Retaining Customers by Handling Complaints

Michigan State University Extension
Tourism Educational Materials - 33209845
06/06/02

Retaining Customers by Handling Complaints

North Dakota State University
Zetocha, Dale
Small Business Management Specialist

EC813
33.20
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.

How many dissatisfied customers do you have?

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:

-It 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, non-complainers 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 non-complainer. Between 65 and 90 percent
of your dissatisfied non-complainers 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.

Keeping The Customers You Have

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 well you are doing.

Check the "yes" and "no" blanks that apply and total the
number of "yes" and "no" responses at the bottom.

Customer Relations Self-evaluation

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?"
YES ___ NO___

2. Do you get the message across to all your customers
that they're important to you?
YES___ NO___

3. Do you go out of your way to keep people committed to
coming back to your business?
YES___ NO___

4. Do you tailor your service to the customer's
particular wants and needs?
YES___ NO___

5. Do your customers tend to call on you when a problem
arises?
YES___ NO___

6. Do you provide any unique and special services for
your customers that are not provided by other businesses?
YES___ NO___

7. Are your customers convinced that you are genuinely
interested in them and have their welfare at heart?
YES___ NO___

8. Is it a policy never to take a customer for granted?
YES___ NO___

9. Do you go out of your way to learn and understand as
much about each customer as you can to provide better
service?
YES___ NO___

10. Are your customers' orders filled accurately and
delivered on time?
YES___ NO___

11. If a customer registers a complaint, do you handle it
promptly and fairly?
YES___ NO___

12. Is it a policy to follow up on problems and
complaints to make sure their resolution is satisfactory
to the customer?
YES___ NO___

TOTALS YES___ NO___

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:
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.

Unhappy Customers Complain to Others

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 and 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.

Recommendations for Managing Consumer Complaints

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.

Ill. 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 her
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 of promised
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.

Handling Customer Complaints By Telephone

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 sales 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 business-person
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.

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