Wednesday, March 10, 2010

Customer Service is a Major Driver of Reputation

There has always been a debate about the extent to which reputation really matters to investors. On the one hand, there has been research showing a positive correlation between positive financial results and reputation. On the other hand, some hard-nosed quantitative types argue that investors only care about getting rich and are willing to forgo reputation when they are getting favorable returns.

However, we often fail to step back and consider what reputation does to the sell-side analysts who influence the market value of the stocks we buy. In an October 2009 Journal of Marketing Research article, Eugene Anderseon and Sattar Mansi looked at the impact of customer satisfaction on bond ratings. They found that customer satisfaction by those handling the bond does influence the ratings of the bond.

Customer satisfaction is a major driver of reputation. It is interesting, though, that it often does not show up in the literature as a focus of reputation. Most of the reputation literature and many of the people who profess to be reputation experts, focus instead on good public relations or corporate advertising or corporate social responsibility. They seem to neglect the fact that reputations, like brands, are built, enhanced and destroyed at all of the "touch points" a company meets its various stakeholders.

Step out of the bond market for a moment, since it may be a bit too esoteric for many readers. Consider the reputation of a hotel. Where does a hotel's reputation rest? To a large extent, it rests on customer service. We determine if we are going to like a hotel before we enter the room--how are we greeted, how long are the check-in lines, is our room ready, does the bell-hop let us carry our own bags if we wish to? By the time we get to the room, we are already predisposed to either enjoy or not enjoy our stay. This is customer service. But, where do hotels spend their so-called reputation dollars? On advertising, websites, public relations, and social media. Why is customer service not considered part of reputation management?

It is a waste of time and energy to attempt to "spin" a reputation. There is too much transparency today. Expectations of performance are low. That's the good news. Companies that care can exceed expectations more easily than ever. But, what is happening in many companies is that they look to their competitors and see them cutting costs for customer service and figure that they can also cut costs. Sounds like a bunch of kids saying: "all the kids in school are doing it so I want to do it". Let the rest of the "kids" do what they want to follow one another--be an adult. By doing so, you may actually differentiate and not only increase reputation but also customer attraction and retention, which means greater profits.

No comments: