Have you ever had an interaction with a company that merited special consideration? What happens to a company when they have the right policy in place but make the wrong decision? Here is a recent example: http://overheadbin.msnbc.msn.com/_news/2012/04/25/11392324-dying-veteran-protests-spirit-airlines-no-refund-policy?chromedomain=usnews&lite
As detailed by this story, a terminally ill veteran was denied a refund by Spirit Air Lines. Why? In an effort to keep costs low, Spirit does not offer refunds. Why is this the right policy but wrong decision in this case?
The analysis of this airline ticket example is essential to understanding when and where to make exceptions to your refund policies. The paper “Refundability and Price: Empirical Analysis on the Airline Industry” by Seong man Moon & Makoto Watanabe of Sogang University is the seminal work in this field. The conclusion of the research is that the premium is paid for a refundable ticket is directly correlates with the distance of travel. This tells us that a long flight such as the one between Florida and New York (1010 miles) can turns out to be the most significant determinant of the relative price between refundable and non-refundable tickets. However if you look at a flight between Los Angeles and Las Vegas (236 miles) the difference in ticket price between refundable and non-refundable is negligible as the customer has the option of making the five hour drive.
So how can you as an entrepreneur use the sophisticated pricing model of the airline industry to deliver better customer service?
1. Understand the nature of the product or service you deliver. If you provide a time sensitive or essential service such as critical health care or something that is difficult for the customer to substitute, this calls for strong scenario analysis planning. Be prepared to make exceptions and deal with customers on a case by case basis even though you may have a sound structure of customer policies. The potential cost of bad publicity is significant especially when a remedy only takes a little compassion and extra effort.
2. If you are selling easily substitutable products like apple pie and lemonade be prepared to offer customer service that rivals Zappos. Make sure your customers walk away with a positive memorable experience even if you have to give out an extra cup of lemonade.
3. Empower employees to use creativity to solve problems. Great Customer service pays off. Reflecting on the Spirit Airlines example, how much money was saved by not refunding the ticket $500-1000? Now if just one or two people choose another airline over Spirit due to the bad publicity, this business decision will result in a potential loss.
Making exceptions to rules or policies makes for remarkable customer service. Happy customers lead to profitability. Just ask Steve Jobs or Tony Hseih of Zappos why exceeding customer expectations is important. Both of these men created considerable wealth and loyal customers–something I know you are also capable of.
Target statistician Andrew Pole may know that a family member is pregnant before you do. A summary of the process that Pole used was published last month in Forbes. http://www.forbes.com/sites/kashmirhill/2012/02/16/how-target-figured-out-a-teen-girl-was-pregnant-before-her-father-did/ . Here is a brief recap of the article written by Kashmir Hill in Forbes
“An angry man went into a Target outside of Minneapolis, demanding to talk to a manager:
“My daughter got this in the mail!” he said. “She’s still in high school, and you’re sending her coupons for baby clothes and cribs? Are you trying to encourage her to get pregnant?”
The manager didn’t have any idea what the man was talking about. He looked at the mailer. Sure enough, it was addressed to the man’s daughter and contained advertisements for maternity clothing, nursery furniture and pictures of smiling infants. The manager apologized and then called a few days later to apologize again.
(Nice customer service, Target.)
On the phone, though, the father was somewhat abashed. “I had a talk with my daughter,” he said. “It turns out there’s been some activities in my house I haven’t been completely aware of. She’s due in August. I owe you an apology.” (From Kashmir Hill’s article on Forbes 2/16/12)
How did Andrew Pole know this customer was pregnant? He was able to identify shifts in purchases by women from scented to un-scented lotion at the beginning of the 2nd trimester. Pole was able to track and establish that in the first 20 weeks, pregnant women loaded up on supplements like calcium, magnesium and zinc. Many shoppers purchase soap and cotton balls, but when someone suddenly starts buying lots of scent-free soap and extra-big bags of cotton balls, in addition to hand sanitizer and wash cloths, it signals they could be getting close to their delivery date. (Charles Duhigg–New York Times 2/16/12)
As you can see from the example, customers started becoming uncomfortable with Target sending baby product coupons to expectant mothers. Not only was the element of surprise undesirable but the notion of the invasion of privacy was expressed by several customers. With all of the analyses and work that Target put in, they weren’t going to give up. To mitigate a concern for privacy Target began mailing the baby product coupons with advertisements that they know pregnant women wouldn’t buy such as wine glasses and lawnmowers. Now when the expectant mother gets the coupon booklet, she doesn’t feel singled out, as she thinks that everyone on the block is receiving this mailing. However what the consumer doesn’t know is that Target is still sending these coupons exclusively to pregnant women.
Essentially on a behavioral science level, Target has recognized and understood the importance of a Keystone Habit. “If you can change a keystone habit, you unlock all these other patterns in someone’s life or in an organization, According to Charles Duhigg in his new book “The Power of Habit: Why We Do What We Do in Life and Business, “One of the characteristics of a keystone habit is that it creates a culture. That’s why it seems to have such a profound influence on other patterns in our lives,” including how, what and where we consume. In life as Duhigg points out there are only a few of these trans-formative moments where people will actually change their buying habits, hence the profound and compelling strategy Target is using.
The data mining done by Andrew Pole is phenomenal in several ways that we can incorporate in building an analytic system that will be scale-able as your business grows.
1. Track and profile your customers as much as possible. Using a tool to analyze purchases will help you assemble data that could help predict future customer behavior
2. Once a customer profile is established make sure you cater to the buying habits in a non-invasive way. Customers don’t like the feeling of being spied on but they like the opportunity to save money in return for loyalty
3. Understand a keystone buying habit. Know when these habits are going to change and strategically position your venture to benefit from the paradigm shift in customer behavior.
Until next time keep working on analyzing habit loops, check you mail for a “targeted” sales circular and ALWAYS PAY FOR PURCHASE WITH UNMARKED BILLS.
Until next time, be good and cultivate your community of friends
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