The Feedback Loop: More Data Doesn’t Always Mean Better Customer Service

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It used to be that restaurant goers who were impressed by a particularly attentive waiter or waitress could praise that person to the manager or leave a generous tip. This kind of transaction is still available in many places of business, but increasingly the feedback loop has become more tangled and impersonal.

Many restaurants now include an automatic tip of 18% to 20% on the bill. And rather than give immediate feedback on a particular service, customers are often urged to go home and fill out an online survey in exchange for a free latte or car wash. While more customer service data is being gathered than before, is this emerging system of impersonal, arm’s length feedback better than a face-to-face encounter?

According to Wharton management professor Iwan Barankay, tools like online surveys may be easy to fill out, but it is hard for them to be constructive without a two-way conversation about the service being reviewed. “Customers look for a genuine experience, a real interaction with people. I think that is always going to be true,” he says.

In addition, while “customers have more opportunities to offer feedback, I don’t know how much they are taking advantage of it,” suggests Benjamin Schneider, senior research fellow at CEB’s Workforce Surveys & Analytics practice. “They may be particularly put off when they go to their automobile dealership and are told as they check out, ‘You may get a call, and we hope you will give us all fives or all excellents.’ That kind of defeats the intention of feedback.”

Whatever the increase in data on customer service has achieved, it is far from clear that more information is resulting in better customer service. On the one hand, the American Consumer Satisfaction Index, which measured attitudes of 70,000 U.S. customers over a year across a range of business, rose in the last quarter of 2013 to 76.8 on a 100-point scale – a 20-year high. That index, however, reflects the full customer experience, including perceived value and price of the products themselves.

On the other hand, what is the number two complaint in restaurants across the U.S.? Poor service, according to the Zagat 2014 America’s Top Restaurants and Dining Trends survey, based on reviews from 224,000 diners in 36 markets. (The number one irritant, by a hair, is noise.)

A lot of companies are “rolling out the red carpet to everyone,” a mode that is neither sustainable nor particularly smart. –Peter Fader

Bad service ratings, of course, afflict just about every industry. A national discussion of Comcast Corp.’s poor customer service broke into the open in recent Senate Judiciary Hearings on the media-entertainment giant’s proposed $45 billion merger with Time Warner Cable. Cable customers should be happy to learn that they are not the only ones perturbed. “It bothers us that we have so much trouble delivering high-quality service to customers on a regular basis,” Comcast executive vice president David L. Cohen told lawmakers. He said Comcast is adding customer service employees and improving training, and that the effort was “beginning to bear fruit. We’re deeply disappointed with where we are. But that will spur us to be even better.”

Widgets vs. a Night in a Hotel

Comcast’s unresponsive service and higher bills have motivated some people to unplug and return to an ancient technology called the TV antenna. How frustrated are customers with the industry? A profanity index might be one good metric. A December analysis of 1.2 million calls placed by customers over two years by Marchex Call Analytics showed that the industries most likely to elicit a curse were, starting at the top, satellite TV providers (one in 82 conversations), housing contractors (one in 90), and cable providers (one in 123).

How did the customer-service feedback loop become so disconnected? “In the beginning, there were just products – take it or leave it, and it was entirely up to customers to figure out how products or services could meet their needs,” says Wharton marketing professor Peter Fader, co-director of the Wharton Customer Analytics Initiative. “The contract ended with the delivery. That is the way things worked for much of the last century.”

Then, when the economy started to tank in the 1980s, “there was all this movement toward Total Quality Management. A lot of that attention went to service, which was good and bad,” says Fader. “It did improve service delivery. However, that only gets you so far…. You may want every widget to be identical but not necessarily every stay in a hotel. You needed to understand that different customers have different needs, [which in turn led to] the rise of customer loyalty programs.”

Later, the idea arose that customers aren’t just buying products; they are buying an experience. Social media reviews and comments began circulating around goods and services that sometimes had nothing to do with the products themselves, but with the entire arc of interaction.

The concept of ideal customer service continues to evolve. “A trend now is to make customer service personalized, but hopefully not in a way that feels creepy or invasive,” says Wharton marketing professor David Bell. “At Harrah’s – which has always interacted in a deep way through loyalty programs – let’s say I like gin and tonics. When I walk into the casino, they know I am there because my cell phone is logged in, and someone is bringing a gin and tonic to my seat while I am gambling.”

But Fader says that a lot of companies are “rolling out the red carpet to everyone” – a mode that is neither sustainable nor particularly smart. “Some companies, like Zappos, are empowering employees to do whatever it takes to please the customer, which sounds wonderful. But a lot of those efforts could be inefficient and ineffective. If you are spending all this time showering [customers] with love and attention, that’s great PR, and it might be a good way to develop passion among employees. But shareholders are going to get impatient. The Zappos model is not really sustainable.”

Another problem: While there are many more outlets available to trumpet the virtues of good customer service and vent opinions and frustrations, there are also fewer direct avenues to front line service workers who need to hear those opinions. How can companies build a higher level of customer service, given the distance they are putting between themselves and their customers? What, for instance, do Starbucks baristas hear back when customers fill out one of those surveys by logging onto a website listed at the bottom of a receipt?

“What kind of environment people establish in an organization is a multifaceted issue, so the supervisor needs to emphasize service quality in word and deed.” –Benjamin Schneider

Says one staffer at a Starbucks in northern New Jersey: “Our manager tells us when a customer specifically mentions one of our names in an online survey, although this is rare [because] most customers don’t bother learning our names…. I don’t even give out most of the survey codes; it gets too busy and most people don’t want to be bothered.”

Tips may be an incentive for good customer service, but not exactly a potent one. “The tips for the whole week are pooled and split up” depending on how many hours worked, the Starbucks employee says. “This usually is around $15 to $20, although during the holidays I get a lot more.” But again, this money is given out “based on how many hours you clocked in during the week, not how polite you are to jerky customers.” A Starbucks spokeswoman declined to make available an executive who could speak about the company’s customer service-human resources links, but offered a prepared statement noting that customer feedback is “aggregated, reported on a regular basis and shared back to the appropriate teams.”

It may turn out that the relationship between high tips and better service is weaker than is generally supposed. For one thing, the 2014 Zagat survey indicating high dissatisfaction with service still showed a national tipping average of 19%. This may be because customers have trouble sorting out which shortcomings – such as how quickly food is prepared and whether it arrives at the table hot – are under the control of the server, and which are not.

A meta-analysis of research on the service-tipping relationship by Michael Lynn and Michael McCall published in the Journal of Socio-Economics in 2000 found that service evaluations resulted in a small variation in the size of the tip – less than 2% of the tip percentage. “Given the small size of this relationship, restaurant managers should not rely on tips as the sole incentive for their employees to deliver good service,” the paper concludes.

Anyone perceiving an increasing trend toward automatic 18% to 20% tipping needn’t worry. The phenomenon may be short-lived, now that the federal government has twigged onto a new way to tax it. Starting in 2014, the IRS rolled out a revised Ruling 2012-18 that draws a distinction between tips and “service charges.” Automatic gratuities are counted as service charges, will be processed through payroll systems, reported as wages, and therefore subjected to withholding taxes. The combination of preventing servers from being able to under-report income and the added accounting paperwork for restaurants will likely make the tip-included practice wither.

The Best Service for the Best Customers

What does constitute a good incentive for better customer service, and are these incentives an effective tool for employees to provide good customer service? “I like to say that people come to work for money, but they don’t work hard for money,” says CEB’s Schneider. “That’s an overstatement, but you get my point — that managers always want to incentivize everything. I think it’s a cop-out to always focus on money as the key to motivation when we have known for 100 years that it’s not the key once you get beyond a certain point.”

“A trend now is making customer service personalized, but hopefully not in a way that feels creepy or invasive.” –David Bell

Linking feedback and incentives can bring unintended consequences, Barankay warns. How would you know, for instance, if a particular customer’s complaint regarding an employee might be rooted in some form of discrimination? “To feed that back to the [employee] or link customer complaints to bonus payments could well be the basis of a discrimination lawsuit,” he says. “It is very difficult to distinguish between intended and unintended discrimination, and cold, hard performance evaluation and feedback.”

A tremendous amount of time and energy goes into asking customers what they think of customer service. Dipping into the stream of social media can tell you something about what customers are saying. But the person who can tell you why things are the way they are is the employee, says Schneider, adding that it is crucial for HR functions to create positive conditions – such as keeping the focus on customer service (rather than only on productivity), rewarding good behavior and giving employees the support systems they need to deliver.

“There is no silver bullet. It requires creating the right climate or culture,” he says. “What kind of environment people establish in an organization is a multifaceted issue, so the supervisor needs to emphasize service quality in word and deed. He needs to display the kind of role model he wants others to follow. Managers and employees are all people, so we should think about how we’re dealing with people and deal with everyone similarly, because there is a link between the customer experience and the employee experience.”

Schneider’s work indicates that such links extend to the balance sheet. An examination of 36 Fortune 500 companies in the top and bottom 25% of companies rated on service also considered how those companies performed in both customer service and market value. The data showed that “companies that possess better service climates … have a competitive edge,” according to Schneider’s study, co-authored with Karen M. Barbera.

One model that might work, says Fader, is a system of incentives for employees who use customer service to realize the potential of certain high-value customers. “It might be totally crass of me, but there should be an economic incentive. I don’t think it’s enough to say you’re just going to have fun working here, because the novelty wears off after a while. At some point, you want to build regulars and treat them differently. It can create tensions when you have to be everyone’s buddy.”

If you can come up with a forward looking incentive for employees, and allow them “to dote on the more valuable customers, it will work out for absolutely everybody,” Fader says.

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