Everyone wants to know if a recession coming. I am sorry to tell you, but we have been in a recession for over two years…a Customer Service Recession, which will have long-term consequences. Would you like the good news or the bad news first? The good news is, companies can choose to be part of this type of recession. They can become educated regarding “Shrinkflation”: learning to recognize and navigate the Customer Service Recession.
The not-so-good news is the American Customer Satisfaction Index (ACSI) hitting its lowest score in 17 years! Customer satisfaction in the U.S. continues to fall, resulting in a significant economic slowdown. Not only has it declined for three consecutive quarters, it has plunged by 5% since 2018—the largest descent in the 28-year history of ACSI. It now stands at 73 and has slumped in 12 of the past 15 quarters.
Pieces of the Consumer Dissatisfaction Puzzle
There are several obvious reasons for customer service dropping to record lows, such as sales being up yet service being down, resulting from the employee shortage from which most industries are suffering. Supply chain issues have contributed to the highest inflation in decades. Gas prices and costs for most other consumer goods have risen dramatically. As frustrating as this may be to customers, they realize the causes most of the time. And those underlying forces known as key market drivers, which compel customers to pay for services and products, will always be part of the picture.
When brands are faced with rising costs of production, traditionally they have two options: raise retail prices, which could result in a loss of sales, or accept lower margins (profits), which will result in unhappy shareholders, compelling some with a close eye on the market pulse to start unloading shares. According to Forbes, the current bear market in the S&P 500 began on June 13 of this year following a market slide of six months.
Paying the Same Price, Yet Getting Less
However, now there is a third, self-serving option that many brands have chosen to apply to keep up with consumer demand. They are disguising their price hikes via “shrinkflation.” Shrinkflation, aka downsizing, is a way of giving customers less while charging them the same, which is the equivalent of a price increase. Shrinkflation is a form of retail camouflage in which consumers pay more for a growing range of products without actually realizing it. By shrinking typical item sizes and net weights, companies and businesses aim to cover rising labor and material costs without increasing the prices of their products while hoping consumer spending will remain at the same level.
This cagey method of value adjustment is particularly reflected in food prices. You probably wouldn’t notice if a bag of chips had five fewer chips than if your roll of paper towels contained fewer sheets. Manufacturers don’t think consumers will realize these seemingly small adjustments have been made. For example, Gatorade reduced its bottle size from 32 to 28 ounces while charging the same price, which is equivalent to a price increase of about 14%. Even packages of Reese’s Peanut Butter Cups, beloved by many for decades, have seen a 0.10-ounce decrease in size since the early 2000s.
Another example of this is in the service industry. Some spas advertise a one-hour massage, but it is only 50 minutes in reality. Or a 1 ½ hour massage that is only 80 minutes. This reduction can also be seen in meal serving sizes at restaurants. Shrinkflation is not what we mean when we say build a customer experience that makes price irrelevant. Tricking your customers is not the way you build trust and brand loyalty. It is the exact opposite.
Bad-Profit Policies…Or, Policies Based on a Moral Compass
According to the ACSI website, the industries that have seen the sharpest drops in customer satisfaction (since 2018) are those with supply constraints, mostly with respect to labor. Examples are hospitals (-9%), hotels (-7%), and express delivery (-9%).
When organizations apply shortsighted thinking, focusing solely on sales and profits, they often do things that exploit customers (think hidden charges, excessive late fees, overdraft fees, flight change fees, etc.). Short-term profit incentives push many companies in the wrong direction. Bonus plans reward executives for boosting short-term profits even if they embrace practices that abuse customers. The truth is most incentive programs hold teams primarily accountable for meeting cost or revenue targets. Whenever profits are squeezed, departments get innovative with all manner of bad-profit policies.
Companies relying heavily on bad profits alienate customers and offer opportunities for emerging brands to capitalize. For example, Blockbuster wouldn’t go to a subscription model because they made 12% of their revenue from late fees.
Enter Netflix, so long Blockbuster.
Walt Bettinger, CEO of Charles Schwab, found early on that one-quarter of Schwab’s revenues resulted from bad profits. He asked his team to rank-order the offending policies—putting the worst at the top of the list—and committed the company to work its way down that list so that within several years they all would be eradicated. Bettinger realized this was essential to creating a customer service culture.
Under his leadership, the value of Schwab stock has grown from $13.59 at the beginning of 2009 to around $95.00 on January 15 of this year, with market capitalization increasing tenfold. Unsurprisingly, Bettinger has received numerous awards over the past decade, including Businessperson of the Year in Fortune magazine four times, and landing in its #7 global businessperson spot. Charles Schwab offers an outstanding example of what can happen when leaders have a true understanding of customer service experience and structure their policies with a moral compass firmly in place.
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