Do You Think Customers Will Pay More For Better Service? Think Again

One of the tenets of “radical customer service” is to challenge the accepted wisdom about what customers want and how they behave. In this article, we’ll look at one common myth: That customers are willing to pay more for better service. We’ll find that when you ASK people, they will say they are willing to pay more, but when you consider customer BEHAVIOR, it’s an entirely different story.

The Myth: Customers Will Pay More For Better Customer Service

Take a look at the following snippets and take a moment to reflect on their meaning:

• The research report, “Why Customer Satisfaction is No Longer Good Enough,” reveals that 81% of consumers surveyed are willing to pay more for superior customer experience. With nearly half (44%) willing to pay a premium of more than 5%. (Oracle Press Release Dec. 2012)
• Two thirds of consumers state that they are willing to spend more with a company they believe provides excellent customer service, compared to a slightly higher seven in ten in 2011 (66% in 2012; 70% in 2011). Like last year, they are willing to spend 13% more, on average. (American Express Research Report 2012)
• 86 percent will pay more for a better customer experience CEI Report – 2011 (RightNow)
• About a third of consumers are willing to pay more for a mortgage that comes with superior customer service and less stress, according to a recent survey of 618 people conducted by the Carlisle & Gallagher Consulting Group, which focuses on the financial services industry.
• The survey found that an overwhelming 84% of consumers said they are willing to pay over the standard price for goods or services to ensure a superior customer experience. Most (88%) would be willing to pay 5% more, 62% would push to 10% over the odds, a quarter would go to 15% and 11% of respondents said they would pay 25% or more (RightNow – 2010 reported here

Pretty compelling research, and you’d think these finding hold great significance for businesses. Let’s assume that these survey findings accurately reflect real world customer behavior, and that the findings aren’t tarnished by the Say-Do Gap. Let’ assume that a significant percentage, let’s say 70% of customers will pay 10% more for every single transaction they make, across all industries. As you’ll see later, none of these assumptions are even close to true, but let’s just make the assumption.

What jumps out at you? The first thing is that there would be a huge business opportunity to increase profits. If customer service is so determinant of customer purchasing behavior, then it would be simple for companies to jack up their prices, by, let’s say ten percent, invest five percent of that increase into more staff, or whatever it takes to operate cleaner, faster establishments so they would be recognized as customer service leaders, and reap in the extra profits.

These numbers aren’t insignificant. In the grocery business, estimates of net profit are pegged at between one and three percent of sales. Clearly, there should be a huge opportunity for grocery stores to increase their profits, perhaps even double their net profit margins, by investing in customer service. Yet, they don’t do it. Or another example — real estate agents, who actually make huge profits on individual house sales. If the average revenue for a real estate agent is, let’s say $30,000, and their customers pay 10% more for better service, that’s an increase of $3,000 per transaction. Yet, that’s not happening either in the real estate industry.

The second thing that should jump out at you from the research is that while it would seem to suggest companies can and should take action to improve customer service, there are incredible amounts of missing details. Let’s take on the view of the business decision maker, who stumbles across this research. Let’s also say that the decision maker “see the opportunity” and is convinced that by upping customer service, the company will realize that extra ten percent that customers say they are willing to pay. Then what?

Well, nothing, actually. The business decision maker needs to know two sets of things: First, s/he must know specifically, WHAT to do. Should he invest in more staff and reduce customer lineups? How short do the wait times need to be to get customers to pay more? Is cutting wait time by ten percent going to accomplish that? Twenty percent? Down to nothing? That would be expensive. Would hiring more staff to keep the space cleaner and more organized get a big piece of that extra 10% customers are willing to pay? How many? How often does the floor need to be swept? What about incoming calls from customers? Once again, will cutting the wait from twenty-five minutes to fifteen minutes encourage customers to pay more? Or does the wait time need to be zero to make a difference?

The problem for the decision-maker is that he or she needs to make specific “little” decision about what to do. There’s a need for actionable information — insights clear enough to point to a very specific path. Of course, that’s completely absent.

There’s something else missing here. Even if a company knew exactly how much they had to invest to improve their service, and exactly how to best allocate that investment, how in the world would they “let customers know”, and then how long would it be before customers would actually alter their perceptions enough about the brand to start spending more. Clearly, it’s not going to happen overnight. Will it take a month to change perceptions ENOUGH for customers to pay extra? A year? Multiple years? We don’t know. I’m not sure anyone knows, and I’m not even sure it’s “knowable”, but it’s a fair bet that it would be a longer time frame, not a shorter one. And, if you invest in customer service to pry that extra money from customers, that’s not the only investment one need make to benefit. You’d have to effectively market the brand as a customer service brand SO MUCH better than competitors that your customers would ignore the fact that your competitors sold the same items for less.

Even if the research accurately reflects customer behavior about spending, we can see that there’s really nothing here to push businesses to invest in better service. There’s not enough actionable information here for decision makers to reasonably predict they can access that 10% of extra spend. So, they don’t.

Well, not to worry. In fact, businesses aren’t leaving money on the table. Not only is the research beyond silly, as you will see, but it’s flat out wrong. We’re going to look at the realities of customer behavior that tells paints a clear picture of what customers DO, rather than what customers say they will do.

To explore more about what customers DO, rather than what they say they do, click here for more.