University of Washington EMBA Program Regional 20

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University of Washington EMBA ProgramRegional 20

• The Case of the Complaining Customer
• TA Rory McLeod

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The Case of the Complaining Customer

• Background
• Decision Maker Presto Cleaner President J.W.
  Sewickley
• Recently received information on a service
  failure
• Customer George Shelton
• Angry!!!
• Not very fond of new order systems performance
  from the start (3 for each bag, longer wait,
  service provider unfamiliarity with the new
  system)
• Presto lost (and later found) shirts he submitted
  for cleaning
• Feels like he got the run around/no empathy
  from Paul Hoffner Presto Management or the
  current complaint resolution system
• After 9 day wait he bought 4 new shirts
• Eventually another customerhaving inadvertently
  picked up the wrong orderreturned his 4 shirts
• Still has not heard from Presto as of October 8
  (originally tried to pick up his 4 shirts on
  August 10)

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The Case of the Complaining Customer

• Background (cont.)
• Presto Manager Paul Hoffner
• Feels like he made a good faith effort
• Considers circumstances to be highly mitigating
  factors
• Customer has outright lied about some key facts
• Willing to play the fall guy

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The Case of the Complaining Customer

• Mr. Sewickley has 2 decisions to make
• Fix the problem?
• Customer
• Assess and fix the system?
• Employee
• Operations System
• Corporate Culture

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Case of the Complaining Customer

• Fixing the Problem To Keep or Not To Keep
  Customer?
• Costs vs. benefits to Presto
• Value of Customer
• Compensation needed/given to keep customer (if
  any)

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Assumes discount rate of 10.
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Case of the Complaining CustomerBuilding a
Defection Tree
SERVICE ENCOUNTER
P1
Satisfied
Dissatisfied
a
c
b
Do not Complain
Complain to Management
Complain to Employee
P2
P3
P4
Unhappy, Leave
Unresolved, Leave
Unresolved, Leave
Stay, but Unhappy
Resolved, Stay
Resolved, Stay
Customers Lost (P1)(a)(P2) (P1)(b)(P3) (
P1)(c)(P4) negative word of mouth
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Case of the Complaining CustomerBuilding a
Defection Tree
SERVICE ENCOUNTER
.90
P1.10
Satisfied
Dissatisfied
.60
.05
.35
Do not Complain
Complain to Management
Complain to Employee
P2.50
P3.50
P4.30
.50
.70
. 50
Unhappy, Leave
Unresolved, Leave
Unresolved, Leave
Resolved, Stay
Resolved, Stay
Stay, but Unhappy
Customers Lost .03 .0175 .0015 4.9,
excluding negative word of mouth Lost observed
by Management 0.15 3 of Total Lost For
every customer Management loses, there are 33
more out there (x 1.5 negative w.o.m)!!!
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Key Learnings

• A substantial portion of the customers true
  value to the organization can stem from
  referrals, network effects, and reduced service
  costs that are not part of basic LTV
  calculations
• Informed decision makers tradeoff the costs and
  benefits of service recovery, and they learn from
  mistakes
• Customers who complain are typically desperate to
  do business with your organization
• Customers will typically hold your organization
  responsible for their entire experience (whether
  you think youre responsible or not)
• Coordinate points of contact to send a consistent
  message

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Key Learnings

• Its usually best to keep customers informed, even
  when the news is bad
• Emotion plays a huge role in customer assessments
  of service quality. Keeping customers in the
  dark risks making things worse.
• In addition to assessing whether or not to fix
  the problem, good marketing managers will check
  to see whether or not the system needs fixing as
  well

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Thank You!