Idiots like me: A primer on customer service

I’m an idiot.  I am sitting in Sydney airport in the middle of a three hour wait for my flight.  If I were to wait for the flight that I originally booked, I would be waiting for another six months.  Somehow, I booked my return flight for 14 July instead of 14 January.  Why?  Because I’m an idiot.

This post, however, is not about my inability to do basic chores.  Rather, this incident brings up one of the fundamental aspects of customer service:  How do you handle a situation when it doesn’t go according to plan.  In this case the customer screwed up.  In many other cases, the customer received the wrong size/item in the mail.  The most common problem, of course, are returns where the customer got what she ordered but, for whatever reason, she is just not satisfied.  How your business handles these problems can have a long-lasting effect on the health of your business. 

LL Bean, an American online and catalogue retailer, will take back any item at any time, no questions asked, and will also pay for the postage.  They have been doing this for years and over the past decades have built up an extremely loyal and passionate customer base.  There are many documented cases of a customer sending back a piece of clothing that has worn out after years of use and getting a new item by return post.  No questions asked.

Nordstrom, an upscale department store in the US, allows people to return goods at any time, with or without a receipt.  There are many stories going around of people who buy a dress, wear it to a function, and then return it for a full refund. 

LL Bean and Nordstrom know they are being taken for a ride by many people.  But what makes them great businesses is that they structure their organisation and their policies around treating their customers with respect.  They accept the feral ones as a cost of doing good business with the other 98% of life.

Human nature is such that there will always be people who will take advantage of any situation that they can.  However, these are the exceptions and not the rule.  By applying the Golden Rule and setting up policies and procedures that are not designed solely to protect the integrity of the business model, LL Bean and Nordstrom build customer relationships that last.  People choose to buy with them because they know that they are dealing with good people trying to do the right thing.  Whatever it costs them in the short run is more than made up over the long term.

In my case, the Qantas staff were great.  They told me that this happens all the time (which took away some, not all, of my embarrassment), that they would be able to sort something out (which took away my anxiety about having to spend six months in Sydney) and to give them just a minute (which meant that my problem would soon be over).  The Qantas people were empowered to do the right thing – whatever ‘right’ meant at the time – and had the intelligence and discretion to settle the matter in a way that suited all parties.  In this instance, I got on the flight after the one I thought I had booked.

Qantas is not necessarily the cheapest option when I fly, but as far as I’m concerned they are the only one.  Until, or unless, they screw me over somewhere down the line.  But that’s a story for another post.

Supermarket trolleys: An object lesson in putting the customer first

I should say right up front that this is just as much of a rave as it is a post.  I recognise that I might simply be airing a pet peeve that everyone else in the world just accepts and gets on with things.   

With that caveat:  I hate supermarket trolleys that don’t have fixed rear wheels.  The ones you get in Coles, Woolworths and some IGAs are hard to steer, hard to control and are a hazard to public health in a sloped car park.  Furthermore, it is my fervent wish that whoever designed this abominable piece of equipment and all those who were part of the approval process spend all of eternity pushing a fully loaded one around.

I accept that I might just be a pedantic pain in the ass.  What I have much more trouble accepting is the attitude of putting the store first and the customer second.  It is symptomatic of an approach that looks at operations from a point of view of “efficiency” so as to answer the question, “what will benefit the company?”

Today’s trolley has all four wheels that can spin around at will.  This steering dexterity means that it is a lot easier to herd the trolleys and put them into their corral at the front of the store.  As such, this benefits only one person:  the trolley jockey.  As such, this disadvantages only everyone else.  Anyone who has tried to steer and turn a fully laden trolley will know that it takes a bit of effort to be able to manage the process – and that is just in the flats of the supermarket aisles.

Look, I actually like supermarket shopping.  I like exploring and seeing what is out there.  I like buying new things that my family might like to have, though my flights of shopping fancy usually turn out to be expensive forays into recycling.  However, I cut down on the number of purchases I make outside of the big weekly shop simply because I don’t want to put up with a trolley that wasn’t designed for my needs.

Therein lies the object lesson:  Successful retail businesses are all about the consumer and doing the little things right.  Great retailers give you a reason to come back, a reason to stay longer when you are there and a reason to recommend them to your friends.  

The Big Two supermarkets are not great retailers.  They survive, and in the past have thrived, on the fact that they have a monopoly on possible locations.  Woolworths in particular has for too long thought only of what is good for Woolworths and now they just don’t understand why their customers are abandoning them.

While Woolies mulls over those questions I’ll be doing my supplementary shops at Aldi, where they always give me a reason to come back, and at Costco where I like to take my friends and where they have trolleys with fixed rear wheels.  

Finding the Right Property is NOT about Leases

I have been dealing with several companies that are concerned about optimising their networks.  They want to expand, but they don’t know exactly where to go.  The reason that each of them have come to me is that they recognise that their current system of property analysis is flawed:  The turnover from their latest stores just haven’t stacked up to expectations.

The key factor behind these poor results is that they put location first and customer second.  That is, the leasing arrangements took precedence over where their customers are, or where they would likely be shopping.  In almost every instance, a “great” lease was what ultimately drove the decision to open a store.  Furthermore, that “great” lease has actually turned out to be very costly in terms of lost sales, lost customers and lost opportunities.

One company I have worked with opened up an outlet in a waterside suburb of Perth in a newly built strip centre of about five specialty stores.  The strip itself has reasonable vehicle traffic and population density in the catchment is fine.  As it was a new facility, the centre offered a good fit-out and some generous inducements.  The company jumped at the deal.

And that’s where it all went wrong.  While the High Street itself is fairly busy, it is not the prime retail destination for the suburb.  Moreover, much of the car traffic is heading to the beach.  Finally, there is a good shopping centre that is 2 – 3 kilometres away which has good anchors and a reasonable range and selection of specialties.  The company looked briefly at the shopping centre, but deemed it “too expensive” and never went beyond that.

Two years after the store opened, sales are close to 50% below expectations and a competitor has moved into the nearby shopping centre, with reports that it is doing good business there.  There are three more years to go on the lease and the company is now actively looking for a more suitable location. 

The lessons here are simple:  When you put yourself first ahead of your customer, you lose.  The incentives here were fascinating to dissect.  The property guys had their mandate to keep costs down as low as possible.  The retail network people had a KPI to expand the footprint.  The data analysis team had to provide the broad demographics.  However, no one in the organisation really looked at the decision as a whole.  Every one played their part and got their bonus for meeting their performance goals, but the company lost out.  Unfortunately, no one was charged with seeing whether it all worked well together.

Another company, which sells a specialised product and service, put its Adelaide store in the eastern fringe of the CBD.  It knew that it was not a great location – terrible parking, poor signage, on a small side street – but felt that a presence in the precinct was better than nothing.  The over-riding strategy was that any location was better than no location.  Again, a lease was signed that locked a company into an inferior position, both in terms of location and overall strategy.

The location turned out to be the dud that all knew it to be.  Again, customers were lost to competitors and when better locations came to the market, those too were lost to competitors. 

The best retailers wait years sometimes for the right location to become available, and when it does they are not hesitant to pay top dollar for the privilege.  Companies such as Nike, Apple, Zara and H&M know that their brand and their marketing are all wrapped up in their locational decision.  A poor location not only loses sales and gives strategic advantage to competitors, it also can undo all of the work that a company undertakes to position itself in the minds of consumers.  

THE LOWER YOU GO, THE BETTER YOU KNOW Part 2

Where you live is what you are:  Why location is such a big deal

One of the most underrated pieces of information that companies gather is where their customers live.  Where people choose to live reflects a lot of the issues that are important to them.  People congregate near to others who share their broad outlook on living:

•    Single hipsters like to be near other hipsters in higher density buildings that are in suburbs that are in the middle of, or very close to, the action (whatever and wherever that may be).
•    Middle class, blue-collar workers also like to live in neighbourhoods that have similar households around them.
•    Those people who choose to live in outer suburban/semi-rural areas do so because they share similar aspirations for the type of lifestyle they wish to enjoy.
•    In the United States, people tend to congregate in areas which support their dominant political viewpoint.

For companies trying to understand better their customers, location can be a vital piece of information because it then unlocks so many other insights. 

What ties all this together is address.  Not the postcode, but the actual street address.  Postcodes cover a large area and incorporate enough people so that the postcode average becomes a wash-out of all of the blocks and neighbourhoods that go into the area.  Our previous blog post covers this in more detail.  For moment, however, trust me.

There is a lot of information about the block or neighbourhood where someone lives.  The Motor Vehicle Census can tell us whether the area prefers Holdens over Fords and whether the area is a sinkhole of used cars or likes to buy new vehicles.

The average spending from a neighbourhood allows you to calculate the share of wallet you have earned from a particular customers.  Customer A and Customer B both spend $1,000 with you each year.  Customer A lives in a block where the average total spend on your particular good or service is $4,000.  This means that you are have a 25% share of their spending.  You are a vital piece of his/her life.

Customer B lives in a block with the average total spend on your particular good or service of $10,000.  You have a 10% share of wallet.  You are much more of an incidental part of your customer’s life. 

Understanding your place in your customer’s lives is a very important part of becoming relevant to them.  Equally, it will also let you know which customers are just not worth your time.  Saying, “No” is just as powerful and just as profitable as saying, “Yes”.  Oftentimes, the best returns come from knowing when to stop hitting your head against the wall and stop throwing money at people who just don’t give a damn.

These two customers could both live in the same postcode and so you would never be able to tell which one you mean the most to.  You would not be able to distinguish between someone who thinks about only every so often and someone who thinks about you every time they consider making a purchase of your good or service.

THE LOWER YOU GO, THE BETTER YOU KNOW Part 1

To truly understand your customers get their address, not their postcode.

Many, if not most, businesses have no idea where their customers live.  If truth be known, most of them don’t care.  Well, maybe they care a bit, but most just don’t want to be bothered in the hassle and effort to find out.  This is a real lost opportunity.  Without this basic knowledge of your customers’ address you are not in a position to start the process of knowing your best customers and the ability to find more of them.

Outside of going through the hassle of setting up and maintaining a loyalty program (and we will discuss at another time why this is such an important part of any consumer facing organisation’s toolkit) Many businesses only record, if they do anything at all, the postcode of residence. 

As the map below shows, postcodes cover a lot of territory.  The area shown is the region around Sydney Kingsford Smith airport.  Notice how large, for example, the postcode that includes Maroubra is, stretching from the coast all the way to the edge of the airport.

Now look at the same map, this time with the SA1 geography overlaid.  

There are 78 SA1s in postcode 2035.  An SA1 is the delightful name that the ABS has given to the smallest area for which the full set of Census data is available.  They average about 150 households.  So, it is small enough to be representative of the people who live there. 

To give you some idea as to what difference an address can make, look at the two pictures below, which are about 150 metres apart.

​One of the areas is full of units, while the other is single family detached dwellings.  They live a stone’s throw away from each other, but their lives are very different.  Treating these two areas the same misses so many of the nuances and variables that go into your customer’s decision-making. 

We’ll discuss more about the differences in the next post.

The Reserve Bank says that house prices are not in a bubble. Tell 'em they're dreamin'.

Do we have a housing bubble?  Yes, and a huge one, if we are measuring the market from the perspective of owner-occupiers.  No, if you listen to a spurious line of reasoning from the Reserve Bank or if you expect current government policies and the flood of hot money from overseas to continue indefinitely.  What is clear is that the current level and trajectory of housing prices has nothing to do with the supply and demand for housing from owner-occupiers.

In a paper released a year ago but which was presented last week at the Conference of Economists in Brisbane, the Reserve Bank’s researchers looked to determine whether a bubble exists on the basis of whether it is more expensive to own a home than rent one.  This is a fallacious argument.

Housing is not just another asset purchase.  One of the great Australian sages, Darryl Kerrigan from the movie The Castle, sums up the Australian bias against renting well when he states that with renting you simply pay someone else’s mortgage.  We want to buy a home and, as such, there is no choice to be made between renting and owning.  Comparing those metrics is an academic exercise only that bears no semblance to reality. 

Furthermore, the difference in housing stock between rental dwellings and those inhabited by owner-occupiers is, in most cases, stark.  Landlords do not like to spend money on their property if they don’t have to because the cash flow, as opposed to the tax accounting benefits, from owning a rental property is relatively small – the average yield on a typical Melbourne detached house is about 4%.  Combine this with a lack of security in their tenancy and the idea that owning and renting are equal substitutes becomes less and less plausible.

The basis of the valuation of any asset class is supply and demand.  In Australia we have enough dwelling units for the number of households we have and we are building more than enough each year to maintain that over-supply.  In 2001, 9.2% of all private dwellings were unoccupied at the time of the Census.  By 2011, this metric had grown to 10.7%.  There are a lot of reasons why a dwelling would be unoccupied on Census night, but it is clear that any housing problems we may have are the result of building the wrong type of housing, not because we don’t build enough.

The base number of new dwellings that are needed each year is about 45,000.  These are the new dwellings that are needed to accommodate the increase in population.  It is important to recognise that the natural increase in population is actually a net supplier of housing to the nation.  Newborns don’t need a new dwelling – their parents are, with notable exceptions, already living in a home.  Many people who die are the last member of their household and thus their homes become empty. 

Overseas migrants do not need as many dwellings as their numbers would suggest.  Students and some 457 visa holders occupy high density units while those new Australians coming in on a family reunion visa can go straight into an existing household. 

The demand for housing over and above the base figure comes from lifestyle choices - university graduates who want to live on their own, couples who divorce, people moving out of shared accommodation and the like.  These are all important decisions in the growth of ourselves and our communities but these all can, and have been, delayed in response to housing prices going up much faster than incomes.

The level and growth of housing prices is being driven by those people who view property solely as an investment.  Domestic investors have been aided by government policies such as negative gearing and favourable capital gains treatment.  This class of buyer can outbid an owner-occupier by a quarter and be no worse off at the end of the full financial year.

Overseas investors often base their purchases on the differentials between Australia and their home country metrics as well as the desire to put their money in a safe haven.  Furthermore, government policy only adds to the updraft of prices due to the requirement that overseas buyers of existing properties need to tear down the current structure and build something new.

Housing is unique in that all prices in a neighbourhood get re-rated with the last transaction.  When the price of the best house in the street goes up, so does mine.  When investors or overseas buyers pay a premium above the reserve price, or above the expected price, then all houses on the block see their land value increase. 

The RBA is wrong when it says that house prices are based on what buyers are willing to pay; it’s based on what they need to pay.  Owner-occupiers are now price takers, not price setters.  Our housing market is unsustainable because prices have been set by a minority of buyers whose valuations and reasons for purchasing have nothing to do with the need of providing shelter for a family.

While the final word on whether we have a bubble will be confirmed after the fact.  What is clear at the moment is that the RBA’s take on the housing market is, like the old wheeze about the answers from Microsoft Help, technically adept but thoroughly useless. 

Outward vs Inward Strategies: It's like day vs night

We cannot emphasise enough how vital it is to have an 'outward' focus.  The road to sustainable, long term success lies in satisfying customers and then holding on to as much of that revenue as possible.  Organisations that have an outward focus are looking to increase revenue first and foremost because they recognise that nothing happens unless you and I spend money.  The question that they ask of themselves is, “What can I do for you?”  Woolworths under Roger Corbett was an excellent example of a company that had an outward focus.

Inward looking organisations, such as Woolworths since Corbett, generally saw customers as walking profit centres – what can the consumer do for me.  The question that they ask of themselves is, “How can I get the customer to buy more high-margin things – the stuff that matters to me?” 

Woolworth’s push into home brand goods has been driven more by margin-expansion than by identifying and then satisfying unmet customer needs.  The Masters project has been hampered from its inception because the venture was in response to a Board-level strategic imperative.  It’s birth and implementation have always been driven by the need to attack Wesfarmers rather than how to best understand and serve Australians – an inward focus.

To have an outward focus is to have a sales focus.  To have a sales focus is to have an intimate knowledge of your customers.  To have an intimate knowledge of your customers is to have a detailed grasp as to who they are, where you can more of them and why they choose to spend more of their dollars with you than someone else. 

To have an outward focus is to hide from the customer your pain points and to focus solely on theirs.  Returns, for example, are a real pain in the (pick your favourite body part) for all retailers, but a vital part of the service component to a customer.  US outdoor goods retailer LL Bean has a policy of untimed returns.  If for whatever reason, at any time, you are unsatisfied with your purchase, send it back and they will send you a replacement.  The internet is filled with stories of people returning items that are used and worn-through and purchased a decade or more beforehand.  All are refunded cheerfully and quickly.  An article from NPR sums it up well, “As a business practise, it’s expensive.  As advertising, it’s cheap.”  As a long-term successful, outward strategy, it’s priceless.

Hooray!! The Census is here to stay (at least for now)

Just a week or so ago, the Government announced that there would be additional funding going to the ABS for computer upgrades that would allow the 2016 Census to go ahead as planned.  This is fabulous news.  The level of detail that is available from the Census is unparalleled by any other source and we would be the poorer for not having it.

The only downside to having the Census go ahead in 2016 is that I’ll lose a bit of work as companies and organisations wouldn’t need to pay me to create current data for locations in which they are interested. 

The Census by itself doesn’t ‘tell’ you anything.  The Census combined with good customer and location data provides the structure and context necessary to turn data into Wisdom.  There is a constant need to understand the environment and community in which your best customers live.  Analysing your data through this prism, you will be able to be that much more relevant to your existing customers and find more of those that don’t already know you. 

For numerical ninjas like me, the Census is a treasure trove of detail that holds endless possibilities.  It is the foundation for many of the data products that I and many others create.  Because it is a census and not a survey, it is the most complete picture of who we are, where we live and how we live that is available. 

Stretching the intercensal period to ten years from the current five year interval would have meant that we would not have a good idea of how we are truly changing.  We know that with the tremendous growth in population we have experienced over the last several decades that the face of Australia (literally) has evolved enormously.  In order for our governments to be relevant to us, we need to know exactly who we are.  In order for businesses to be relevant to their customers, they need the accuracy of a five-yearly Census, no matter how much revenue it costs me.