The Economics of Customer Service

I once “fired” a client – let’s call him Jerry – who had paid me more than a million dollars and wanted to keep on paying me more than 20 grand a month. In every aspect but one our relationship was terrific. He was fun to work with. He was a natural-born salesman. And he was a quick study.

The only trouble: He didn’t believe in “customer service.”

Jerry’s business grew because of his management and marketing skills. He kept the overhead low and created compelling advertising campaigns that sold his products at deeply discounted prices.

But he had no interest in getting to know his customers or in helping them in any meaningful way. To him they were an objective means to a profitable end. In fact, he had a sort of disdain for them – as if he felt they were fools for responding to his offers.

Another thing that bothered me was that his products were inexpensively produced (they had to be because of his discounted pricing) and, thus, relatively inferior in quality.

I tried to convince him that this may have been a valid approach when he was breaking into the market – but he had to gradually improve his products if he wanted to be successful over time.

“Consumers are very aware of price,” I told him. “But most customers are looking for long-term relationships with the people they buy from. They may give your product a try because of its low price, but they won’t stay with you unless they are happy with its quality.”

He didn’t get that.

So I said, “Think about all the purchases you’ve made in your life. I’m sure you shopped price when, for example, you went looking for a new car. But I’ll bet a year or two later, though you may have remembered what you paid for the car… what really mattered to you was how well it held up. And how well the dealer treated you.”

He laughed at that. “Maybe. But I’m still always concerned about price.”

Then I reminded him of Joey, the kid he’d hired to work on his phone system. He hired Joey because he was willing to work for $20 an hour, while more experienced techies were charging three times that much. “You were happy with Joey when he started. But when it looked like it would take forever for him to get the job done, you fired him and hired someone more expensive.”

He gave me that. But I couldn’t get him to budge on the customer service issue. Meanwhile, the market he was in was getting more competitive. Product and service quality overall was improving. But not his.

I could see the writing on the wall. And that’s when I “fired” him.

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