You may think that companies with good customer service are profitable. After all, why wouldn’t you do repeat business with a company that actually takes care of its customers?
However, data shows that some of the most hated companies in the United States are also the most profitable. Much of this resentment stems from poor customer service, where most people struggle with interminable phone menus, desperately seeking a real live person to deal with a refund.
For all the usual complaints – such as “I hate dealing with this company” or “These guys are the worst at customer service” – about the usual suspects from the ranks of cable and Internet providers, airlines, and banks, it turns out they just don’t have much incentive to care. The companies you hate are making plenty of money. Counterintuitively, the scorned tend to perform better than the companies you like.
Bad Customer Service is Profitable…
Research has shown that bad customer service is precisely what companies do to remain profitable. In short, complaint processes are actually designed to help companies retain profits by limiting the number of customers who can successfully resolve their complaints.
The process involves a tiered structure in which all incoming inquiries start at “Level 1.” Level 1 may be a call centre operator who listens to a complaint but acknowledges that there is nothing he can do. By design, Level 1 agents are limited in their authority to compensate customers.
Increasingly, companies are also replacing Level 1 agents with automated chatbots. These chatbots are equipped with software that can determine the caller’s level of anger by remotely monitoring the tone and pace of voice. In corporate parlance, it’s called the “breakpoint”: how far customers can be pushed before they take their business elsewhere.
To get to a Level 2 agent, i.e. someone that actually has authorisation to issue refunds, customers need to be angry or persistent. Meek customers that are not willing to incur this “hassle cost” mean they won’t get their refund, and the company is off the hook for the additional payout. (Alternatively, customers can lash out on social media, guaranteeing a response if the story goes viral.)
Not surprisingly, surveys show that chatbots are not improving customer service. This is especially true for certain segments of consumers above others. Consumers experience hassles in different ways. For instance, navigating an online complaint process is generally harder for older people.
…But Only If You Have Market Share
Many companies that are consistently ranked among the most hated repeatedly pledge that they are committed to great customer service. For example, Comcast states that “our customers deserve the best experience every time they interact with us,” but consumers are increasingly unsatisfied with their service. Even United Airlines, which violently removed a passenger in 2017, claims to offer a “level of service to our customers that makes [United] a leader in the airline industry”. Though the passenger removal episode cost United a few payouts for the mess it created, it remains highly profitable with no noticeable loss in market share.
On the bright side, it appears that this phenomenon only appears in markets without much competition, such as Internet service providers and airlines. In highly competitive markets like retail, food service, or even banking, companies are incentivised to provide good customer service to retain customer loyalty. In addition, there are no studies on whether this trend of bad customer service is profitable in the long run. Sure, it may be good for business now, but when times are bad, your reputation is all that you have.