Is Bad Customer Service More Profitable Than Good?

Two associate professors of marketing recently shared research in the Harvard Business Review about how customer service is structured at at tech, travel, and finance companies:
[O]ur research suggests that some companies may actually find it profitable to create hassles for complaining customers, even if it were operationally costless not to…. We found that these companies screen complaining callers by using a hierarchical organizational structure. This structure, we argue, keeps a lid on the amount of redress customers are willing to seek. In other words, by forcing customers to jump through hoops, the organization helps curb its redress payouts.

As part of our research, described in a forthcoming article in the journal Marketing Science, we interviewed managers of call centers to understand how their customer service organization is structured, and the way it contains redress payouts. We found that most involve at least two levels of agents. The Level 1 agents take all incoming calls and hear each customer’s complaint first. These agents are typically limited in the amount of redress they are authorized to offer to the caller…

So what about the idea that frustrating customers has consequences on customer retention and long term reputation? For example, some experts advise companies with upset customers to reach out to them directly to win them back. But, some companies have little regard for their reputation, especially those who control a large market share… companies with few competitors may find it worthwhile to alienate angry customers in order to save on redress costs…. This may help us understand why some of the most hated companies in America are so profitable and why customer service, unfortunately, remains so frustrating.

At one company “Any caller insisting on a refund was told to call the U.S. headquarters during normal business hours, generating additional tasks for any customer seeking more compensation…

“This design relies on the fact that some consumers are not willing to incur this hassle. When this happens, the company is off the hook for the additional payout.”

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