Last Updated Sep 1, 2010 3:41 PM EDT
That's especially true in the travel business, where airlines and car rental companies seem to be competing to figure out who can make the most customers truly miserable.
But it's also true everywhere else. Try getting customer service for a software product or consumer electronics! Or try buying insurance (or just about anything else) online!
On the surface, the situation seems insane. As a recent editorial in the New Yorker magazine pointed out, in the pre-Internet age, a dissatisfied customer proverbially told ten people about a bad experience, but in the Internet age, that customer can end up telling millions.
You'd think that top management would get a clue and realize that lousy customer service is destroying their brands and reputations.
However, they remain clueless because 1) customer service is treated as a cost center and therefore an opportunity to save money and 2) when EVERY company in an industry has lousy customer service, there's apparently no incentive to make it better.
Furthermore, when customer service gets lousy enough, you can start charging people for what used to be free. That's why airlines have first class and why software companies charge you money to report bugs in their programs.
All of this makes sense in a warped sort of way, and yet it's still profoundly stupid, because this two tiered way of doing business leaves out an important segment of every market -- the value shopper.
According to Darlene Quinn, a former senior executive with the Bullocks Wilshire department store chain, there are three kinds of consumers in a mass market:
- Price Shoppers. These shoppers' primary concern is the cost of goods. They are typically middle to lower middle class, blue collar folks who have tight budgets, so they shop at discount big box stores like Wal-Mart.
- Luxury Shoppers. On the other extreme, there are "luxury" shoppers who have money regardless of the economic conditions. They summer in the Hamptons, and they buy luxury all the way in both goods and services. The recession doesn't affect them any more than a stiff breeze. They'll always buy what they want, when they want.
- Value Shoppers. In the middle is the "value" shopper, who is typically middle to upper middle class, and they don't mind paying a few extra dollars for extra service and better quality.
Screwing the value shopper has the net effect of turning "value" goods into commodities, which makes price the primary feature of the products or services offered, flattening the playing field for competition. Further, when value goods are commoditized, the result is a price war that end up hurting both the warriors and the consumers caught in the crossfire.
To see the results of this process, just look at the commercial airline industry. When it comes to air travel, the luxury shoppers have largely moved upstream to private jet rental, simply to avoid the insanity at the airports, leaving the rest of the industry competing solely on price.
And that's creating conditions that makes it difficult, or even impossible, to operate profitably. In essence, the airline industry (or rather the fools running the big companies) are shooting themselves in the head by not paying attention to the value shopper.
Quinn similarly notes that the insurance industry has already fallen down that slippery slope. "Every TV ad you see is about how much you can save," she explains. "Two years ago, insurance ads were more about service and security, but today it's all about saving as much money on premiums as possible."
The end result is that consumers now view insurance as a commodity, and the lowest price wins. The insurance companies will begin to cut service and customer care to pay for those rate slashes. The poor consumer then wonders: WTF happened?
What's the solution? According to Quinn, companies must take steps to maintain the integrity of value items and services. And that means treating customer service as an important, indeed essential, element of the business, rather than simply as a cost center.
I predict that the first airline to figure this out and get out of the race to the bottom, will be hugely profitable. Same thing with car rental companies, insurance, consumer electronics and every other industry that's been hypnotized by their accounting systems.
I figure it's only a matter of time before somebody figures out how to use the Internet to reach middle-class value shoppers and extract them from the price shopper treadmill -- where the value shoppers never wanted to be in the first place.
Once value shoppers figure out that there's an alternative that meet their needs, they will flock to the companies that treat them right. And the other companies will continue chasing the prices shoppers until one or two (marginally) profitable vendors are left.