Practical Handbook of

CUSTOMER SERVICE OPERATIONS

Practical Handbook of

CUSTOMER SERVICE OPERATIONS

Warren Blanding

Published by INTERNATIONAL THOMSON TRANSPORT PRESS 1325 G Street, N.W., Washington, D.C. 20005

© International Thomson Transport Press, 1989

Softcover reprint of the hardcover 1st edition 1989

1325 G Street, N.W., Washington, D.C. 20005

All rights reserved. No part of the book may be reproduced without permission from the publisher, except for brief passages included in a review appearing in a newspaper or magazine.

Library of Congress Catalog Card Number 89.()85333

ISBN-13: 978-1-4612-8911-1 DOl: 10.1007/978-1-4613-1645-9

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e-ISBN-13: 978-1-4613-1645-9

PREFACE

Even the most casual reader leafing through the pages of this book will quickly realize that it is not the thoughts of one indi­vidual set down on paper, but rather the synergism of many people. Herbert Goeler of American Cyanamid and Keith Slater of Johns-Manville, the latter now retired, are certainly the brightest stars in my particular customer service galaxy. They have been well-springs of information, thinkers and thought­starters, friends and fellow-believers, for almost two decades. Without the encouragement and inspiration they gave me, this book would be much shorter and far less relevant. In 1984, my firm presented Herb and Keith with our special "Patron Saint" Award; it doesn't say nearly enough for what they have meant to me personally and, through me, to the field of customer service management where I disseminate ideas and guidance as an editor and teacher.

Some years ago, the American Management Associations asked me to chair a series of seminars on Customer Service Management in the U. S. and Canada. Through this activity I met many wonderful people who in many cases taught me more than I taught them.

Later, Herb Davis of Herbert W. Davis and Company and I undertook a series of seminars for Penton Learning Systems which took us to some 45 colleges and universities throughout the U. S. and Canada. We found a rising tide of enthusiasm for this newest of management disciplines and gained an unparalleled resource in both the enthusiasm and depth of knowledge of the thousands of working managers we met through these seminars.

More recently, Herb Davis, Alex Metz of Hunt Personnel and I developed and have been conducting our "Advanced Cus­tomer Service" seminars, adding over the years several thousand

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more friends who have provided a wealth of information and-­equally important-a wealth of enthusiasm and inspiration in my job of reporting the accomplishments of the field. Certainly this book belongs as much to all these friends as it does for me, for it is a chronicle of their achievements, not mine.

I had the good fortune to sit in on the formation of the International Customer Service Association in May of 1981, and in the three and a half years since then have seen it mature into a dynamic and truly professional organization of more than 1,000 members. Its members are not only open and sharing of their own ideas and management skills; they are good friends and great people.

This book started out as a seminar outline, and quickly grew into an unwieldy and highly disorganized mass of paper. Leslie Harps, Vice President of our company, undertook the crushing task of organizing and rationalizing this material at a time when she was already well occupied as an executive of this organization and as a "mover and shaker" in the Warehousing Education and Research Council. Where the book is easy to understand and apply, you can be sure it is her doing; where it is not, you will know that I failed to heed her suggestions. Suggestions, I might add, which she is fortunately never reluctant to express!

Beyond the myriad of "leads" and ideas and case histories that I can trace to these thousands of individual sources and resources, there is one other factor that has been instrumental in endowing this book with whatever utility and value it may possess. And that is the professional commitment, pride, interest and enthusiasm displayed by virtually everybody who works in the Customer Service field, managers and reps alike. During the past five years I have visited the customer service departments of companies of all types and sizes, and I have come away with the satisfaction of knowing that industry is in good shape with com­petent people performing its most critical job-Customer Service.

Warren Blanding October, 1984

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TABLE OF CONTENTS

Illustrations and Tables ............................... ix Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv 1. Customer Service Is . .. .......................... 1 2. What Is a Customer? ............................ 15 3. The Customer Service Mission .................... 27 4. The Customer Service Department:

Organization and Responsibilities ................. 45 5. What's Expected of the Customer Service

Department .................................... 63 6. The Customer Service Cycle . . . . . . . . . . . . . . . . . . . . . . 75 7. Identifying Customer Service Failures .............. 81 8. Customer Service as Profit Center ................. 93 9. Productivity and Capacity Utilization .............. 103

10. Setti ng Standards and Measu ri ng Performance ...... 129 11. Customer Service Research ....................... 163 12. Customer Service Costs .......................... 197 13. Profit Leaks ... and Profit Contributions ........... 223 14. The Five Most Common Error Sources-

and What to Do About Them . . . . . . . . . . . . . . . . . . . .. 243 15. Converting Good Will into Profit. . . . . . . . . . . . . . . . .. 273 16. Improving the Customer Service

Department's Public Relations .................... 297 17. Dealing with Sensitive Issues in

Customer Service ............................... 317 18. Realistic Personnel Policies for the

Customer Service Department .................... 335 19. Improving Employee Morale and Motivation........ 359 20. Customer Communications:

Telephone Systems and Procedures. . . . . . . . . . . . . . .. 377 21. Communications:

Inside Selling and Telemarketing .................. 409 22. Communications:

The Written (and Printed) Word .. . . . . . . . . . . . . . . . .. 435

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23. The How and Why of Setting Complaint Policies .............................. 457

24. Organizing the Complaint System Proactively. . . . . .. 481 25. Training Personnel in Effective

Complaint Handling. . . . . . . . . . . . . . . . . . . . . . . . . . . .. 505 Appendix A.

Professional Organizations for Distribution Customer Service Managers ........... 521

Appendix B. Typical Job Descriptions for Customer Service Positions ....................... 522

Appendix C. How to Determine the Number of Telephone Lines Needed to Provide Customer Service ............................... 527

Appendix D. 1984 Survey on Claims and Returns ............... 542

Appendix E. An Approach to Measuring Group Performance in the Customer Service Department .................... 550

Appendix F. Bibliography ................................... 554

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ILLUSTRATIONS AND TABLES

Figure Page

1-1 3-1

3-2

4-1

Example of letter sent to new customers ...... . Statement of Mission-Customer Service Department ........................ . Statement of Mission-Field Service Department ................................ . Number of employees in customer service departments ........................ .

Table 4-1 Examples of inside selling/telemarketinb

4-2

4-3

4-4

4-5

4-6

4-7

6-1

7-1 7-2

7-3

8-1

9-1

applications ................................ . Customer service department reporting relationships ............................... . Organization chart of centralized customer service department with line responsibilities ... Organizational chart of decentralized customer service function ................... . Customer service function reporting to sales .................................... . Organizational chart for customer service function reporting to distribution ............. . Organizational chart: a typical customer service department ......................... . Typical areas of customer service that lend themselves to measurement ............. . Some typical customer service failures ........ . Contingency planning for possible strike situation ................................... . Contingency planning for major computer failure ..................................... . 26 ways you can make customer service go straight to the bottom line ................... . Form for categorizing problems and developing priorities ........................ .

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12

30

32

46

48

50

55

56

57

58

59

78 84

90

91

100

109

9-2

10-1 10-2 10-3

10-4

10-5 10-6

10-7

10-8

11-1 11-2

11-3 11-4

11-5 11-6

11-7

11-8

11-9

11-10

11-11 11-12 11-13 11-14 11-15

11-16

Form for pinpointing bottlenecks in order processing. . . . . . . . . . . . . . . . . . . . . . . . . . . .. 116 Some standards and measures . . . . . . . . . . . . . . .. 132 Some useful ratios. . . . . . . . . . . . . . . . . . . . . . . . . .. 152 Setting standards for inquiry and complaint response .......................... 153 Mana~ement memo regarding complaint handlIng. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 154 Probability of a complete order . . . . . . . . . . . . . .. 157 Form for developing a single number measure of customer service performance . . . . . . . . . . . . .. 158 Charting customer service performance against standard. . . . . . . . . . . . . . . . . . . . . . . . . . . .. 159 Form for recording customer service performance in product availability. . . . . . . . . . .. 161 Dealer visitation report ...................... 168 Advantages and disadvantages of different customer research methods .................. . Form for stratifying customers by sales. . . . . . .. 177 Form for analyzing sales by market or industry group . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 178 A basic mail questionnaire. . . . . . . . . . . . . . . . . . .. 180 Exa~ple of a multiple choice mail questIonnaIre. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 181 Mail questionnaire in "agree/disagree" format ...................................... 182 Form for determining customer attitudes and ranking of vendors. . . . . . . . . . . . . . . . . . . . . .. 183 Personalized letter accompanying mail survey ....................................... 184 Postcard questionnaire used to track transit time and condition of shipment. . . . . . . .. 185 Graphic rendering of questionnaire response ... 186 Rating results of mail survey by category. . . . . .. 187 Rating by service element.. . .. .. .. . .. .. . .. ... 188 Rating by other service elements ............. 189 Charts showing product distribution performance ................................ 190 Graphs showing customer service performance improvements. . . . . . . . . . . . . . . . . .. 192

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11-17 Form for ranking vendors on delivery performance ................................ 194

12-1 The basic customer service equation ........... 201 12-2 Graph showing safety stock required to

achieve certain service levels ................. 203 12-3 Table for computing average order costs ....... 211 12-4 Chart showing real cost of processing orders ... 212 12-5 Chart illustrating cost of processing orders

in a different environment ..................... 213 12-6 Order cost analysis based on variable

and fixed costs .....•........................ 214 13-1 Why not enough inventory? .................. 225 14-1 Customer service department errors,

adjustments and other exceptions ............. 256 Errors by cause ............................. 258

14-2 Form to help determine seriousness of errors .................................... 259 Impact of customer service errors ............. Seven less obvious results of customer

268

serVIce errors ............................... 269 14-3 Checklists used to log errors at key points

in order processing sequence ................. 271 14-4 Chart showing errors by source ............... 272 15-1 Cards introducing customer service reps

to customers ................................ 282 15-2 Flyer reminding customers of delartment

contacts, telephone numbers, an hours ........ 285 15-3 Brochure giving phone numbers, contacts,

shipping information ......................... 286 15-4 Mini-directory fving locations, names

and phone num ers of contacts ........ ; ....... 288 15-5 Mailer with self-adhesive label showing

re-order telephone number ................... 290 15-6 Crossnumber puzzle using common part

numbers .................................... 295 16-1 A way to remind CS personnel of the

importance of maintaining customer orientation .................................. 299 How logic affects interdepartmental cooperation ................................. 302

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16-2 Instructions and sample problems from customer service team game .................. 304

17-1 Using the discovery strategy to say ""t . rt t t 323 no 0 an Impo an cus orner ................

18-1 to Suggested CRT prompts for inside-18-6 selling personnel. ............................ 339 18-7 Typi~al job. ~escriptions of customer

servIce posItions ............................. 344 19-1 Questionnaire designed to bring out

customer service reps' perceptions of their jobs ................................... 362

19-2 A model customer service incentive contest ..................................... 372 Setting standards of performance for customer service communications ............. 378 A checklist of customer service communications ............................. 380 Why did the customer (or prospective customer) hang up? .......................... 400 Checklist of professional telephone techniques .................................. 404 Economics of inside vs. outside selling ......... 410

21-1 How telemarketing can reduce total selling costs-before ......................... 414

21-2 How telemarketing can reduce total selling costs-after .......................... 415 Checklist for setting up an inside selling function .............................. 420 Inside selling: A guide for customer service representatives ....................... 431 21 tips for effective business letter-writing ............................... 438 Turning ne~atives into positives .............. 442 The phone IS handy ... why write a letter? .... 448 Charts, graphs illustrating telephone customer service ............................ 452 How customers' satisfaction levels influence their purchase ...................... 459 The non-dollar costs of ineffective complaint handling ........................... 469

23-1 Automatic complaint settlement break-even points ................................. 474

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Losing the sale . . . but keeping the customer ................................ 479

24-1 Customer inquiry form. . . . . . . . . . . . . . . . . . . . . .. 483 24-2 Questionnaire mailed to customers to

determine satisfaction with complaint handling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 485

24-3 Flow chart illustrating how decision rules can be applied to complaint handling. . . . . . . . . .. 488

24-4 Trigger words. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 492 24-5 Form used to analyze complaints .............. 499 24-6 The complaint matrix . . . . . . . . . . . . . . . . . . . . . . .. 500 25-1 Sample role play scenarios that can be used

in training reps to handle complaints . . . . . . . . .. 506

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To all my girls and little Albert, too . . . again

XIV

INTRODUCTION

The publication of the landmark study "Customer Service Mean­ing and Measurement" by the National Council of Physical Dis­tribution Management in 1976 was ~a turning point in the evolu­tion of American business. The study, conducted for the NCPDM by The Ohio State University, illuminated for the first time the unique nature of the customer service function in manufacturing and distributive enterprises. It revealed a rapidly-developing and increasingly sophisticated "nerve center" linking the diverse elements of the firm with the customer, and through the firm's distribution system meeting and satisfying customer needs in an increasingly competitive marketplace.

Just as physical distribution management itself was in many ways a product of the Computer Age, so customer service as a management discipline owed much of its dynamics to the same management sciences that first demonstrated the total systems nature of production planning, inventory management, ware­housing, transportation and--customer service. For years, cus­tomer service had been typified as the "order department" or, worse, the "complaint department," a necessary part of the business but one that added cost but no value. By the time the NCPDM study was published in the mid-Seventies, that image was changing with the realization of many managements that it was no longer enough simply to sell customers the dazzling array of products that were pouring off production lines; but the costs of selling were becoming so great that attention must now be given to keeping those customers once they had been sold.

In many companies the distribution department had already established the logistics of that customer-keeping mission: ef­ficient networks of distribution centers, effective inventory man­agement systems and, in some cases, on-line order entry systems

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linking the system together. But the Arab oil embargo of the early Seventies had had a profound and-as some managers were realizing-irreversible effect on the way business would be con­ducted. First of all, the actual costs of selling-of traveling a salesperson-were increasing more rapidly than the inflation rate itself, then standing at about 14% annually. The cost of a single sales call on a customer had reached a new high of more than $100, and given that it required anywhere from four to 11 sales calls to actually make a sale, the business could ill-afford to service that customer inadequately once the sale had actually been made.

But here the second result of the Arab oil embargo was making itself felt. The fundamental cost relationships which had existed for years between transportation, warehousing and in­ventory had crumbled almost overnight. And there were wide­spread product shortages to complicate the picture, some of them associated with the embargo, others simply the result of poor forecasting and inadequate communications to the production planning and procurement arms of the business.

In this environment, many firms found themselves in the unique predicament of being unable to serve the customers they already had, let alone go after new ones. The product shortages that existed were compounded by information systems' that by and large were totally inadequate to deal with the dual problems of resource allocation and the flood of communications between companies and their customers relating to those shortages. It was clear that the old tradition of reactive customer service­waiting for things to happen and then reacting to them-was no longer acceptable. That the customer service function had to be managed just as any other business discipline was managed: proactively, with the specific mission of creating strong ties with customers that would enable the company to grow with its customers; interactively with other departments so that the company could get the most advantage from its resources in carrying out that mission. To do this, the customer service department needed three things: 1. recognition by management that keeping and cultivating customers was indeed a major corporate goal; 2. a department with its own identity and a management mandate to achieve that goal; and 3. commitment of

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resources-particularly information systems and communica­tions-adequate to operate the department as the nerve center that it was indeed becoming in any event.

Many of today's customer service departments have their origins in those adversities of the 1970s. And there is no question but that customer service management as a discipline in its own right has come a long ways. The International Customer Service Association, founded in 1981 with a handful of members, had grown to a membership of almost one thousand by the end of 1983. Surveys had shown significant increases in scope and responsibility of customer service departments, and com­mensurate increases in the salary levels of their managers and employees. Customer service courses are appearing at the com­munity college level, and there is talk of developing a formal, college level curriculum in customer service.

The relationship between the customer service activity and physical distribution activities-traffic and transportation, warehousing, shipping and related functions-is perhaps one of the closest in the corporate family. Quite a few customer service departments do in fact report to a distribution executive, while others interface directly and almost constantly with one or more of the distribution entities in their companies. Like most family relationships, it isn't always perfect, often because different members have different goals. The distribution manager charged with cost optimization is likely to have different priorities from the customer service manager with 20,000 customers all of whom want their orders filled yesterday.

Yet it's not enough to say that different disciplines have different priorities within the corporate family, nor even to say that the different disciplines have to understand one another's different motives. The increasing emphasis on serving the cus­tomer as a total corporate objective-"the business of the busi­ness"-suggests that the most successful companies of the future will be those that best move as a total entity to meet their customers' needs. And this in turn will require abandonment and revision of many existing priorities and goals in favor of a broad corporate goal of customer service.

This trend does not mean that the customer service depart­ment will be the tail that wags the dog. Not in any way. But it

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does mean that the customer service mission will be the driving force behind almost everything the company does. Which is why this book is in no sense a book for customer service managers and for nobody else. It is for any manager or manager-to-be who has, or hopes to have, a direct responsibility for the bottom line. It is particularly for managers actively engaged in the customer serv­ice function itself: besides customer service managers them­selves, it is for distribution managers, traffic and transportation managers, production planning and inventory managers-and distribution, sales and marketing executives to whom the cus­tomer service department may report.

For the bottom line of this book is the bottom line of the enterprises for which it was written. Customer service is treated as a strategic undertaking of the entire corporation with the direct goal of profit contribution plus corporate growth. It as­sumes the existence of a customer service department,but recognizes that it may not yet have the stature or degree of recognition needed to carry out all the programs and set all the policies recommended here. It recognizes that managers who have full or partial responsibility for the various customer service activities in some instances moved into their present jobs with little or no direct management experience.

Thus the emphasis of this book is on the practical: practical plans that can be made in today's environment; practical meas­ures that can be taken today in the real-world corporate climate; practical results that can be obtained and taken visibly to the bottom line for all to see. There is very little theory in this book. The principles, procedures and case histories are drawn from the experience of real people in real companies solving real problems. During the dozen years he has been editor and publisher of Customer Service Newsletter, the author has served as a clear­ing house for customer service and distribution professionals' questions and answers, problems and solutions, tests, surveys, experiments, ideas, opinions, inspirations, triumphs and defeats, failures and successes ... in short, all the real-world experiences that go into advancing the art.

This book is the composite experience of several thousands of these managers, translated into a format which is intended to be used on the job in existing, operating departments as well as in

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planning and organizing customer service departments-to-be. No attempt has been made to "genericize" the case histories re­ported here, i.e., to make them applicable to all companies under all circumstances. Every company is unique, and has unique circumstances and unique needs. What distinguishes the man­ager from the rank-and-file is the manager's ability to extract from the situations and experiences of others the particular grain or grains of meaning for his or her operations. And this book was written for managers, present and future.

Customer service as it is practiced in manufacturing and distributive industries is heavily involved with· two dynamic technologies: data processing and communications. Each of these is clearly a subject for a book in itself, and indeed there are many books about both. For that reason, this book does not involve itself specifically with technology per se, but assumes the reader is familiar with its principal applications in customer service. Needless to say, staying abreast of the state of the art in infor­mation and communications systems is fundamental to good management-and particularly in management of a function that is so inextricably involved with, and so heavily dependent on, such systems. The manager reading this book will recognize that many of today's concerns with such specific functions as order entry, for example, will transfer elsewhere as computer-to­computer order entry, voice recognition systems and other direct entry methods become prevalent. Similarly, measures ofproduc­tivity that are relevant in today's customer service department will have to be updated to the technology of the day, which will certainly be vastly different from the systems in place as this book goes to press.

Which raises a key point about customer service. A par­ticularly significant trend of the recession years of the early Eighties has been the willngness of management to invest in machines for the customer service department-to invest in machines but not in people. This has some remarkable results. One department cited in this book doubled its order handling capacity without adding to its staff. Others have taken on greatly increased workloads through absorption of other divisions or centralization, often with an actual net reduction in total staff. They have been able to do this partly because of the technology

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available to them, but more importantly through innovative thinking.

For some of the most important breakthroughs in customer service have been achieved because a manager challenged long­standing beliefs of what would and what would not work. Histori­cally, many promising customer service approaches have died in the planning stages because someone in power said "customers will never accept it." Today's customer service managers are increasingly likely to ask "who says so?" and proceed to prove that customers will indeed accept and adapt to change and inno­vation. The quick acceptance of automated banking and other interactive systems suggests that customers are indeed willing to accept change provided there are benefits for them as well as for the vendor. Manufacturing companies that have adopted an "honor system" on returns and exchanges have been pleasantly surprised to find, not only that customers did not abuse it, but also that it created a much more favorable climate for field salespeople to sell in. Companies that have adopted no-fault policies on claims and complaints have had a similar experience.

As these innovations continue, it's certain that the role of the individual will increase in importance in customer service-but as an individual, not as a doer of repetitive tasks. The repetitive tasks will be done increasingly by machines, and the individuals will be doing the important and challenging tasks that cannot be done by machines. . . including designing machines and systems and procedures that will do those repetitive tasks even better. The contrast to today will be considerable. For today, so much time and attention must be given to the actual mechanics of running the customer service department that very little time or attention can be given to underlying plans and above all the sensitive matter of writing policies and setting strategies.

Certainly in very little time it will become one of the man­ager's prime responsibilities, not only to write such policies and set such strategies, but also to assure their acceptance and implementation throughout the company. This book will provide many ideas and suggestions and insights toward that end, but the final result will depend, as it should, on the manager's ability to manage in a complex, changing world crying out to be managed through compassion, intelligence and integrity.

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