How Mistakes Can Improve Client Satisfaction
June 28, 2016
by Dan Richards
Yost Partners was up 0.8% for the first quarter, while the Yost Focused Long Funds lost 5% net. The firm's benchmark, the MSCI World Index, declined by 5.2%. The funds' returns outperformed their benchmark due to their tilt toward value, high exposures to energy and financials and a bias toward quality. In his first-quarter letter Read More
Every advisor has dealt with mistakes on client accounts, such as incorrect tax slips or changes of address that fell through the cracks. Those mistakes can be incredibly disruptive, and potentially undermine client confidence – for investors it’s one thing when Dominos doesn’t get their pizza toppings right, something else entirely when there is a screw-up by the advisor or firm managing their money.
When it comes to mistakes, there’s good news and bad news. The bad news is that no matter how hard you try, if you run a large practice a certain number of mistakes is inevitable. The good news: Provided that problems are relatively minor and are one-off in nature, the right process to handle mistakes will actually strengthen client loyalty and improve satisfaction.
The profitable art of service recovery
Among the first to study the area of service recovery were three professors at Harvard Business School who in 1990 published the Harvard Business Review article The Profitable Art of Service Recovery. This article talked about how applying the “zero defect” philosophy from manufacturing to service interactions can dramatically reduce the number of problems. It also made the case that applying this philosophy can only go so far when it comes to service experiences.
In services, no matter how rigorous the procedures and employee training or how advanced the technology, zero defects is an unattainable goal.
As an example of service failure, the article talked about a wealthy customer who used a different bank branch than his normal one to cash a check. Because this was not a “qualifying transaction,” his parking slip wasn’t validated and he was charged for parking in the bank’s lot. He was so steamed that he drove 40 blocks to his home branch and described what had happened to his normal banker, telling him that he would like an apology by the end of the day. When he got no response, he withdrew $1 million, an event that made national headlines.
Sometimes a poor response to a problem is almost as bad as no response. The article pointed to research that more than half of the efforts to respond to customer complaints actually reinforced the initial negative reactions to a problem. That’s actually good news for advisors. Consumers’ expectations for the response to an issue have been driven down to the point that you stand out just by dealing promptly and effectively in resolving problems.
How to turn around problems
Turning around service problems starts by creating a corporate culture where frontline employees who interact with customers are empowered to act. The article pointed to how Club Med, FedEx and Marriott have built service recovery into their corporate culture. And organizations like Four Seasons use stories of how employees have helped turn unhappy customers around as part of their training for new staff, to set expectations that front-line staff have the authority to deal with issues.
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