With customer service, you can forget about price.

I talk a lot about how to provide great service, but not as much about why to provide great service. Both are extremely important and both should be talked about.

My favorite answer to the “why should we provide great customer service?” question is: you can forget about price almost entirely.

Unless you’re Wal-Mart, it’s pretty hard to compete on price. If you’re Wal-Mart, it is still pretty hard to compete on price. Competing on customer service, though, is something that is not only easier to do, but far more sustainable. Customers that stick with you because of your company’s superior customer service are actually loyal to your company. Customers that stick with your company because you have the lowest prices are loyal to the low prices, not to your company.

If another company came out and had prices that were 40% lower than Wal-Mart, how many customers do you think would still be at Wal-Mart? My guess would be not many. Wal-Mart’s customer service doesn’t produce loyal customers (it isn’t designed to). Instead, their low prices make customers loyal. But what if a company came along and sold Nordstrom clothes with Wal-Mart services at a 20% discount? I bet the old, full priced, well serviced, Nordstrom stores would have a lot more customers in them than the overpriced Wal-Marts.

That difference is because of customer service. Nordstrom builds relationships with customers because of their quality customer service. They have to compete on price to be competitive of course (a company charging $500 for a $100 shirt is out of the market), but to some degree, they can forget about price. It is much better to have customers be loyal to a company, to an experience, and to a group of employees instead of to a price tag.

4 Responses to “With customer service, you can forget about price.”

  1. sara said:

    Sep 11, 08 at 11:28 am

    I agree with this entirely – when it comes to selling a hard product.

    however – there are two situations where price/quality creates more loyal customers than customer service.

    1) when you offer a service.. If I had a nasty hair stylist who cut my hair perfectly everytime I went, I would most likely still go to her even if she is very rude.

    2) when your product is money – when your product is money – ie.. you sell loans, credit cards, mortgage, etc.. the quality of the product becomes the cost. Therefore, customers are more inclined to obtain the finance at as cheap of cost as possible, without taking customer service in to account.

    Obviously, in both of these situations though.. when the cost/quality of competitors are equal, then customer service steps up to the plate.. however there is almost always a difference in cost/quality between competitors.

  2. Todd said:

    Sep 14, 08 at 10:11 am

    In terms of retail goods, almost the only thing that most people care about is price.

    You also should differentiate between the two types of bad customer service. The first is what usually happens in a big box store; you don’t really see an employee until you go to the register. Most people don’t really need assistance, and if they do, they go to the counter or whatever. The second is actively bad customer service, as described above.

    Have you ever seen the Filene’s Basement Annual Bridal Sale? That is the epitome of what you are discussing. High-priced items at a significant discount with absolutely no customer service. And it’s mobbed. Women literally fight and trample each other to get into the store and buy a dress. Of course, it’s also an extreme exaggeration of your point.

    As for the services market, if I get crappy service (or hostile), even if the service they actually provide is fantastic, I will not use them again.

    Todd

  3. Adesh Sidhu said:

    Sep 15, 08 at 12:22 pm

    Customer service is like vitamins – you feel their need when you stop taking them. Unfortunately, one cannot track how much revenues increased or decreased because of great or pathetic customer service.

    In India also, all retailers focus on price cuts and customer service does not figure in their priority. Maybe Indians also need to learn a lot from Nordstrom.

  4. Service Untitled said:

    Sep 16, 08 at 12:27 am

    All good points. Customer service can be hard to quantify and there will always be limits to and exceptions to how much good customer service can do. However, companies in competitive industries are increasingly finding it easier (and more fun) to differentiate with service instead of price.

    An executive from a company that uses service to its advantage told me it is a lot more fun being a customer service leader than a low cost leader.