level of respect given to customers and
their experiences.''
HOW YOU CAN GET STIFFED
FLYING
Canceled flight? No problem. With top status, you're
whisked past the queue, handed a ticket for the next flight,
and driven to the first-class lounge.
BILLING
Big spenders can expect special discounts, promotional
offers, and other goodies when they open their bills. The
rest might get higher fees, stripped-down service, and a
machine to answer their questions
BANKING
There's nothing like a big bank account to get those
complaints answered and service charges waived every
time. Get pegged as a money-loser, and your negotiating
clout vanishes
LODGING
Another day, another upgrade for frequent guests. Sip
champagne before the chef prepares your meal. First-time
guest? So sorry. Your room is up three flights and to the left
RETAILING
Welcome to an after-hours preview for key customers where
great sales abound and staff await your every need. Out in
the aisles, it's back to self-service
More important, technology is creating a radical
new business model that alters the whole dynamic
of customer service. For the first time, companies
can truly measure exactly what such service costs
on an individual level and assess the return on each
dollar. They can know exactly how much business
someone generates, what he is likely to buy, and
how much it costs to answer the phone. That
allows them to deliver a level of service based on
each person's potential to produce a profit--and not
a single phone call more.
The result could be a whole new stratification of
consumer society. The top tier may enjoy an
unprecedented level of personal attention. But
those who fall below a certain level of profitability
for too long may find themselves bounced from the
customer rolls altogether or facing fees that all but
usher them out the door. A few years ago, GE
Capital decided to charge $25 a year to GE
Rewards MasterCard holders who didn't rack up at
least that much in annual interest charges. The
message was clear: Those who pay their bills in
full each month don't boost the bottom line. GE has
since sold its credit-card business to First USA.
Others are charging extra for things like deliveries
and repairs or reducing service staff in stores and
call centers.
Instead of providing premium service across the
board, companies may offer to move people to the
front of the line for a fee. ''There has been a fundamental shift in how companies assess customer value and apply
their resources,'' says Cincinnati marketing consultant Richard G. Barlow. He argues that managers increasingly
treat top clients with kid gloves and cast the masses ''into a labyrinth of low-cost customer service where, if they
complain, you just live with it.''
Companies have always known that some people don't pay their way. Ravi Dhar, an associate professor at Yale
University, cites the old rule that 80% of profits come from 20% of customers. ''The rest nag you, call you, and don't
add much revenue,'' he says. But technology changed everything. To start, it has become much easier to track and
measure individual transactions across businesses. Second, the Web has also opened up options. People can now
serve themselves at their convenience at a negligible cost, but they have to accept little or no human contact in
return. Such huge savings in service costs have proven irresistible to marketers, who are doing everything possible
to push their customers--especially low-margin ones--toward self-service.
FRONT-LOADING ELITE. That's a far cry from the days when the customer was king. In the data-rich new
millennium, sales staff no longer let you return goods without question while rushing to shake your hand. And they
don't particularly want to hear from you again unless you're worth the effort. How they define that top tier can vary a
lot by industry. Airlines and hotels love those who buy premier offerings again and again. Financial institutions, on
the other hand, salivate over day traders and the plastic-addicted who pay heavy interest charges because they cover
only the minimum on their monthly credit-card bills.
Almost everyone is doing it. Charles Schwab
Corp.'s top-rated Signature clients--who start
with at least $100,000 in assets or trade 12
times a year--never wait longer than 15
seconds to get a call answered, while other
customers can wait 10 minutes or more. At
Sears, Roebuck & Co., big spenders on the
company's credit card get to choose a
preferred two-hour time slot for repair calls
while regular patrons are given a four-hour
slot. Maytag Corp. provides premium service
to people who buy pricey products such as its
front-loading Neptune washing machines,
which sell for about $1,000, twice the cost of a
top-loading washer. This group gets a
dedicated staff of ''product experts,'' an
exclusive toll-free number, and speedy service
on repairs. When people are paying this much,
''they not only want more service; they deserve
it,'' says Dale Reeder, Maytag's general
manager of customer service.
'WE'RE SORRY, ALL OF OUR AGENTS ARE
BUSY WITH MORE VALUABLE CUSTOMERS'
Companies have become sophisticated about figuring out if
you're worth pampering--or whether to just let the phone keep
ringing. Here are some of their techniques:
CODING
Some companies grade customers based on how profitable their
business is. They give each account a code with instructions to
service staff on how to handle each category.
ROUTING
Based on the customer's code, call centers route customers to
different queues. Big spenders are whisked to high-level
problem solvers. Others may never speak to a live person at all.
TARGETING
Choice customers have fees waived and get other hidden
discounts based on the value of their business. Less valuable
customers may never even know the promotions exist.
Of course, while some companies gloat about
SHARING
the growing attention to their top tier, most
Companies sell data about your transaction history to outsiders.
hate to admit that the bottom rungs are getting
You can be slotted before you even walk in the door, since your
less. GE Capital would not talk. Sprint Corp.
buying potential has already been measured.
and WorldCom Inc. declined repeated requests
to speak about service divisions. Off the
record, one company official explains that customers don't like to know they're being treated differently.
Obviously, taking service away from the low spenders doesn't generate much positive press for companies. Look at
AT&T, which recently agreed to remove its minimum usage charges on the 28 million residential customers in its
lowest-level basic plan, many of whom don't make enough calls to turn a profit. ''To a lot of people, it's not
important that a company make money,'' says AT&T Senior Vice-President Howard E. McNally, who argues that
AT&T is still treated by regulators and the public as a carrier of last resort. Now, it's trying to push up profits by
giving top callers everything from better rates to free premium cable channels.
SERIAL CALLERS. Is this service divide fair? That depends on your perspective. In an era when labor costs are
rising while prices have come under pressure, U.S. companies insist they simply can't afford to spend big bucks
giving every customer the hands-on service of yesteryear. Adrian J. Slywotzky, a partner with Mercer Management
Consulting Inc., estimates that gross margins in many industries have shrunk an average of 5 to 10 percentage points
over the past decade because of competition. ''Customers used to be more profitable 10 years ago, and they're
becoming more different than similar'' in how they want to be served, he says.
The new ability to segment customers into ever finer categories doesn't have to be bad news for consumers. In many
cases, the trade-off in service means lower prices. Susanne D. Lyons, chief marketing officer at Charles Schwab,
points out that the commission charged on Schwab stock trades has dropped by two-thirds over the past five years.
Costs to Schwab, meanwhile, vary from a few cents for Web deals to several dollars per live interaction. And
companies note that they're delivering a much wider range of products and services than ever before--as well as
more ways to handle transactions. Thanks to the Internet, for example, consumers have far better tools to
conveniently serve themselves.
Look at a company like Fidelity Investments, which not only has a mind-boggling menu of fund options but now
lets people do research and manipulate their accounts without an intermediary. Ten years ago, the company got
97,000 calls a day, of which half were automated. It now gets about 550,000 Web site visits a day and more than
700,000 daily calls, about three-quarters of which go to automated systems that cost the company less than a buck
each, including development and research costs. The rest are handled by human beings, which costs about $13 per
call. No wonder Fidelity last year contacted 25,000 high-cost ''serial'' callers and told them they must use the Web or
automated calls for simple account and price information. Each name was flagged and routed to a special
representative who would direct callers back to automated services--and tell them how to use it. ''If all our customers
chose to go through live reps, it would be cost-prohibitive,'' says a Fidelity spokeswoman.
ENTITLED? Segmenting is one way to manage those costs efficiently. Bass Hotels & Resorts, owners of such
brands as Holiday Inn and Inter-Continental Hotels, know so much about individual response rates to its promotions
that it no longer bothers sending deals to those who did not bite in the past. The result: 50% slashed off mailing costs
but a 20% jump in response rates. ''As information becomes more sophisticated, the whole area of customer service
is becoming much more complex,'' says Chief Marketing Officer Ravi Saligram.
Consumers themselves have cast a vote against high-quality service by increasingly choosing price, choice, and
convenience over all else. Not that convenience always takes the sting out of rotten service--witness priceline.com
Inc., the ultimate self-service site that lets customers name their own price for plane tickets, hotels, and other goods.
Many consumers didn't fully understand the trade-offs, such as being forced to stop over on flights, take whatever
brand was handed to them, and forgo the right to any refund. And when things went wrong, critics say, no one was
around to help. The result: a slew of complaints that has prompted at least one state investigation. Priceline.com
responds that it's revamping the Web site and intensifying efforts to improve customer service. While many
consumers refuse to pay more for service, they're clearly dismayed when service is taken away. ''People have higher
expectations now than two or three years ago because we have all this information at our fingertips,'' says Jupiter
Communications Inc. analyst David Daniels.
Indeed, marketers point to what they call a growing culture of entitlement, where consumers are much more
demanding about getting what they want. One reason is the explosion of choices, with everything from hundreds of
cable channels to new players emerging from deregulated industries like airlines and telecom companies.
Meanwhile, years of rewards programs such as frequent-flier miles have contributed to the new mind-set. Those
who know their worth expect special privileges that reflect it. Says Bonnie S. Reitz, senior vice-president for
marketing, sales, and distribution at Continental Airlines Inc.: ''We've got a hugely educated, informed, and more
experienced consumer out there now.''
For top-dollar clients, all this technology allows corporations to feign an almost small-town intimacy. Marketers can
know your name, your spending habits, and even details of your personal life. Centura Banks Inc. of Raleigh, N.C.,
now rates its 2 million customers on a profitability scale from 1 to 5. The real moneymakers get calls from service
reps several times a year for what Controller Terry Earley calls ''a friendly chat'' and even an annual call from the
CEO to wish them happy holidays. No wonder attrition in this group is down by 50% since 1996, while the
percentage of unprofitable customers has slipped to 21% from 27%.
Even for the lower tier, companies insist that this intense focus on data is leading to service that's better than ever.
To start with, it's more customized. And while executives admit to pushing self-help instead of staff, they contend
that such service is often preferable. After all, many banking customers prefer using automated teller machines to
standing in line at their local branch. American Airlines Inc., the pioneer of customer segmentation with its twodecade-old loyalty program, says it's not ignoring those in the cheap seats, pointing to the airline's recent move to
add more legroom in economy class. Says Elizabeth S. Crandall, managing director of personalized marketing:
''We're just putting more of our energies into rewarding our best customers.''
MARKED MAN. This segmentation of sales, marketing, and service, based on a wealth of personal information,
raises some troubling questions about privacy. It threatens to become an intensely personal form of ''redlining''--the
controversial practice of identifying and avoiding unprofitable neighborhoods or types of people. Unlike traditional
loyalty programs, the new tiers are not only highly individualized but they are often invisible. You don't know when
you're being directed to a different telephone queue or sales promotion. You don't hear about the benefits you're
missing. You don't realize your power to negotiate with everyone from gate agents to bank employees is
predetermined by the code that pops up next to your name on a computer screen.
When the curtain is pulled back on such sophisticated tiering, it can reveal some uses of customer information that
are downright disturbing. Steve Reed, a West Coast sales executive, was shocked when a United Airlines Inc.
ticketing agent told him: ''Wow, somebody doesn't like you.'' Not only did she have access to his Premier Executive
account information but there was a nasty note about an argument he had had with a gate agent in San Francisco
several months earlier. In retrospect, he feels that explained why staff seemed less accommodating following the
incident. Now, Reed refuses to give more than his name for fear ''of being coded and marked for repercussions.''
United spokesman Joe Hopkins says such notes give agents a more complete picture of passengers. ''It's not always
negative information,'' says Hopkins, adding that the practice is common throughout the industry.
Those who don't make the top tier have no idea how good things can be for the free-spending few. American
Express Co. has a new Centurion concierge service that promises to get members almost anything from anywhere in
the world. The program, with an annual fee of $1,000, is open by invitation only. ''We're seeing a lot of people who
value service more than price,'' says Alfred F. Kelly Jr., AmEx group president for consumer and small-business
services. Dean Burri, a Rock Hill (S.C.) insurance executive, found out how the other half lives when he joined their
ranks. Once he became a platinum customer of Starwood Hotels, it seemed there was nothing the hotel operator
wouldn't do for him. When the Four Points Hotel in Lubbock, Tex., was completely booked for Texas Tech
freshman orientation in August, it bumped a lower-status guest to get Burri a last-minute room. Starwood says that's
part of the platinum policy, noting that ejected customers are put elsewhere and compensated for inconvenience.
With the right
status, says
Burri, ''you
get
completely
different
treatment.''
The
distinctions in
customer
status are
getting sliced
ever finer.
Continental
Airlines Inc. has started rolling out a Customer Information System where every one of its 43,000 gate, reservation,
and service agents will immediately know the history and value of each customer. A so-called intelligent engine not
only mines data on status but also suggests remedies and perks, from automatic coupons for service delays to
priority for upgrades, giving the carrier more consistency in staff behavior and service delivery. The technology will
even allow Continental staff to note details about the preferences of top customers so the airline can offer them extra
services. As Vice-President Reitz puts it: ''We even know if they put their eyeshades on and go to sleep.'' Such
tiering pays off. Thanks to its heavy emphasis on top-tier clients, about 47% of Continental's customers now pay
higher-cost, unrestricted fares, up from 38% in 1995.
Elsewhere, the selectivity is more subtle. At All First Bank in Baltimore, only those slotted as top customers get the
option to click on a Web icon that directs them to a live service agent for a phone conversation. The rest never see it.
First Union, meanwhile, codes its credit-card customers with tiny colored squares that flash when service reps call
up an account on their computer screens. Green means the person is a profitable customer and should be granted
waivers or otherwise given white-glove treatment. Reds are the money losers who have almost no negotiating
power, and yellow is a more discretionary category in between. ''The information helps our people make decisions
on fees and rates,'' explains First Union spokeswoman Mary Eshet.
Banks are especially motivated to take such steps because they have one of the widest gaps in profitability. Market
Line Associates, an Atlanta financial consultancy, estimates that the top 20% of customers at a typical commercial
bank generate up to six times as much revenue as they cost, while the bottom fifth cost three to four times more than
they make for the company. Gartner Group Inc. recently found that, among banks with deposits of more than $4
billion, 68% are segmenting customers into profitability tranches while many more have plans to do so.
Tiering, however, poses some drawbacks for marketers. For one thing, most programs fail to measure the potential
value of a customer. Most companies can still measure only past transactions--and some find it tough to combine
information from different business units. The problem, of course, is that what someone spends today is not always a
good predictor of what they'll spend tomorrow. Life situations and spending habits can change. In some cases, low
activity may be a direct result of the consumer's dissatisfaction with current offerings. ''We have to be careful not to
make judgments based on a person's interaction with us,'' cautions Steven P. Young, vice-president for worldwide
customer care at Compaq Computer Corp.'s consumer-products group. ''It may not reflect their intentions or future
behavior.''
PAY NOT TO WAIT? Already, innovative players are striving to use their treasure trove of information to move
customers up the value chain instead of letting them walk out the door. Capital One Financial Corp. of Falls Church,
Va., is an acknowledged master of tiering, offering more than 6,000 credit cards and up to 20,000 permutations of
other products, from phone cards to insurance. That range lets the company match clients with someone who has
appropriate expertise. ''We look at every single customer contact as an opportunity to make an unprofitable customer
profitable or make a profitable customer more profitable,'' says Marge Connelly, senior vice-president for domestic
card operations.
In the future, therefore, the service divide may become much more transparent. The trade-off between price and
service could be explicit, and customers will be able to choose where they want to fall on that continuum. In
essence, customer service will become just another product for sale. Walker Digital, the research lab run by
priceline.com founder Jay S. Walker, has patented a ''value-based queuing'' of phone calls that allows companies to
prioritize calls according to what each person will pay. As Walker Digital CEO Vikas Kapoor argues, customers can
say: ''I don't want to wait in line--I'll pay to reduce my wait time.''
For consumers, though, the reality is that service as we've known it has changed forever. As Roger S. Siboni, chief
executive of customer-service software provider E.piphany Inc., points out, not all customers are the same. ''Some
you want to absolutely retain and throw rose petals at their feet,'' Siboni says. ''Others will never be profitable.''
Armed with detailed data on who's who, companies are learning that it makes financial sense to serve people based
on what they're worth. The rest can serve themselves or simply go away.
How to Improve Your Profile
Even if you're not a big spender, there are ways to improve your standing with companies in order to command
better service. The key is to recognize that your spending habits, payment history, and any information you
volunteer can be used for or against you. What's more, if you do think you're being pegged at a low tier, there are
ways to get the recognition you feel you deserve.
The first step in fighting segmentation is to be stingy with the information you give out--especially if it's unlikely to
help your status. Don't fill out surveys, sweepstakes forms, or applications if you're not comfortable with how the
information might be used. Be wary when a company asks if it can alert you to other products and services. A yes
may permit them to sell data that you don't want distributed.
PIGEONHOLING. The Consumers Union points
out that it's unnecessary to fill out surveys with
warranty cards. Just send in a proof of purchase
with your name and address. ''Protecting your
privacy is a significant tool to prevent yourself
from being pigeonholed as undesirable,'' says Gene
Kimmelman, Washington co-director for the CU.
It's equally important to recognize what kind of
information companies are looking for. If you don't
live in an upmarket Zip Code, consider using your
work address for correspondence. Be optimistic
when estimating your income or spending: The
better the numbers look, the better you'll be treated.
Making the Grade
How to get better service
CONSOLIDATE YOUR ACTIVITIES
Few things elevate status and trim costs like spending big in
one place. Be on the lookout for packages or programs that
reward loyal behavior.
PROTECT YOUR PRIVACY
Avoid surveys and be frugal with releasing credit-card or
Social Security information. The less companies know, the
less they can slot you.
Still, it's tough to keep personal information to
JUMP THE PHONE QUEUE
yourself, especially when companies are compiling
If you want to reach a live human, don't admit to having a
data on the business they do with you. A critical
touch-tone phone at the prompt. Or listen for options that
concern for all consumers is their actual payment
are less likely to be handled automatically.
record. Donna Fluss, a vice-president at the
technology consultants Gartner Group Inc., advises
FIGHT BACK
pulling your credit history at least once a year to
If you feel badly treated, complain. Make sure management
check if there are any liens or mistakes. ''You may
knows just how much business you represent and that
discover that you're listed as having missed a
you're willing to take it elsewhere.
payment that you thought you made on time,'' she
says. The three main reporting bureaus--Experian,
Trans Union, and Equifax--charge a small fee for a copy of your credit history. If, however you have recently been
denied credit, employment, or insurance, such a report is free from all three companies. The largest bureau is
Equifax, which has data on 190 million Americans, but all three may have slightly different records based on who
reports to them.
Multiple credit cards can be a mistake, especially if they're the no-frills variety that are frequently offered to less
desirable candidates. Not only can they drain the credit you might need for other activities, but they're also unlikely
to propel you into a higher category. Using a spouse's card or account is also to be avoided, because it robs you of a
chance to build your own credit history. If a mistake is made on your account, fight it.
Pros disagree on tactics for bypassing the service maze. One customer representative argues that when calling a
service center it's better to punch in no account number if you're a low-value customer. The reason? Without proper
identification, he says, a live person has to get on the line. ''Pretend you're calling from a rotary phone,'' he advises.
But another tactic may be to punch zero or choose an option that's likely to get immediate attention.
In the end, resistance may be futile, and the best strategy for beating the system may be to join it. Shop around for
the best company, and try to consolidate your business there. These days, the best way to ensure good service is to
make yourself look like a high-value, free-spending customer.
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