The Real Cost of Customer Service

As a result of Direct Tire's fanatical attention to customers, its margins are twice the industry average. Here's how owner Barry Steinberg calculates the returnon his investment

If you want to see where business is heading, spend some time over at Direct Tire Sales. It's easy to find. Take the Massachusetts Turnpike west out of Boston for a few miles, get off at the Watertown exit, and then just bear right. In less than a quarter of a mile, the street will become clogged with dozens of parked cars -- Porsches, Mercedeses, Ferraris, BMWs. It will feel as though you're driving through the pack at Le Mans. You're in the right place.

But before you head into the relatively small (10,000-square-foot) store, take a second look at all those cars. You'll notice that the fancy wheels are outnumbered by the likes of Toyota Corollas, aging Honda Civics, and Datsuns built long before their manufacturer ever dreamed of calling them Nissan. Direct Tire's president, Barry Steinberg, who drives a rare Porsche 930 Turbo, is defensive about those older cars sitting outside his 12-by-12-foot office. He calls their owners "Joe and Mary Sixpack, you know, the couple that's living paycheck to paycheck," and makes it clear that they don't represent his target market. Direct Tire, he insists, is a "high-performance shop," one that does brake and alignment work in addition to selling tires.

And yet the older cars -- the most dilapidated one this day is a 1981 Chevy Impala with rust spots -- just keep on coming.

So what's bringing in the Sixpacks? Lord knows, it's not the price. On a typical day recently the Goodyear outlet down the street is selling tires for a Ford Taurus wagon for $50 to $100 apiece, while Direct Tire is charging $60 to $120. "Yeah, that's not surprising," says Steinberg, 45, who's been in the tire business his entire adult life. "On average we are consistently 10% or 12% higher than just about everybody."

No, the Sixpacks, just like everyone else, are responding to Steinberg's service. Need to buy some tires and be in and out in an hour? No problem. Direct Tire will schedule an appointment whenever it's convenient for you. Can't wait? No big deal. Take one of the company's seven loaners to work, and pick up your car on the way home. And what if those new tires blow out after 30,000 miles or you decide after a month that you flat out don't like them? No sweat. Steinberg guarantees the tires, as well as any service work his shop does -- forever.

This kind of customer service, as we all know, is anything but typical in the automotive business. Equally atypical is Direct Tire's 3% net margins -- twice the industry average -- on sales of $4 million for the fiscal year ended March 31. And that's the point: in the coming years, providing atypical customer service is what it's going to take to succeed.

Of course, you've heard that before. We all know that customer service is the business battleground of the 1990s. Nowhere is the competition likely to be sharper or the stakes higher than in retailing. There are simply too many stores that are too much alike. "By the end of this decade more than half of today's retailers will be out of business," concludes a recent study by Management Horizons, a division of Price Waterhouse. Smart shopkeepers like Barry Steinberg have long since reached similar conclusions on their own and have seen that customer service offers a way to survive.

It is, however, one thing to talk about the need for extraordinary customer service and quite another to provide it, especially if you're operating on a tight budget. Sooner or later, customer service comes down to decisions about how to spend money. Should you go all out decorating your waiting room, or would you be wiser to send your employees to a training course? Is it more important to buy a new piece of testing equipment or to carry enough inventory to meet your customers' every need? Can you afford to do it all? How do you know if the investment is paying off? Are we talking about taking a leap of faith here, or are there ways to measure the costs and the returns?

This is the great gray area of customer service, the part you haven't read about in Tom Peters's books -- or in INC. magazine, for that matter. By now you've heard a lot about the virtues of staying close to customers. You may even have bought the argument that service is the best way companies can differentiate themselves. But if customer service is such good business, shouldn't the benefits eventually show up in the numbers? And, if so, which numbers should you be looking at? How, in effect, can you calculate the return on your customer service investment?

The management gurus seldom talk about that. But Barry Steinberg does. He can tell you exactly what his brand of customer service costs him and how the investment pays off for Direct Tire. For Steinberg, service is not just a way to distinguish his shop from other tire stores. It's the most profitable way to run his business.

And he can prove it.

When you enter Direct Tire, you pass under a banner that reads, We'll Fix It So It Brakes. It's a slogan that Steinberg wrote, and loves, though it provides barely a hint of what makes Direct Tire different from other automotive shops. The difference becomes more apparent as soon as you step inside. The waiting room is immaculate. The magazines on the rack are current, with titles ranging from Sports Illustrated and GQ to Vogue. The coffee is freshly brewed. There are windows in every wall, allowing you to watch Direct Tire's technicians as they work. Looking around, you notice that everyone is in uniform. Manager Jeffrey Orlinsky and the salespeople wear shirts and ties with a baseball-style jacket that carries the company logo; everyone else has on dark blue work pants and T-shirts with the company name and slogan. Even the way people address you is different. "I've never heard so many yes ma'ams and no ma'ams in my life," says one 40-year-old customer who has been going to Direct Tire for years.