Posts Tagged ‘customer lifetime value’

Getting the cold shoulder from Dairy Queen

Monday, December 3rd, 2012

Last weekend, we celebrated our daughter’s 8th birthday with a gymnastics party, complete with activities for the girls, and an ice cream cake from Dairy Queen.

Some background: About an hour before the party, I stopped by my local Dairy Queen and purchased an ice cream cake for $27. From there, I drove it to Saddle Rock Gymnastics and placed it inside the party room’s freezer. Within 45 minutes, my daughter and 13 of her friends arrived at the facility and were lead through a host of activities in the gym for the next hour.

Per the instructions on the container, about 20 minutes before the girls entered the party room, my wife removed the ice cream cake from the freezer. Within 30 minutes, the girls had entered the party room and were seated around the table, eagerly anticipating a slice of Dairy Queen ice cream cake.

About that time, my wife attempted to cut into the cake with a serrated stainless steel cake knife. Remarkably, she was unable to penetrate the frozen cake. Her father then attempted to cut the cake without success. Our quick-thinking nanny then heated the blade with a lighter but it still would not pierce the hardened cake. Although a tight fit, the cake was pressed into a microwave in hopes of softening it enough to serve the girls. This too was unsuccessful.

By now, the cake had been out of the freezer for 50 minutes and still was unable to be served. Since our group’s allotted time in the party room was coming to an end, my wife regretfully shared with the girls that there would be no birthday cake.

No cake served at an 8-year-old birthday party? Say it isn’t so!

Later, my wife and I returned to Dairy Queen with the frozen block of cake, explained what had happened, and requested a refund. (We based our refund request on the fact that Dairy Queen had delivered a cake at noon with instructions to “store frozen” and “place at room temperature 15 to 20 minutes before serving” that we were unable to serve two hours later due to it being frozen solid.)

The young manager we spoke with denied our refund request citing Dairy Queen’s non-refundable cake policy. Although I disagree with it, the policy is in place to protect Dairy Queen against fickle consumers who may disagree with the shade of red used in the cake’s decoration. Our issue was different (we were unable to consume the cake because it was frozen solid) and should have been handled differently.

Had I picked up the cake the day before and stored it overnight in my own freezer, I would have attributed the mishap to my freezer being too cold. But I didn’t store it overnight—Dairy Queen did. It’s clearly plausible that the cake was stored in conditions that were colder than intended but the manager would not consider this possibility. When my wife asked him for the name of his regional manager, he said, “She doesn’t like us to give out her contact information. Let me take your information instead and I’ll pass it on.”

This is telling. Here you have a situation where a loyal, well-intentioned customer has detected a problem and chooses to bring it to leadership’s attention and, rather than capture the feedback and improve, the executive prefers to insulate herself by discouraging contact. It’s no wonder the disempowered manager we encountered had no authority to refund the purchase price of the cake.

If anyone from Dairy Queen takes the time to read and consider this post, before you congratulate the manager for “saving” the company $27 by adhering to policy, read up on customer lifetime value (CLV) and consider the fact that I live 4.3 miles away and have four young children who love ice cream. If “saving” $27 costs you $2,700, it’s not an effective policy.

And recognize the fact that, regardless of demand, individual customers are irreplaceable.

December 11, 2013 update: Yesterday, I received two calls from Carolyn at Dairy Queen headquarters. In her voice mails, she expressed genuine interest in me, my daughter’s cake-less 8th birthday party, and resolving my problem. We connected earlier today and she was as delightful as her voice mails conveyed. She listened, collected a bit more information, committed to follow-up with the franchisee involved, and offered to send me a gift card that would more than offset the refund amount requested. I couldn’t have scripted a better resolution. Now, instead of associating my negative experience with Dairy Queen (while driving past…), I’ll reflect on my call with Carolyn and may just stop in for a Blizzard.

Hard data versus cute puppies

Wednesday, October 12th, 2011

Yesterday, I received the message below in an email from a blog reader:

Ever since I passed your blog to my store manager… I have gotten the vibe that (my interest in improved customer service) is viewed like a puppy…cute but meaningless to the Corporation’s ideals… Profit for the shareholder is the requirement of all actions… The image I see is the company has a system it says works. As much as I would (or even my Store Manager would) like to improve Service, unless there is a clear vision of profit in doing so, it’s only a cute puppy…

I understand what he’s saying. I have experienced it personally as an employee, as I suspect most of us have.

Too often, managers with P&L responsibilities see customer service as a soft skill with little impact on the bottom line. Instead, these managers tend to rely on hard data such as revenue, profit margins, and forecasts to influence the operation’s financial success.

This becomes a self-fulfilling prophecy whereby managers tend to consistently value and critique “the numbers” while neglecting soft skills like customer service. Employees receive mixed messages: “The posters in the cafeteria tout the company’s commitment to World Class Customer Service but the only feedback I receive pertains to labor and productivity figures.”

It’s as if managers are operating with a day-to-day or week-to-week mentality as opposed to considering the long-term impact of their decisions. And when managers manage this way, employees usually follow their lead.

Just last night at my local Safeway, I witnessed the following confrontation between a cashier and a customer:

As I waited in line, the customer ahead of me was attempting to obtain a rain check for a sale item that was out of stock.

The cashier refused to issue the rain check on the grounds that the sale had ended the previous day. The customer, clearly frustrated, maintained that the sale was valid according to the date published in Safeway’s sales circular.

A line of customers had formed behind me and, as we waited, the customer left the checkout lane in search of a circular to prove his case. About the time he obtained a copy of the ad, a store manager approached him and together they scrutinized the ad’s fine print. As it turned out, the customer was right. The sale was scheduled to expire the following day.

The enlightened cashier then validated a rain check for the out of stock sale item but the damage was done.

I’m not sure what Safeway’s total cost will be to honor the rain check but I can tell you this with certainty: It will be a drop in the bucket compared to the lifetime value of this customer.

I’ve read that the average lifetime value of a supermarket customer is $250,000 (source: V. Kumar, University of Connecticut). This customer looked to be in his mid-40s, presumably with plenty of grocery store purchases in his future. This particular Safeway store is located directly across the street from a competing supermarket, King Soopers, and about a mile away from a second competitor, Albertsons.

This customer has to eat—and within about a five-mile radius he has multiple options to buy groceries that, in addition to the stores listed above, include Walmart Supercenters and SuperTargets as well as specialty grocers like Sprouts and Sunflower Market.

Why on earth would anyone want to jeopardize tens of thousands of dollars in future sales by refusing to issue a rain check for an out of stock sale item? This makes absolutely no sense—regardless of whether or not the sale had expired.

It is well-documented that one of the most effective ways to boost a customer’s lifetime value is to increase customer satisfaction. Research has shown that a 5% increase in customer retention can increase profits by 25% to 95%. The same study found that it costs six to seven times more to gain a new customer than to keep an existing one (source: F. Reichheld, Bain & Company).

Hard data and soft factors do not have to be mutually exclusive. They can be complimentary elements of the same goal: To maximize profitability.

In addition to hard data such as profit margins, market share, and customer retention rates, managers must recognize the influence of soft factors such as customer satisfaction, loyalty, and word-of-mouth testimonials from delighted customers.

They also need to look beyond the near-term operating statement in order to make decisions that will benefit the long-term success of the organization.

When they do, these managers will come to realize that even cute puppies have teeth.

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