Beware the "cut prices" first line of defense.
Posted Apr 15, 2008
As talk of a recession permeates the evening news, a typical knee-jerk reaction in the marketplace is to sacrifice programs associated with quality and the customer experience -- training, quality assurance and mystery shopping programs, guest research, etc. The benefits of a quality assurance (QA) program are compelling and easily communicated when businesses are flush with cash. But what happens when storm clouds are on the horizon? It may seem counterintuitive, but during an economic downturn maintaining a quality assurance program and the differentiated customer experience that it helps provide is the most important insurance to have.
When revenues are near historic highs, convincing companies that a quality assurance or mystery shopping program can increase profitability is simple. Correlating the bottom line to customer satisfaction or "delight" is fairly straightforward. In leaner times, as businesses that utilize experiential data on a regular basis become more cost conscious, QA programs are amongst the first items to get cut. These businesses may still recognize the benefits; they are simply convinced that eliminating QA is justifiable in order to reduce costs...and perhaps lower prices.
Beware the "cut prices" first line of defense, however. According to Nick Wreden, author of Fusion Branding: Strategic Branding for the Customer Economy:
When times are good, pricing sins can be easily forgiven. But when the economy sours, a misguided pricing strategy can shrink profitability, warp customer relationships, and destroy a brand... ("How to Think About Pricing Strategies in a Downturn," Harvard Management Update, Vol. 7, No. 3, March 2002) Simply put, when the economy rebounds, businesses that slashed prices may find it difficult to garner the same pre-recession prices they once demanded and undo any damage the discounting pricing strategy caused their brand.
Therefore, businesses often look to make reductions on the cost side of the equation. This is a delicate exercise and requires businesses to have an accurate sense of their customer's tolerance to change.
Most businesses operate as a network of many concurrent operations working in harmony to achieve a common goal. In the case of a hotel, the doorman, room attendant and the room service cook that makes a hamburger at 2 a.m. all have their individual responsibilities and tasks. Viewed holistically, staff work together to ensure a guest's stay is pleasant and enjoyable. In a recession, hotel management may experiment with reducing the hours that room service operates to cut labor costs. What happens to that guest who is unable to get a hamburger at 2 AM? Are they still happy with their stay? Maybe...but maybe not. This is where mystery shopping can help hone in on the non-negotiables of the guest experience...and how well they're being delivered.
As cost conscious controllers tighten the purse strings, quality assurance becomes an invaluable data steam whereby decision makers can identify areas for potential cost cutting and procedural streamlining and immediately test whether those changes have a discernable impact on the guest experience. Mystery shopping allows businesses to make more informed decisions incorporating live data from the customer's perspective.
The adage that satisfied customers will tell an average of five people about their positive experience and conversely, dissatisfied customers will tell ten people of their negative experience holds even more truth during a recession. As customers have less disposable income their purchasing decisions become more contemplative. When they do spend money, customers have less tolerance for a flawed experience and will broadcast their discontent to their peers. At the same time, companies have less margin for error -- if the overall pool of disposable income is shrinking, you better invest more to hold on to your share to weather the rough times. Utilizing data collected from a quality assurance program can help businesses ensure that a positive customer experience is retaining customers, and perhaps even gaining a few from competitors who have invested less prudently during the downturn.
During tough times, businesses seek ways to improve productivity and cut costs. Ultimately, a recession helps good companies become better. Stopping a quality assurance program during a recession simply does not make good economic sense. If anything, companies need more data to ensure that they are nimble and able to respond to their guests' changing needs to keep up with the marketplace. Through quality assurance initiatives, businesses can ensure that they have a consistent and accurate read on the pulse of their business, allowing them to make wiser decisions for their customers and the long-term health of their business.
About the Author
Jeff Gurtman (firstname.lastname@example.org) is an Account Director at LRA Worldwide (www.LRAWorldwide.com), a consulting and research company that specializes in Customer Experience Management (CEM). Jeff runs Quality Assurance and Mystery Shopping programs for companies and brands such as Churchill Downs, Sheraton Four Points, W Hotels, and Shell Vacations Club.
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