Michigan State University Extension
Tourism Educational Materials - 33200020
06/06/02
Retaining Customers by Handling Complaints
Dale Zetocha
Small Business Management Specialist
C2737 Customer Service - Sales and Hospitality
EC-813
Cooperative Extension Service
North Dakota State University
Reviewed and reprinted, September 1986
Customers for retail and service firms are the primary
reason for being in business. Customers are the lifeline of
any business and it is important to keep current patrons by
avoiding or minimizing customer dissatisfaction.
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How many dissatisfied customers do you have?
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Most business people think they have few dissatisfied
customers because most do not complain. A recent study
indicated that the average business never hears from 96
percent of its unhappy customers. For every complaint
received the average business has another 26 customers with
problems, at least six of which are serious.
How can this be true? Think of your own record as a
consumer and as a complainer. How often have you been less
than satisfied with a product, a service, a meal in a
restaurant, or a wait in line? And how often have you
complained to the management, the manufacturer, or the
retailer?
Customers are just like you: they don't complain. These
reasons are most often cited:
-If is not worth my time or trouble.
-Complaining will do no good- no one cares.
-I don't know where or how to complain.
-The business owner/manager may be a neighbor, attends the
same church, etc.
Some business people think the customer is not all that
unhappy. However, noncomplainers dissatisfied with the
product or service are the least likely group to buy from
your firm again. Even a complainer who gets no response to
his complaint is more likely to buy your products again
than is a noncomplainer. Between 65 and 90 percent of your
dissatisfied noncomplainers will not buy from you again and
you will never know why.
Customers who have problems and complain are giving you a
chance to keep their business. Surveys show that you can
win back between 54 and 70 percent of these complainers by
resolving their complaints. Results indicate that up to 95
percent of this group will become loyal customers again if
their complaints are handled well and promptly.How Many of
Your Unhappy Customers Will Buy From You Again?
% of customers with minor complaints ($1 to $5 losses) who
will buy from you again.
% of customers with major complaints (over $100 losses) who
will buy from you again.
Source: Direct Selling Educational Foundation, a
Washington, D.C. not-for-profit public educational
organization. "Customers Mean Business...Survey Show You
Have More Dissatisfied Customers than You Think." 1982.
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Keeping the customers you have
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How much is a good customer worth? If a good customer is
worth having, it is worth your effort to apply every
strategy to keep that customer coming back.
A certain amount of customer turnover is inevitable. Some
business people think they can afford to lose some
customers because they can replace them with new ones.
However, attracting and retaining new customers is
expensive. Marketing data indicate it costs five times as
much to get a new customer as it does to keep an existing
one.
Do you keep customer turnover to a minimum? Are you sure
you suffer only natural and unavoidable losses? The
following self evaluation of your business will give you an
indication of how welt you are doing.
Check the "yes" and "no" blanks that apply and total the
number of "yes" and "no" responses at She bottom.
Customer relations self evaluation
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1. Are you aware that your established customers, even the
small ones, are your best accounts because they're easier
to sell, cheaper to maintain and require fewer "special
deals"?
2. Do you get the message across to all your customers that
they're important to you?
3. Do you go out of your way to keep people committed to
coming back to your business?
4. Do you tailor your service to the customer's particular
wants and needs?
5. Do your customers tend to call on you when a problem
arises?
6. Do you provide any unique and special services for your
customers that are not provided by other businesses?
7. Are your customers convinced that you are genuinely
interested in them and have their welfare at heart?
8. Is it a policy never to take a customer for granted?
9. Do you go out of your way to learn and understand as
much about each customer as you can to provide better
service?
10. Are your customers' orders filled accurately and
delivered on time?
11. If a customer registers a complaint, do you handle it
promptly and fairly?
12. Is it a policy to follow up on problems and complaints
to make sure their resolution is satisfactory to the
customer?
TOTALS
Your rating can be determined by summing the "yes" answers.
Sum of YES answers = (your rating).
Compare your rating with the rating scale below:
If your score is: Indicates:
11 to 12 Your good customers are probably loyal
10 Better than average
8 to 9 Mediocre to fair
Below 8 You may be needlessly losing established customers
to competitors and it's time to reassess the service you've
been giving them.
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Unhappy customers complain to others
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While 96 percent of the unhappy customers do not complain
to you, they do let off steam and spread their
dissatisfaction with the product or service. They complain
to other customers and potential customers - family,
friends, associates at work anyone else who will listen.
They feel wronged and frustrated and want to talk about it.
According to consumer surveys, a person who has had an
unpleasant experience with a business will tell 9 or 10
other people. Approximately 13 percent will tell more than
20 other people. This negative word-of-mouth can be very
harmful to a business. In today's complex marketplace more
and more consumers are basing their purchasing decisions on
the advice of people they know.
An unhappy customer cannot be kept quiet. However, you can
regain their support by solving complaints quickly. These
customers may not only come back, but it will give them
something positive to talk about.
A customer who has had a good experience with a business
will tell an average of five other people, some of whom
will become new customers. If a customer has a complaint
resolved quickly and courteously, he wants to tell others
about his good fortune and his good sense (after all, he
had the courage to complain). Speedy complaint resolution
can help you keep present customers and attract new ones by
changing word-of-mouth advertising from negative to
positive.
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Recommendations for managing consumer complaints
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I. Effective Policy for Handling Consumer Complaints
Every business, regardless of its size or the price of its
products, needs an effective policy for managing consumer
complaints. Effective complaint management enhances a
firm's reputation, builds consumer confidence and loyalty,
and attracts new customers. By talking back when they
believe they have not received their money's worth,
consumers give businesses an opportunity to correct the
immediate problem and restore goodwill. Experience shows
that customers who complain about products or services
continue to shop with the business and buy the products
they complain about - if they believe the complaint was
resolved fairly.
Effective complaint management can result in increased
sales, better products, improved personnel performance, and
business efficiencies. Complaints are an inexpensive source
of market research. When properly compiled, complaint data
can indicate how consumers interpret your advertising, how
products and services meet (or do not meet) consumer
expectations, and how consumer information can be improved.
Careful complaint management can save unwanted costs. For
example, negative word-of-mouth publicity from dissatisfied
consumers means lost revenue and requires additional
investment in advertising to attract replacement customers:
It is beneficial to the business to settle complaints
promptly and equitably when they are first registered.
II. Importance of Policies and Procedures For Effective
Complaint Resolution
Management attitudes are reflected in the conduct of
employees and the performance of the business. Management's
responsibility begins with the preparation of written
policies and procedures for speedy and fair complaint
resolution. The complaint program and business policy on
refunds, exchanges, and repairs will vary, of course,
depending on the nature of the product or service, the
terms of the purchase, and other factors.
These policies and procedures should be put in writing and
communicated to the appropriate personnel, with emphasis on
accountability of each employee for fair and courteous
complaint resolution. Employees can save customers the
frustration of repeatedly filing the same complaint or
having to turn to outside agencies for assistance.
In small firms, owners and managers should be personally
involved in customer relations on a regular basis. In
larger companies, a separate department may be established
to operate a complaint management system and evaluate
consumer response to products and services. People with
this responsibility need to be patient, articulate and able
to balance fairly the interests of the business and those
of the consumers.
III. Procedures For Handling Complaints
Basic principles of sound complaint management apply
regardless of the size or type of business. The process
need not be costly or elaborate, as long as the essential
functions are performed efficiently, courteously, and
fairly. The salesperson may not be at fault, but he or she
usually is the one who must correct the situation.
The salesperson can effectively handle complaints by
attempting to reach a win/win situation, not a win/lose
situation. This solution must be acceptable to both parties
rather than an imposed decision by one or the other.
Therefore, both parties must participate in the decision
and feel that it is acceptable.
Basic steps for effective complaint management include the
following:
-Listen to the customer and acknowledge his or hem
complaint. Customers do not register complaints with only
a casual interest in their disposition. Complaining
involves some inconvenience and possibly expense. Loyal
customers with strong feelings are often involved.
-Develop empathy or show concern for the customer.
Personalize the response.
-Ask questions to identify and analyze the problem. Obtain
the customer's ideas concerning possible alternative
solutions.
-Resolve the complaint according to policy. Decide in a
fair manner what you are responsible for and initiate some
positive action to remedy the situation.
-Follow through with the proposed resolution. When it can
not be immediately resolved, keep the customer informed of
progress and notify promptly when a settlement has been
reached. Keep a notebook ofpromised action.
-Keep a record of complaints and proposed action for
resolution. For most small firms this can be accomplished
by simply requiring salespeople to write on a 3" x 5" card
each complaint handled that day. These cards should be
given to the manager daily. Complaints should be studied,
followed up and tabulated periodically to determine trends.
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Handling customer complaints by telephone
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Complaints are not always voiced in person but may be made
through a written letter or over the telephone. The manner
in which these complaints are handled is just as important
as those handled face-to-face with the customer because the
person handling the complaint may not be the salesperson
that made the sale.
The first rule for answering the telephone is to answer
promptly. Based on personal experience, it is frustrating
to wait and wait for the other person to answer the phone.
If you are voicing a complaint it is even more disturbing
if you have been kept waiting.
The second rule is to answer politely and project a voice
of friendliness as you identify yourself and the name of
the business. This is just good common sense, for the
person expressing a complaint may often be irate and a
friendly voice may reduce some tension.
If you cannot handle the complaint yourself do not keep the
customer waiting. Locate the person who will be able to
make some form of adjustment even if it is only temporary
satisfaction until the complaint is brought directly to the
store by the customer. Don't hang up or ignore the
complaint. If you told the customer that you would consult
a supervisor, it's important that you follow through.
IV. Publicize and Explain Complaint Procedures to
Employees, Consumers, and the Public
A complaint management system must be visible and
accessible in order to serve consumers and accomplish your
firm's goals. Management, sales, service and public
relations personnel should all cooperate to make the
complaint system accessible to consumers. There are many
ways to publicize the system, including:
-On posters and signs in the sales and service area.
-On contract forms and sates slips.
-In charge account mailings.
-In manuals concerning the use of the product and its care.
-In advertising -your firm's complaint system could be the
theme of an advertising campaign.
-On product packaging and labeling.
Informing consumers of their responsibilities can help
avoid misunderstandings and unnecessary complaints. Advise
the consumer to carefully read product literature, use and
care instructions and terms of the sale.
V. Use Complaint management To Reduce Future Complaints
Complaints and complaint trends tell a businessperson how
to do a better job by alerting management to problems which
need prompt attention and correction. Furthermore, these
trends indicate long range opportunities for problem
prevention and product innovation. A well- planned system
for screening and recording complaint data can provide
answers to Important questions such as:
-Do salespeople treat the customer courteously and with a
willingness-to-serve attitude?
-Are the number of complaints about the product or service
increasing? If so, why?
-Are products over-sold or over-advertised?
-Is advertising clearly understood?
-Are salespeople overzealous?
-Do product disclosures (such as labeling, warranty
information, and service agreements) need to be
improved?
To obtain this valuable feedback, complaint reporting must
generate information that is timely for the owner/manager.
When necessary, immediate action can be taken. Other
information can be summarized to detect trends which may
require future action.
VI. Retailers Should Resolve Complaints
Direct, swift, and informal complaint resolution at the
place of purchase is advantageous to all concerned.
Resolving complaints at this level avoids unnecessary
consumer frustration and preserves the direct buyer/seller
relationship. It will usually be easier, quicker and more
economical than if the consumer has to contact the
manufacturer.
Retailers, manufacturers and service outlets mutually
benefit by keeping each other informed of complaints and
complaint trends and cooperating when necessary to see that
complaints are satisfactorily resolved. Some laws assign
overlapping responsibilities to all businesses in the
distribution chain for disclosing information to consumers
and for identifying and correcting problems associated with
products and services.
In cases where complaints cannot be resolved directly
between consumer and retailer or manufacturer, an unbiased
third party may be used. Some consumers and businesses may
use various agencies and the courts. Use of the court
system is costly and cumbersome for both sides and usually
can be avoided if a good faith effort is made to resolve
disputes.
There is no single formula that will provide universal
relief for dissatisfied consumers. However, fair, courteous
and prompt complaint handling will improve the chances of
the customer remaining loyal to your business.
REFERENCES
1. Direct Selling Education Foundation, a Washington,
D.C. not-for-profit public educational organization,
"Customers Mean Business... Survey Shows You Have More
Dissatisfied Customers Than You Think," 1982.
2. Office of Consumer Affairs, "Managing Consumer
Complaints- Responsive Business Approaches To Consumer
Needs," U.S. Department of Commerce, April, 1981.
3. Stone, Kenenth E., Extension Economist, "Salesmanship
For The 80's," Cooperative Extension Service, Iowa State
University, Ames, Iowa.
4. Wolf, Kenneth, Extension Economist- Agribusiness,
"Customer Relations" Fact Sheet, Texas A&M University,
February, 1978.
Cooperative Extension Service, North Dakota State
University of Agriculture and Applied Science, and U.S.
Department of Agriculture cooperating. Myron D. Johnsrud,
Director, Fargo, North Dakota. Distributed in furtherance
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