Providing better customer service is good for business

Companies that offer higher wages for employees and more money for training turn out to be more profitable.

Kai Ryssdal: Time now for a little Freakonomics Radio. It's that moment every couple of weeks where we talk to Stephen Dubner, the co-author of the books and the blog of the same name -- it is the hidden side of everything. Dubner, how are you?

Hold music: Thank you for holding. Stephen Dubner is currently assisting other radio hosts. Your call will be answered in the order it was received.

First of all, you're two-timing me? All right, all right. Come on, come on.

Stephen Dubner: Hello Kai? Kai, yes.

Ryssdal: Yes, what?

Dubner: I am sorry for that inconvenience. I really do appreciate your patience. How can I help you today?

Ryssdal: Well one, you can answer the doggone phone when I call, but what? What's your stick this week?

Dubner: Well Kai, as you may have guessed, our topic today is about customer service -- how we are treated when we have some kind of retail experience.

Ryssdal: You, by the way? You give lousy customer service. Can we just say that right up front?

Dubner: I'm working on it. Thanks for the feedback. I do appreciate that. We started by asking our blog readers about their experiences with customer service -- good or bad, mostly bad. Here's Eric Jones, a guy who found himself in one of those ridiculously long lines at the phone company.

Eric Jones: And remembering my life as a hippie in the '60s, I decided that the right way to do this, instead of throwing the phone display through the store window, was to simply lay down on the floor. And I did that, and I was astonished how well it worked.

Ryssdal: Occupy Ma Bell, right?

Dubner: That's exactly right. Now, it's no dream scenario on the other side of the counter, as we know as well. So here's Jamie Crouthamel, who worked at a phone store in Charleston, S.C. She had to tell a customer that he couldn't return a bag of crushed phone parts.

Jamie Crouthamel: He pushed back from the table and pushed his stool out from under him and slammed his fists on the table and just started cursing. And then he threw the phone at me.

Ryssdal: People never cease to amaze me. But here's the thing about retail, right? I mean, it's all about low-wage jobs in pursuit of low-cost products that Americans buy until they don't want to buy them anymore, right?

Dubner: That is the conventional wisdom. But this wisdom may not be so wise, it turns out. So Zeynep Ton teaches management at M.I.T.'s Sloan School. And she did a study that looked at successful, low-cost retailers like Costco, Trader Joe's, the QuickTrip convenience stores. And what she found is that these companies spent more on labor than their competitors with higher wages and more money for training -- and these companies were more profitable.

Zeynep Ton: If you pay your employees more, you attract a better group of employees and you retain them longer.

Ryssdal: Connect the dots for me here: If you pay people more, you make more money? How does that work?

Dubner: Retail isn't necessarily a complicated enterprise, but there's a lot of room for things to go wrong when you hire the cheapest possible employees.

Ton: When a retailer doesn't invest in its people, then execution at the stores suffer. You often find products in the wrong locations, promotions not carried out on time or at all, or mistakes at the checkout -- so these operational problems. What was surprising to me was how frequent these problems and how expensive these problems were.

Ryssdal: All right Dubner, help me out here: If spending more money on labor is good for a company's bottom line, why aren't more companies doing it?

Dubner: Well because most retailers think of labor as purely a cost, as opposed to a way to make more money. And if you're trying to control costs -- which every business is trying to do -- one thing about cutting costs is that you immediately see it as a benefit to your bottom line. Whereas investing more on employees, well that doesn't pay off until later.

Ryssdal: Let me ask you my customer service bugaboo: You know, you walk into a store -- usually it's clothing but it can be anything -- and you're like accosted by 'May I help you?' and this and that. And I'm like, 'No man, I just want to look around, all right?'

Dubner: Well I've got good news for you: That really doesn't seem to work. So a recent survey of 75,000 people found that customers don't really care about all those niceties. Here's Nick Toman, one of the authors of that study.

Nick Toman: The 'pleases,' the 'thank yous,' the flowery language -- that didn't matter so much. Making things simply easy for customers -- getting a question answered, returning an item, making the burden as low as we can on the customer -- results in the greatest initial economic benefit for the company.

Now Kai, let me add what I think is the most important point: What you really want to do for retail is -- oh, Kai, I'm going to have to get back to you, just hold on.

Hold music

Ryssdal: Don't you -- oh, you know what? First of all, I don't like this music very much.

Hold music: Thank you for waiting. Your call is very important to us.

No it's not.

Hold music: Stephen Dubner will be with you in just a moment.

No he won't.

Hold music: This call may be recorded for quality assurance.

Stephen Dubner, Freakonomics.com is the website. He may or may not be back in a couple of weeks, depending on, you know, customer service.

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Hiring people for the retail industry is always tricky, especially when it comes to personnel specialized in customer service. I really liked the feelings I had after discussing with the guys from http://www.fel-tech.com/fel-tech-tool-bits.html, we have spoken for about an hour till I understood exactly what I needed to change at the press, they even sent me some photos on e-mail so I could have a better understanding of the process.

Anyone ever notice how large companies that aren't franchised always pay more. I love all the talk about "small" businesses and what they do; screw over the employees and the customers!!!
Every time I have worked for some "little guy," he tends to be the most unethical penny pinching SOB!!! Everytime I've worked for a large employer, the small stuff is not sweated!!!

Amen amen amen amen. Thank you for saying EVERYTHING that I've said and felt re this for too many years. Freakonomics, I love you. Really... !

So MIT did a study and found that good customer service is good for business.
What will future studies reveal?
-Customers like to get more for less
-Oxygen is good for living
-The sun rises in the east.

Well maybe they don't have enough funding to find out if that last one is true.

Trader Joe's for sure has it right -I have FUN shopping there. Great products, cool music, and a really friendly crew!

In fairness to CSRs, they usually do not "lie" to customers; they are usually badly trained and badly informed, but they do the best with what they know. That's not quite the same.

With regards to the supposed incident of the "bag of crushed phone parts":

Not only do the cust. serv. people routinely lie, (which is why I don't believe the incident even happened) but they always omit the part of the story where the business first tried to screw over the customer before the customer got angry. In other words, by the time the customer has "lost his cool" it is because he has been routinely lied to over and over again by cust. serv. people. But that part of the story never gets mentioned.

Maybe the customer had been told (over the phone) by some other cust. serv. rep to bring the bag of crushed parts to the retail outlet 50 miles away for refund. Maybe the customer re-arranged his schedule to drive the 50 miles (and 50 miles back) in accordance with the instructions he had been given only to be told on arrival that whatever he was previously told was not true. Now he has wasted time (money, effort) for nothing. Isn't it reasonable he might be angry?

On the other hand, maybe none of that happened.

The point is, we don't know. We are just told a 'story' that the customer got angry at a supposedly reasonable rep. The truth is often much different.

Trying to tell "both sides" of a consumer issue is like trying to tell both sides of a rape. Does anyone really care about the trouble the rapist had to go through?

No matter what outrageous incident the customer service representative has to relate it doesn't change the fact that business screw their customers A LOT MORE than the customers screw the business. Assuming the outrageous customer incident really did happen, then it was a 1 in 1,000,000 event. On the other hand, the incidents about businesses screwing their customers are 999,999 in 1,000,000 events and are almost always true.

Also, when business implement some (supposedly) 'defensive' policy to counter the 'bad' customers, they tend to screw over the 'good' customers as well. But when customers get (routinely) screwed over by businesses, those businesses argue that no regulation is needed and that it is not fair to punish the good business with the bad.

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