University of Washington EMBA Program Regional 20

1. University of Washington EMBA ProgramRegional 20 “The Case of the Complaining Customer” TA: Rory McLeod

2. 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 system’s 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 customer—having inadvertently picked up the wrong order—returned his 4 shirts • Still has not heard from Presto as of October 8 (originally tried to pick up his 4 shirts on August 10)

3. 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

4. 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

5. 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)

6. *Assumes discount rate of 10%.

10. Case of the Complaining CustomerBuilding a Defection Tree SERVICE ENCOUNTER P1 Satisfied Dissatisfied a c b Do not Complain Complain to Employee Complain to Management 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

11. Case of the Complaining CustomerBuilding a Defection Tree SERVICE ENCOUNTER .90 P1=.10 Satisfied Dissatisfied .60 .05 .35 Do not Complain Complain to Employee Complain to Management 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)!!!

12. Key Learnings • A substantial portion of the customer’s “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 you’re responsible or not) • Coordinate points of contact to send a consistent message

13. 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

14. Thank You!