Costs and Benefits of Addressing Customer Complaints
The angry restaurant patron. The irritated airline passenger. The retail customer screaming about a return or refund. Every company worries about complaining customers. They can be loud, disruptive, bad for employee morale, and have a huge impact on companies. But are customer complaints as damaging as they seem? A new study in the Journal of Marketing (JM) turns its lens on customer complaints, performing the largest scientific study ever to understand how they affect companies’ performance (JM is published by the American Marketing Association and AMA is cross-promoting the research as Learning to Love Your Complaining Customers).
A few years ago, Snapchat lost $1.3 billion in market value in a single day after a Kylie Jenner tweet about unhappiness with the app’s new layout. She simply said: “Sooo does anyone else not open Snapchat anymore? Or is it just me… ugh this is so sad.” Jenner had long been one of Snapchat’s most influential users and her words had immediate consequences. While Jenner has a larger audience than most users, social media gives all complaining customers a chance to be influencers. In our social media era, even one unhappy customer can damage brand reputation, slow sales, and harm a company’s market value
But are complaining customers always a drain on sales and damaging for employees’ morale? As it turns out, customers who lodge complaints are not a lost cause. They can still be satisfied and remain loyal if their complaints are handled well. Regrettably, companies rarely handle complaints consistently, partly because they don’t know how.
Our research team analyzed relationships between customer complaints, complaint handling by companies, and customer loyalty to inform companies how to manage customer complaints much better and more consistently. We studied data from the American Customer Satisfaction Index (ACSI) regarding behaviors of 35,597 complaining customers over a 10-year period across 41 industries.
Our study finds that the relationship between a company’s complaint recovery and customer loyalty is stronger during periods of faster economic growth, in more competitive industries, for customers of luxury products, and for customers with higher overall satisfaction and higher expectations of customization. On the other hand, we also find that the recovery–loyalty relationship is weaker when customers’ expectations of product/service reliability are higher, for manufactured goods, and for males compared to females.
From these results, we draw two key conclusions. First, companies need to recognize not only that industries vary widely in the percentage of customers who complain (on average, about 11.1 percent), but also that economic, industry, customer-firm, product/service, and customer segment factors dictate the importance of complaint recovery to customers and their future loyalty. Companies should develop complaint management strategies accordingly.
Secondly, the financial benefits of complaint management efforts differ significantly across companies. Since complaint management’s effect on customer loyalty varies across industries and companies offering different kinds of goods, the economic benefit from seeking to reaffirm customer loyalty via complaint recovery varies as well. Through this study, these performance factors can be identified and considered when designing a company’s complaint management system.
Without context, our conclusions suggest that a profit-maximizing strategy simply requires that managers understand the impact of complaint recovery on customer loyalty in their industry. Added to this complexity, however, is the reality that profitability is not evenly distributed throughout the customer base. Companies need to implement complaint management systems that make it easier for front-line employees to respond to complaining customers in ways that optimize customer satisfaction, customer loyalty, and the economic contribution of customers.
Without a deeper understanding of the boundaries of the complaint handling–customer loyalty relationship and the effects of economic, industry, customer-firm, product/service, and customer segment factors, companies will likely allocate cost estimates to complaint management that are too low for the required recovery actions or customer loyalty estimates that are too high, or both, instead of achieving an optimal point of recovery-loyalty yield.
Achieving an optimal recovery-loyalty yield is more advantageous than adopting the mantra that the customer is always right. It is a folly to believe that the customer is always right. Economically speaking, the customer is only “right” if there is an economic gain for the company to keep that customer. In reality, some complaining customers are very costly and not worth keeping.
Forrest V. Morgeson III, G. Tomas M. Hult, Sunil Mithas, Timothy Keiningham, and Claes Fornell, “Turning Complaining Customers into Loyal Customers: Moderators of the Complaint Handling – Customer Loyalty Relationship,” Journal of Marketing (https://journals.sagepub.com/doi/pdf/10.1177/0022242920929029).