I'm not much of one to lead with a personal story, but sometimes they are the best life lessons we get.
Prior to working as a contractor for The Motley Fool I worked in the retail industry. Putting in my penance in retail for just shy of 10 years, I have a pretty good understanding of what good customer service is, and why it's important to the survival and growth of a business. Although I wouldn't go so far as to say that "the customer is always right," I'd certainly live by the adage that "a happy customer will tell one of their friends about an experience, while an unhappy customer will tell 10 friends."
Source: martinak15, Flickr.
The actual statistics on that are a bit closer than the aforementioned adage, with the White House Office of Consumer Affairs noting that happy customers tell 4 to 6 of their friends about their experience, compared to unhappy customers, who will tell 9 to 15 people about their experience. Some 13% of people will tell more than 20 people.
Well, folks, I'm about to become one of those 13%.
To make a really long and somewhat complicated story as short as possible, travel booking site Orbitz Worldwide (NYSE: OWW) and I had a "failure to communicate" that lasted two hours the other day. The basis for the disagreement rested on my repeated attempts to book a vacation package that popped up in the search query multiple times over a 15-hour period, but apparently no longer existed -- yet was remaining fully listed on their website (by their own admission). I called the company out on their obvious software screening errors, and multiple pending credit charges to my account, and requested something be done for a longtime customer. In the end, neither side saw eye-to-eye... or in this case, click-to-click.
At the ripe age of 33, this is my first real instance of being so irritated with the customer-servicing aspects of a business that I'm choosing never to do business with them again. But this incident got me thinking that obviously I'm not the only one who's ever had a customer service issue. It reminded me of just how important customer service aspects are to the image of a business and in gaining the cheapest and most efficient advertising available: word-of-mouth.
Be consistent
One factor consumers really appreciate in a business is consistency. A customer wants to be appreciated, and they love when businesses go the extra mile for them. But ultimately they want nothing more, in most cases, than for a company to simply meet their preconceived expectations. Businesses that don't provide consistency run the risk of getting trampled.
There's probably no better poster child for this than J.C. Penney (JCP +0.00%). The core J.C. Penney customer is extremely cost-conscious and perceives value based on the percentage of discount they receive. It had been this way for decades until now-former CEO Ron Johnson attempted to change the game by moving Penney's from a retail discounter to an everyday-low-price vendor. The move flopped worse than any retail experiment I can ever recall, with the average comparable-sales decline over the past six quarters equaling 21.6%! If you don't provide a consistent atmosphere for consumers, they will simply walk away.
Practice what you preach
In addition to being consistent, maintaining a positive public image is important for growing a business. The process of practicing what you preach sounds very basic and almost elementary on paper, but it's fouled up quite a few retailers in the past.
Take Abercrombie & Fitch (ANF +1.13%), whose CEO, Mike Jeffries, has stuck his foot in his mouth on more than one occasion. While insisting his company is nondiscriminatory and open to anyone wearing its clothing, Abercrombie provides XL and XXL clothing sizes for men, but not for women. In addition, Jeffries was quoted by news website Salon in an interview in 2006 as saying that Abercrombie is "exclusionary," and "go[es] after the cool kids." If you say one thing but your actions demonstrate another, you're going to anger consumers!
Put the customer first
The customer may not always be right by any means, but they are still the livelihood of a business -- even if they walk away. One bad experience could be enough to encourage them to tell their friends not to do business at a particular company, which, in today's world riddled with social media content, can spread rapidly and virally in an instant.
Source: Sean MacEntee, Flickr.
One company that has taken this to heart and I've seen do right by customers, including myself, on more than one occasion is Apple (AAPL +1.18%). On a personal level, an Apple store replaced the touchscreen in my iPhone 3GS after I accidentally dropped it in an asphalt parking lot two years ago, shattering the glass. The key words here being "I dropped it," implying all fault lay with me and not the phone or Apple. Yet Apple replaced the glass free of charge, in under 10 minutes, despite my lack of insurance on the phone. Do you think I'm ever going to buy a smartphone from any maker other than Apple again after that incredible act of customer service?
But this is more than just my personal opinion on Apple -- the data backs my point of view as well. For a second straight year, Apple has topped the American Customer Satisfaction Index -- a measure of consumer happiness with a product -- in smartphones while topping the list for a decade now in PC customer satisfaction. Happy customers tell their friends about the experiences and the products that make them happy, which has resulted in some of the best free advertising Apple could ever hope for.
An interesting correlation
The three factors above might seem like no-brainers, but retailers and service providers that fail in one or more of these departments have often demonstrated very weak share price performance. Penney's is down some 57% just since its 52-week high, while Abercrombie & Fitch shares have retreated roughly 40% since 2008. Comparatively, Apple shares, even following their big retreat this year, are up about 270% since early 2008.
In the incident I mentioned above, Orbitz failed to deliver on the prior consistency I had become accustomed to, it didn't practice what it preached by living up to its "lowest fare on earth" slogan, and it failed to put the customer first. Not shockingly to me, Orbitz shares have fallen 35% since the company IPO'd in 2007. By comparison, priceline.com (PCLN +0.38%), which touts its "name your own price" tool that empowers the customer to seek out his or her own deals, has delivered a 1,220% increase in its share price since Orbitz's debut!
I'm not going to shortchange Orbitz by failing to point out that Priceline certainly has more capital to work with from an advertising perspective (plus, who would dare bet against William Shatner?), which puts Orbitz at a distinct disadvantage. However, from a strict price satisfaction perspective, Priceline also topped Orbitz in the latest round of surveys from J.D. Power and Associates.
Let consumers help you invest better
This gives us as investors some key points to look for when evaluating the intangible factors that could make or break a company beyond just a recent earnings report. Ask yourself the following: Do other consumers recommend this company? Are they consistent? Do they practice what they preach? If the answer is yes, you may have found another strong reason to buy a retail or service-oriented company. If one or more of these answers is no, then that could be a warning sign not to invest in a particular company.
Now, if you'll excuse me, I have to find a new travel-booking company...
