During times of an economic uncertainty, when consumer spending goes down considerably, the most appropriate strategy to retain customers seems to be, giving attention to customer service. After the recent financial crisis, a firm’s efforts should be focused on customer retention rather than attracting new customers.

A recession forces firms to cut down costs. These can be in the form of layoffs and/or reduction in marketing/advertising costs. But sometimes companies take cost cutting too far. For example, in order to cut costs, a call centre company reduces the number of call centre agents who are attending to customer’s needs. As a result, customers face long waiting times, which in turn adversely affects their perception of the firm’s customer service. A study conducted by a call centre consultant, at The International Customer Management Institute, suggests that eliminating four customer service agents in a call centre with 36 call centre agents can increase the number of customers put on hold for four minutes from zero to 80. However, to safeguard their position in the market, firms should try to avoid cuts which affect their customer service. If not done so, the firm may end up losing valuable customers in difficult times.

In a recession, customer retention is even more vital than ever, for the success of a firm. Studies indicate that, in real dollars, it costs between five and six times more to attract a new customer than to keep an existing customer. Also, Accenture’s research shows that increasing customer retention by two percent has the same effect on profits as cutting costs by 10 percent. Hence efforts have to be made to make existing customers satisfied rather than directing funds towards attracting new customers. One such company where this can be seen clearly is Zappos.com, the online shoe retailer who used to provide goods without charging customers for shipping costs for orders and returns. Zappos.com decided to provide both first time customers and repeat customers with the facility of overnight shipping. But after entering the recession phase, Zappos.com decided that this facility will not be offered to first time customers. Instead, the savings from not doing so will be invested into a new VIP service for repeat customers, ensuring that in times when they have to cut costs, their focus is directed at existing customers rather than pleasing new customers (McGregor, McConnon & Kiley, 2009).

In these times, service becomes the most important differentiator for a company to stand apart from its competitors. Examining the interaction process between customers and the firm, and finding ways to make it more efficient, helps to create a loyal customer base. Firms need to realise that they would have to provide more value for the money invested in their business. BMW Vice President says that in the current environment consumers expect “that anyone who is in the market with money to spend is going to get treated like a king” (McGregor, McConnon & Kiley, 2009). Previously this may not have been important as several consumers had the power to spend and firms could focus on maintaining profits due to mere demand for the product or service offered. However, a recent survey conducted by the American Society of Quality Control stresses on the importance of customer service and making the customer feel valued, by stating that 68% of customers leave a firm due to the indifferent attitude shown by the firm.

A recession does not always have negative impacts. It suggests that in difficult times, only the fittest tend to survive. Firms are forced to get better. As such, firms are increasingly aware of the impact of customer service on their business. Those who identify the importance of customer service at the right time will be able to stay in the market and ride out the storm, only to emerge better placed after the recession period. In these times certain players are treating customers better than ever, even if that means cutting costs to attract new ones. There now seems to be clear distinction between companies who value customers and hence provide exceptional service and companies who sacrifice loyal customers for short term gains.

Shilpa Asnani
Service Quality Executive
The International Customer Service Institute

References

McGregor, J., McConnon, A., & Kiley, D. (2009). Amid sinking sales, some companies sacrifice loyalty for short-term gain. In Safeguarding customer service in a recession. Retrieved November 1, 2009, from http://www.msnbc.msn.com/‌id/‌29306192/