Guarantee your success

By D. Bruce Merrifield,Jr. Merrifield Consulting Group, Inc.

mean lower costs, high pride and morale, and low employee turnover. And perfect service gives customers fewer excuses to visit competiton.

(2) Make rhe guarantee easy both to understand and to communicate to employees and customers; complexity also waters down the effect.

(3) Tbe payoff has to be meaningful enough to motivate the customer to request it, large enough to cover their cost of failure which we caused them, and/or the punishment must seem fair in the customer's mind.

(4) The payoff must be easy and quick to collecL

IIEN you think of unconditional service guarantees, which national fir:rrs come to mind?

Federal Express says, "tomorrow by 10:30 or its free." Domino's guarantees a hot pizza in 30 minutes. Sears guarantees Crafuman Tools for life; L.L. Bean offers the same guarantee for its products.

Do these guarantees work? Have the above firms done well?

Correctly used, guarantees pay for many reasons:

(1) If no one else is offering the guarantee, then you have an edge. It is often tough to differentiate yourself by the tangible products that you sell, because your competitors may stock the same or similar lines. and the customer sees most products as flawless quality, interchangeable commodities.

(2) Firms with distinctive service in the customers' minds average a 5lOVo price premium over the mediocre competitions' value-added margin. For distribution firms, their margin percent is their value-added, the cost of the goods sold is the suppliers' value-added. If a competitor is quoting a 2OVo margin, then a service excellence firm could still charge 2lVo-22Vo and get the business. At 23Vo, a customer might protest that the firm is good, but not that good. FedEx charges 20-3OVo more than its competitors for overnight letter delivery, but no one else guarantees it.

(3) Perfect service not only sells more, but it costs less. Zero errors

(4) Service guarantees motivate more customers to complain about unacceptable service which gives the firm a chance to turn a negative into a positive with a heroic recovery. The cost of a recovery must be compared with the value of keeping a profitable flow of business from an account over the next 5-10 years and having the customer be so impressed with your concern that they speak positively of you to associates or other potential customers. If, however, the customer quietly leaves or the firm blows the recovery, then a future profit-flow is lost and the disgruntled customer is apt to tell 2 to 4 times the number of people how poor the firm is.

(5) More customer complaints are more opportunities to rethink, refine and re-educate the delivery system. A majority of firms delude themselves into thinking that they have "good seryice" because no one has kicked them for being bad today. Meanwhile customers may be quietly deciding to leave without complaining, and the firm is too busy measuring how many new accounts they are opening and not how many existing, profitable accounts they are losing.

(6) A service guarantee focuses and motivates the employees to move toward service standards that are important. Employees need challenging, meaningful goals. If today's service isn't good enough to guarantee, use the idea of a guarantee to spark the firm toward high consistency.

If you decide to offer a guarantee, here are a few design guidelines:

(l) Make the guarantee "unconditional." "Ifs and buts" water down the impact to both the customer and employees.

(5) You must guarantee elements that you can control. Domino's doesn't guarantee an "excellent" pizza, because that is a subjective issue and starting with precut, frozen dough you have limits. 93% of its customers rate the pizza as satisfactory; they are buying speed, convenience, and consistent reliability.

If guarantees are so potentially powerful, why aren't more firms at least planning for the day that they will offer them? Many managers arc still preoccupied with old notions of what makes a firm successful-cut costs, buy low, sell more. Many have not considered the alternative economics of perfect service, heroic recoveries, customer retention, and service guarantee.s in spite of the roaring success of these types of progmms.

Others assume that they can't guarantee everything, so begin by focus-

Story at a Glance

Should you olter unconditional seryice guarantees? how to deslgn a program.

ing just on zero errors and on-time delivery. Some are concerned that if they had great service and offered a guarantee, customers would cheat and cost the firm too much.

Case studies show that l%o-SVo of most customer groups are potentially abusive, so keep track ofpayoffs on a database. Rank customers every six months from high to low by the number of creditVpayoffs that have been issued. Investigate the top ones to find the rascals and invite them to shape up or to go paralyze your competitor. Don't let fears of abuse keep you from succeeding with the other 95%-99Vo of the customers with a service insurance progmm.