Is the current focus on segmented customer service based on a customers worth (profits) platinum service only for good customers, bare-bones service for others another fad that will go the way of the reengineering zeal of the early 1990s?
That fad created overlean and mean companies that cut costs at the expense of building competitive muscle, like product development and marketing. It also led to some of the megamergers that are turning into megaflops. Consider AT&Ts sweeping breakup into three businesses after spending $100 billion to build a futuristic network and DaimlerChryslers management makeover, which was sparked by post-merger losses.
Most of us know from experience that customer service is progressively eroding at airlines, department stores, hotels, software service companies, etc., in part because customer service people are untrained, overburdened, and stressed and feel little or no corporate loyalty.
With more emphasis on data mining, a bank can easily find out all there is to know about a persons lifestyle, spending habits, buying behavior, service needs, hobbies, and preferences. Just knowing a persons Social Security number, ZIP code, and home phone number is enough to secure such information.
In this age of information proliferation, such data are available from multiple sources, such as cell-phone companies, Web sites, and credit card companies. In short, sales, service, and marketing are now tiered finer and finer on the basis of profit potential.
The question is, are we overdoing this policy of offering upper-tier customers world-class or plum service no waiting in line, premium rates for CDs and loans, personalized promotions while average customers get minimal or no service?
This service selectivity is becoming increasingly subtle. Some companies are using color codes based on a customers worth that pop up next to his or her name.
This customer service paradigm fails to accommodate the lifetime value or potential of a customer since it takes into account only the customers current or immediate value. Many otherwise good customers may have spotty records at times because of catastrophic illness, divorce, or family breakup, which would cause them to appear as deadbeats. A customers future behavior may not necessarily correspond to past behavior.
Besides, by offering poor service to high-cost customers, companies risk losing not only their business but also the future business of their children. Todays small, struggling customer may be tomorrows high roller. And when they reach that height, they will not forget the bank that did not care about them on their way up.
It is possible to make unprofitable customers more profitable. Banks could, for example, attract low-cost customers by offering rewards such as discounted rates or other perks and then try to cross-sell other, more profitable services.
Remember, customers who are well served talk to only one other person while those who get poor service talk to 10 others. Negative word of mouth can dramatically harm a banks image and long-term reputation if it only delivers its best service to the most profitable customers. Enough word of mouth about negative customer experiences can sink a bank, a business, or a product line.
Reputation and good will are among the most valuable assets a bank has to preserve.
High-profitability segmentation models are driving banks to cater only to plum customers. This strategy of telling employees to work hard, but only for high rollers, does not promote a healthy work ethic.
Excellent customer service should be a core value of every enlightened bank. The cost incurred to acquire customers compared with retaining existing ones will hurt a banks overall competitive advantage. Therefore, banks should find ways to take a 360-degree view of a customer, for example, using life-cycle planning as a basis for customer service, sales, promotions, etc.
They could also follow the model of Southwest Airlines by hiring well trained, motivated front-line people and giving them the leeway to use their creativity and personal touch in developing the best customer service policy without relying on high-profitability segmentation..
The new customer service paradigm may offer short-term savings but with serious long-term costs. Research on business strategy indicates that serving a large number of small customers whose needs are easier to meet is more profitable than tying a banks fate or fortune to a small number of big customers who will chip away at profits by negotiating prices down, eroding both profits and employee morale.
Consistent tinkering with customer service could trigger lawsuits by customers or communities, as an intense form of personal redlining. This will further tarnish the image of a bank and cause irreparable damage to its long-term viability, stability, and even survival.
Mr. Thamara is the principal of FSIC Associates, a bank consulting and research firm in North Andover, Mass.
