Companies everywhere have reacted to the recession by lowering revenue projections and tightening their belts: delaying purchases, canceling nonessential travel, reducing payroll, freezing or shrinking the R&D budget, closing underperforming operations, slowing production, trimming inventories, reducing perks. And such actions are usually necessary and appropriate in hard times.
But executives also can overdo the cost-cutting, compromising one of their most valuable assets: their relationship with their best customers. Key relationships must continue to be nurtured and grown. The tough times will end. If a company’s best customers jump ship during the downturn, the company may never win them back.
This is a universal truth that applies to virtually all businesses, in any country. Customer service, in both good times and bad, is the great intangible that can make or break a business. When others are cutting in this area, the wise executive will consider spending.
One Size Doesn’t Fit All
In recessions, as we all know, many customers base their purchasing decisions solely on price. But others, even during a recession, want more than just the lowest possible price. They demand service and they’re willing to pay a premium for it, and these “high yield” customers are typically a company’s most profitable. When you cut the service of price-sensitive buyers, you may not lose their business. But when you cut the services you offer to high-yield customers, you may not only lose the yield but the customer as well. Worse, you may lose this customer to your competitor, who might use the enhanced margin to capture even more of your customers.
In a crisis, of course, it’s common to seek simple one-size-fits-all solutions, such as cutting costs across the board on the theory that “all customers want is a low price.” And if you’re in a pure commodity business, that might be the right approach….