What Have Your Customers Done for You Lately?

June 22, 2009

Customer goodwill is also difficult to measure — or even define.  But we know it matters.  Certainly, it makes a difference to the top line.  Customers who like you are more likely to buy things from you and tell their friends about it.  They’re also more likely to behave once they cross the operational boundaries of your organization, which can make a big difference to service companies.  Customers with “good will” are better customer operators, better partners in the sometimes complex project of joint value creation.

How much better?  We still don’t have good universal measures of customer goodwill, but one that comes close is the number of complaints you receive relative to your competitors.  Airline customers tend to complain at a relatively high rate.  One reason is that airline service routinely fails to meet expectations.  Another is that the service is mission-critical for both business and leisure travels.  If you lose my luggage on the way to my daughter’s wedding or delay me for an important meeting, I’m going to want you to feel my pain.

But not if your Southwest Airlines.  Customers file official complaints about Southwest far less frequently than they do about other airlines, even when Southwest has similar mishaps.  Their customers also go above and beyond the call of duty in helping Southwest succeed.  A favorite example of the value of this devotion is captured in an HBS case written by Jim Heskett.  Early in Southwest’s run, an airline called Braniff International offered a 60-day “sale” on tickets between Dallas and Houston — Southwest’s core market — for half the price of Southwest’s fare, $13 instead of $26.  Southwest countered with an ad proclaiming that “nobody’s going to shoot us out of the sky for a lousy $13.”  And the company gave its customers a choice:  pay either $13 or $26 for exactly the same seat on Southwest.  80% of Southwest customers chose to pay $26.

Would your customers stick around if your competitors cut their prices in half?  There are lots of reasons that Southwest has thrived in a difficult service environment, but one primary reason is their ability to answer yes.  Let’s call it customer goodwill for short.


Employee Goodwill

June 17, 2009

British Airways has asked its employees to work for free for a month.  As CNN reported, the airline sent an e-mail out to its staff that “offered workers between one and four weeks of unpaid leave — but with the option to work during this period.”

How would this e-mail go over in your company?  What kind of relationship do you need to have with your employees for this message to be taken seriously?  In my experience, organizations spend a lot of time trying to measure the unmeasurable, trying to value concepts like culture and goodwill.  We know that these things often make or break the deal with customers and employees, but they don’t fit easily into a spreadsheet.  I would suggest that the organizational uptake on management’s offer to let people work for free is a very good measure of employee goodwill.

Employee goodwill matters in the best of times, particularly for service businesses.  As Heskett, Sasser, and Schlesinger argue in the Service Profit Chain, it is difficult to create value without employees, and so it helps to take great care of them.  But employee goodwill may matter even more in the worst of times, as the British Airways experience illustrates. The more that employees feel an organization is devoted to them, the more likely they’ll be to share the pain of adversity.  Strong relationships with your employees may help to buffer you against an unforgiving competitive environment.

On the flip side, antagonistic relationships between employees and organizations are never a good idea, but they may be disproportionately costly when the environment turns ugly. This dynamic is playing out around us with the widespread rise in layoffs and salary cuts.  Some of these wrenching decisions are being made a context of mutual trust and mutual regret. And some are happening in an environment of fear and anger, with untold costs to everyone involved, including customers.

We don’t yet know how the British Airways story will end, but I have a prediction. I think we’ll be able to confirm what we suspect, that employee goodwill makes an enormous competitive difference, particularly in hard times. And we may finally have a way to measure the size of that difference.  In the spirit of what-you-measure-is-what-you-get, this may increase the chance of its occurrence.