Good Profits Gone Bad

Charging a few extra bucks to print a document, store luggage or take money out of a bank account might help a company’s bottom line, but what impression is it leaving with the customer? How about refusing a refund, or scrimping on the quality of a product and overstating claims about its performance or capabilities?

The simple fact is, in the world of customer experience, building a base of loyal customers representing profitable, sustainable relationships comes down to more than just customer service. It also comes down to understanding the difference between “good profits” and “bad profits,” and how generating each affects your bottom line.

“Bad profits” aren’t anything new but today companies are increasingly being called out for pursuing them at the expense of the customer. Companies who pursue this way of doing business risk long-term customer relationships — and potential future profits — in favour of shorter-term financial gains.

The real value of “good profits,” according to Blake Morgan, a customer experience futurist and author of More Is More, “is that they result in repeat customers, in advocates, in word of mouth marketing.“ In fact, a 2014 customer service study commissioned by American Express showed that while the percentage of those likely to tell others about good versus bad customer service was virtually the same, those who have experienced bad customer service will tell over twice as many people.

The addiction to ‘bad’ profit

Too many companies are addicted to bad profits, which “are about extracting value from customers, not creating value” for customers, according to Fred Reichheld, founder of Bain & Company’s loyalty practice and creator of the Net Promoter System.

In other words, each customer essentially forms a value chain, with multiple touch points throughout the entire customer experience, and with an end goal of creating customer value, usually leading to greater brand loyalty for the business. According to Bain & Company, a 10-percent increase in customer retention levels can lead to a 30-percent rise in a company’s value. When you also consider that an estimated 42 percent of consumers are willing to pay more for a better customer experience, creating value for customers is well worth the investment.

But when companies focus on a single transaction they risk breaking the value chain and losing the customer. For example, one key point defining the customer experience process involves returns. Let’s say a customer wants a refund or replacement for a product they believe is faulty, or a poorly delivered service. By arguing with the customer a company is turning a disappointing product experience into a contentious relationship with the brand.

Whether it involves computers or coffee, companies with liberal return policies, and that work quickly to resolve customer issues, understand the difference between good and bad profits, says Adam Toporek, a customer experience strategist, author and founder of consulting company CTS Service Solutions. By forgoing short-term gains, companies are also building a relationship that shows the customer how much they value them.

When ‘good’ profit companies go bad

Good profit companies can go bad, says Morgan. For example, when a food company changes its recipes to include cheaper ingredients that may be less fresh or healthy. “Companies that don’t listen to employee feedback or customer feedback are also in danger of ‘going bad,’” Morgan says. “Every company today needs to operate with some level of transparency. If you aren’t operating a stand-up business based on value to your employees and your customers, you will be found out.”

Morgan cites examples of internal memos or video footage leaked by whistleblowers, which have damaged reputations across industries. “You have to operate a clean business,” she says.

How to tell ‘good’ profits from ‘bad’

For most companies, knowing if your profits are good or bad comes down to what the customer thinks about what you’re selling and if it’s worth the price.

Companies can often figure this out by asking a simple question, according to Reichheld, which is: “How likely is it that you would recommend this company to a friend or colleague?” This "ultimate question" is widely applied under the name "Net Promoter Score" (NPS), and helps companies and employees become more accountable for treating customers well.

“By asking that question systematically, empowering front-line employees to make changes in response to what they hear, they can help you ensure that the profits you earn are good and sustainable, according to Reichheld. “You can manage for customer loyalty and the growth it produces just as rigorously as you now manage for profits.”