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Guarantees Pay off in Higher Prices

“Guarantees Pay off in Higher Prices”

Service guarantees pay off with pricing premiums of 5% to 10%.

With customer service so critical in today’s time-crunched, labor-stressed world, one way a company can separate itself from the herd is by providing flawless basic service — and guaranteeing it to customers. That can be achieved if companies truly understand their customers’ needs and focus on the primary ones.

Relationship selling, built on a bedrock of guaranteed-service excellence, will become critical to locking up key customers — or being locked out. Large customers report more variance in how they’re treated than in the quality of the products they receive from suppliers. Building a strong relationship with your customers is becoming even more important as consolidation reduces the number of potential customers in many industries.

Costs are lower than you may think. Quality service costs less to supply because it generates pride among employees, which produces higher morale and lower turnover. That, in turn, lowers training costs and reduces errors, making it easier and cheaper to provide service. In addition, a service focus takes the spotlight off discount pricing as the only company value — and companies that offer a distinctive-service difference have been found to average a 5% to 10% pricing premium over suppliers offering less service distinction.

But offering a guarantee for perfect service means truly understanding your customers’ needs — and which services are critical. The following four services stand out for most customers:

  1. Zero errors in deliveries
  2. On-time delivery, 100% of the time
  3. Availability of product
  4. Heroic recovery from any mistakes

Yet companies should survey their customers rather than assume these factors are pivotal.

Structuring Your Service Guarantee

The guarantee should underpromise and overdeliver. This helps you exceed customer expectations, creating a reputation for reliability for your company. Avoid writing in conditions — they will sound alarms and lessen the guarantee’s impact.

It’s also important to guarantee measurable activities, such as the four listed above, rather than general "excellence" or "satisfaction."

A guarantee implies a reward when the promise isn’t met. That reward has to be meaningful enough for the customer to go to the trouble of requesting it as well as covering the cost of failure. It also must be a "punishment" that the guaranteeing company finds fair without invoking a lot of paperwork or delay for the customer.

Don’t Make a Promise You Can’t Keep

The key to profiting from a service guarantee is ensuring that it’s met. Customers don’t want to apply for rewards for not getting what was promised.

Train employees to know the company’s goals and understand how the staff can impact those goals. Gather the entire team to learn where problems would arise with a guarantee, and determine how they can be resolved together.

This also helps employees understand that retaining appreciative customers has a direct bearing on their own careers and the company’s profitability. Once the guarantee is instituted, employees must be empowered to ensure customer expectations within the guarantee are met without holdups.

Responses to their actions, such as charts showing error rates and on-time delivery rates, should be posted so all see how they’re performing and have a target at which to aim.

Side benefit: A guaranteed-service program motivates customers to complain, which gives your company a chance to quickly learn where problems occur. It’s an ideal opportunity to turn a negative into a positive. Customers often are so impressed with a quick and satisfactory response to a complaint that they recommend the company to others.

Writer: Craig A. Shutt interviewed Bruce Merrifield, a consultant in the distribution industry at the Merrifield Consulting Group, Chapel Hill, N.C.