CCO Council Blog

By Curtis Bingham

Last January T-Mobile announced that it would do away with the two year contracts on its phones. The last weekend the new pricing plans showed up on their website.  To lure customers away from others, T-Mobile is offering unlimited voice and data for between $50-70/month. What is notable, though, is that now they are doing away with the two-year contract that everyone loves to hate, along with the very steep early termination fees that everyone loves to hate even more.

The question?  Are long-term contracts anathema to customer loyalty?

According to the American Consumer Satisfaction Index for May, 2012, mobile carriers such as AT&T Mobility, Verizon, Sprint and others have scores in the 69-70 range, whereas the no-contract carriers such as TracFone have a score of 76.  By way of reference, Apple’s score for their iPhone is 83.

Cell phone carriers tease you with a discount on the phone and then lock you into a two-year contract in exchange.  The penalties for early termination are ~$200. Rather than subsidizing a $650 iPhone and charging higher fees for the duration of the subscriber’s tenure, T-Mobile is breaking ranks with the industry and allowing you to either pay up front the full cost of the phone, or pay an additional fee above the data plan for two years until the phone is paid off at which time the monthly fee reverts to the lower amount for service.  In essence, you pay the exact same if you pay up front or over time.  The biggest difference is in captivity and penalty.

Loyalty is an attitude of allegiance, and is most accurately measured by a history of repurchase, especially in the face of competition.  When you have no competition, enforced long-term contracts, or even legislative mandate, you don’t have loyalty, you have captivity. Dissatisfied captive customers will often exit given the first opportunity, such as a new competitive offering, expired contract, or legislative revolt led by other captive customers. Software as a service (SaaS) companies are providing strong and favorable alternatives to long-term software and service agreements. Lawsuits have been successfully settled against VISA and MasterCard for their anti-competitive clauses in their merchant agreements. 

Can you have loyalty AND service contracts?  Or do the service contracts simply mask bad behavior that wouldn’t be tolerated by customers in the absence of the lock-in?  Or would your company be better off in the long run by foregoing the easy up-front money of the service contract and investing in creating an enjoyable customer experience that eclipses competitors?

What do you think?

By Curtis Bingham

Once upon a time, Netflix was an innovator and a giant slayer.  They offered a great product, enormous selection and a unique delivery system for DVDs.  By allowing customers to rent DVDs online and have them mailed to them, they put Blockbuster and video stores in general, out of business.  Next, Netflix wowed customers by offering a selection of movies to stream online via the same account.  No hidden fees, problems were addressed early and customers were loyal and excited about the product. 

They were once a company that “got it right” with their customers, but in the last three months, they have managed to squash 7 years of good will with some bad decisions that were poorly executed by the company.

I do a great deal of writing about companies and Chief Customer Officers that get it right, creating superb customer experiences that drive loyalty which in turn drives revenue and profits. While this can be instructive on how to be successful, sometimes it’s better to know what NOT to do to avoid complete and utter catastrophe.  Netflix is a study in both extremes, and whether or not it survives its own blunders time may only tell.

Early last summer Netflix announced a price increase…not just any price increase, but one that raised rates as much as 60% depending on the plan a customer was subscribed to.  The reaction was immediate and pervasive.  Angry customers blogged, tweeted, Facebooked and used every communication vehicle they could find to voice their disgust.  Netflix was silent.  After a short period of being ignored, the customers did what dissatisfied customers always do: they voted with their feet and left Netflix in droves. Still Netflix did nothing. 

Customers are never fans of unjustified price increases.  Netflix showed a complete disregard for their customer base when increasing the price of the service without a justifiable increase in value.  Price increases of this magnitude force customers to reevaluate decisions that used to be automatic.  They used to happily pay their bill every month and now they were determining if it was worth the price.  Many decided it was not.

Months later, CEO Reed Hastings came out with an apology, but it was several months overdue and it included a new bombshell: instead of the traditional online and DVD service found in the same convenient site, he was splitting the company into two entities.  Netflix would only stream video and Qwikster would continue in the spirit of Netflix’s original intent of DVD rentals.  Neither site will communicate with each other, so you will have to have separate queues for your movies and your credit card will be charged twice by two different companies.  Wait…what?  So, he is sorry for the price hike, but the price hike remains AND he is taking the most convenient part of his service and making it considerably more complicated?  How does this make things right for the customer? Does this sound like a company that cares about customers?

Companies are in business to create value for customers.  The price they charge is derived from the value provided.  When the value erodes, the price can’t be expected to remain the same or even increase without a backlash.  In 3 months, Netflix managed to destroy their service value and instituted a price increase.  Netflix is paying for these blunders both in a dropping stock price and in reduced Wall Street guidance as they lower customer acquisition expectations for Q4.   

Where is the customer in all of this?  Leaving, but it doesn’t have to be that way. 

Netflix could institute some changes to quickly bring departed customers back and save face with current disgruntled customers.  How?  By taking it all back.  Clearly, they have a strategic direction to split the company into two entities so they can pursue different customer segments.  Not all people who stream videos also watch DVDs and vice versa.  However, they can make the two services talk to each other to maintain consistent history, ratings, and recommendations. They could also go back to a single charge for those who use both services.  Small changes, but they reflect the biggest issues customers have with splitting the services up.

The largest gesture Netflix can make is to own their pricing miscalculation.  Reed Hastings belatedly apologized for the mistake and admitted it was quite a gaff, but he didn’t make it right.  Take action and correct the pricing scheme.  Grandfather current customers and make it an offer to those that left that they can return for their pre-June pricing plans.  It would energize the customer base, regain a percentage of lost customers and it would be a positive PR boost to a company that desperately needs one. 

Will Netflix do this?  Sadly, no.  They have stated publicly that they won’t recover the customers they lost.  Instead, they are rolling out announcements regarding new content agreements to justify their price hike.  This just increases the customer disconnect and will make them only too happy to jump on a number of very promising competing services such as Amazon and Apple that have gladly stepped into the breech. 

John Woods said “The purpose of a business is to create a mutually beneficial relationship between itself and those that it serves.  When it does that well, it will be around tomorrow to do it some more.”  Will Netflix be around tomorrow?  It is too early to tell.  However the prognosis is not good. 

By Curtis Bingham

Do you remember the old “Whac-a-Mole” game?  During my childhood we’d go to the arcade, pick up the oversized, soft, rubber mallet and whack plastic moles that would pop up at random from five holes in a waist-level cabinet.  Every mole successfully whacked was worth 10 points, and we’d work ourselves into frenzy, whacking moles as fast as we could before time ran out.  The app is available for the iPhone and Android devices, and there is even a $28,000 executive Whac-a-Mole cabinet complete with moles made in the likeness of friends, family, or co-workers and liquor and glass storage.

How many moles have you whacked today? As executives, we want to keep our organizations humming along smoothly and efficiently, correcting and preventing mistakes wherever they pop up.  We pride ourselves on being able to identify and resolve problems or quickly root out inefficiencies. We sometimes are frustrated at employees that don’t take initiative, for whom it seems we have to spell out everything.  Bass & Avolio wrote about these employees, characterizing them as a “workforce of risk avoiders and individuals who work merely to standards using ‘traditional methods.’”  Got a few of those? 

Here’s something that may surprise you.   These followers “avoid attempts to innovate because they risk making mistakes and receiving negative reactions from their leader[s].”  Could it be that the problem is not the employees….but you?

Bass & Avolio describe the leaders as having a “Management by Exception” transactional leadership style characterized as monitors who detect mistakes and are on the lookout for variances from standards.  They are extremely reactive and take corrective action when errors occur.  While at times this style may be necessary, it creates a “zero-defects mentality at all costs [that] can handicap willingness to take calculated risks to do what is needed.” 

Some time ago I used a quote in my signature: “If you aren’t part of the solution, you are part of the precipitate.”  See what I did there?  Are you part of the solution? Or are you part of the sludge that is holding your organization back, stifling creativity and preventing innovation? Maybe that executive Whac-a-Mole cabinet should be taken out of the office.

At the 3^rd Annual Chief Customer Officer Summit we’re going to be talking about accelerating leadership, and specifically about how you can go about becoming the leader that everyone respects and is excited to follow.  If you are the senior-most customer-facing executive in your company, can you afford not to miss this event?

I’m going to be talking a lot about leadership and authority in the coming months.  I look forward to having you join in the conversation.

By Curtis Bingham

In my mailbox today I found a fantastic personal story from my good friend, Jeff, about how treating a customer complaint as a gift ended up winning back a customer, and saving the company money.  I’ll let Jeff tell the story in his words:

“I drink Coca-Cola each day and I have my favorite Sunoco gas station where I go to get a fountain drink. The Sunoco station was out of the soda I like so I went to the nearby Mobile station, which is the only other nearby source for fountain drinks.   I don't like the soda here because the syrup mixture is way to strong for me.  As I entered, I mentioned to the manager that the mixture of syrup at his store is awfully strong.  He said he would look into it.

This morning he told me that he’d mentioned to the vendor that a customer had brought an issue to his attention and asked them to take a look at it.  I was surprised as in my experience most people forget about the customer issue or blow off the customer and go about their daily business.  The service rep discovered that the syrup mixture was double what it should be! In the back of the room, the machine pumps a specific amount of water & syrup into the tubes connected to the dispenser.   The mixture had been very wrong for quite some time, costing the company double what it should have in syrup consumed. What’s more, the nozzle had to be replaced because it was getting all "gunked up", also costing the vendor in repair and replacement costs.  When asked by the service rep, the manager of the Mobil station said, "the customer 'gets it'.  He knows what the product is supposed to taste like."  

I thought to myself, "how often to we ask our customers what they want or what the product "tastes" like?  Or how often do they listen to a customer’s complaint or recommendation?  How many customers went elsewhere because of this problem? This manager listened and reported back to me on my initial comment.  I felt great that I had been heard.  I felt I had a better relationship with the store manager, and with the store that I had shunned in the past.  I’ll be going back.”

A simple, but powerful lesson:  customer feedback is a gift.  Listening to customers not only helps us better serve them, but can often save us money.  How well are you listening to customers?  How easy do you make it for customers to contact you to voice their concerns?  How do you close the loop with customers, letting them know they’ve been heard?  How do you thank them for their feedback?  The next customer complaint you field might just mean a customer saved.

By Curtis Bingham

“Why aren’t families dying to get into my schools?” asked the superintendent of public schools in one Rhode Island school district. According to a recent article in the Providence Journal, enrollment in public schools has dropped by 26.4% over the last decade, a precipitous drop.  This gap equates to a $3M funding cut this year.  The biggest cause?  An exodus from public schools to charter schools.  Charter schools are free from some of the bureaucracy of traditional public schools and by involving parents in the education of their children are better serving their customers. Parents are voting with their feet.

The public school system is a classic example of an organization in need of a chief customer officer (CCO). While the stated goal of providing children with a solid education is certainly appealing, the practical reality is that the organization is fundamentally flawed: the school systems are not interested in their real customers-the children and their parents.  If you examine every initiative proposed by teacher’s unions, they are all about the teachers, and never about the customers.  Unions, with rare exception, never work concordantly with the education administration and with the customer.  Instead, they are constantly fighting for shorter hours, fewer extracurricular activities, increased pay and benefits. Picture an organization like this where you have miserably unhappy employees.  How can you possibly have happy customers? The kids always suffer.  

Just like the superintendent passionately defended her schools and teachers, companies can claim they are customer-centric in every board meeting, press release, or marketing campaign. But what happens on the outside is merely a reflection of what is going on inside.  Miserable employees and happy customers simply cannot coexist! Unless you have a monopoly in a market or on a product, if customers are dissatisfied you run the risk of losing your customers to the business equivalent of charter schools: more nimble competition that is gleefully stealing away your customers. 

Task someone with championing the customer cause, maintaining your customer focus and managing the well-being and progress of customers. Learn why customers are defecting, and what it takes to get them to buy or pay more. Or better yet, hire a CCO so this important job doesn’t get lost in the whirlwind of an overburdened day job.  Whatever you do, don’t let your business fall prey to charter schools.

By Curtis Bingham

A number of years ago I was creating customer strategy for a credit card processing company and as a result of some intensive customer analytics, I found a rather large customer segment that would gladly by two, three, even five times their current rates because they valued the company’s product and service so highly. I recommended they charge one- to two times more to compensate for the extra value received, which translated into $20MM annual incremental revenue. 

However, the CEO focused on one other finding from my research: the selection of merchant services vendors was a once-and-done decision. Companies would select, conduct competitive analyses, perform due diligence, and choose a provider and having done so would almost never again review the rates, fees, or other statement items. The CEO decided to raise all fees AND charge an annual “Membership Fee” of $70. 

There are three things wrong with this. First is that it is just plain wrong and unethical. Second, it penalizes everyone rather than capturing the value in play. Everyone is forced to carry an additional burden rather than just those who truly value the service. Third and worst of all, this decision emphasizes short-term revenue at the expense of long-term customer relationships. 

As we all learned as children growing up, the foundation of a lie is that it works only as long as you don’t get caught. If your strategy is dependent on not getting caught, Murphy’s Law will inevitably prevail. If your customers don’t notice, your competitors will point it out with great glee! Consequences have a nasty tendency to catch up with us when we can least afford them.

There is a huge amount of research and tremendous anecdotal evidence proving that loyal customers generate anywhere from 5%-33% greater revenue than non-loyal customers. Trust is the foundation for this loyalty. If you destroy trust, customers feel they’ve been abused and taken advantage of. In the end, you sacrifice loyalty, revenue, and customers—it is just that simple.

The question for you is, “What are you doing to customers that you’re hoping nobody notices?” Just because you can do something to your customers, doesn’t mean you should.