The Model Damage-Control Letter
In the wake of a botched job, the right combination of explanation, apology, and compensation can make a world of difference to your customers -- and to your business's chances of success
It's not exactly "stop the presses" news that if you screw up a customer's job, you'd better figure out how to explain what's going on and what you're going to do about it. All companies, after all, disappoint their customers at some point. The best strive to restore that momentarily lost confidence somehow.
Still, there's a lot of latitude in how much you concede. How much do you spell out? And what do you do about compensation?
Like all delivery companies and most other businesses, Sterling Courier Systems, a provider of same-day-delivery services based in Herndon, Va., occasionally fails to meet its deadlines. Sterling uses commercial airlines to transport the parcels it takes on, so the delays are usually the result of packages' being misplaced in airlines' tracking systems. The fact that it happens is beyond Sterling's control, but from a customer's vantage point a missing box is Sterling's problem -- end of discussion.
For several months back in late 1990 and early 1991, Sterling experienced a spell of bad luck. Several packages disappeared in transit, and Sterling had to report late deliveries to three accounts. Even though the packages eventually turned up, the delays meant real cash losses to the customers.
Sterling president Glenn Smoak says he hesitated to pay out compensation. "We normally make it right by not charging the customer for that particular shipment, and if they need another shipment done to rectify the problem, we do that -- which we did with all of these folks. But in these cases it wasn't enough; they had suffered downtime." What made Smoak's decision more difficult was that because the packages weren't permanently lost, neither Sterling's insurance company nor the airline that handled the transport was obligated to pay damages. If Smoak elected to reimburse his customers, the total hit would be about $30,000 -- an amount that would push his then five-year-old $5-million company into a loss for that quarter. On the other hand, "one of the customers," says Smoak, "had 23 plants around the country. This fellow was so ballistic that all it would have taken was one E-mail message to the other plants, and 10% of our business would have evaporated."
Often damage control for such problems can be handled with phone calls, apologies, and make-goods. But because the gods had conspired to make similar and sizable problems happen concurrently, and because it took several months for Smoak to confirm that the company's insurer, Lloyd's of London, definitely wouldn't cover the damages, he decided to draft one letter to all three customers to explain the company's situation.
In the end Sterling did give out $30,000 in gratis service and did take a hit to the bottom line that quarter. But the customers stayed, and Sterling continued to grow, to $7.5 million in 1993. Smoak still deals with problems on an ad hoc basis -- "We tell people during our sales pitch that there will be problems, that we're not infallible, but that we guarantee to fix them for them." On the pages that follow he explains why he included what he did in this particular letter.
Below is a sample letter.
May 1, 1991
REF: -- Magazine Shipment 1/17/90
Dear Mr. -- :
I have had long, fairly intense discussions with our insurer, Lloyds of London, regarding your claim, as well as insurance for air cargo in general. Air cargo insurance covers tangible physical damage or actual loss of the item shipped, be it from theft, weather, or whatever. Sterling Courier Systems is the most specialized shipper in the business, for we ship ONLY same-day, rush items. However, ALL POLICIES CURRENTLY WRITTEN BY ANY INSURER WILL NOT COVER LOSSES SUSTAINED BY DELAY. This sort of loss is described as consequential - loss due as consequence of the delay, which tends to be open to subjective judgment.
Had your shipment been damaged, stolen, destroyed, or lost, you would have been compensated long ago. But because we eventually found your shipment in the American Airlines system, there was no "loss," as is currently defined by insurers.
I have been in contact with Lloyds, as well as Allstate and the Fireman's Fund, asking them to write Sterling Courier Systems a specific policy to cover losses sustained in the delay of a rush shipment. If it is feasible, it will be announced soon.
We value your business. We do not want to see you look elsewhere for your rush shipping. Therefore, I am offering $7,875 in rush shipping to you, and hope this will sufficiently compensate you for the loss you sustained due to the delay of your shipment. If this is satisfactory, please deduct as you see fit, and note it on future invoices. I would appreciate a confirming call.
STERLING COURIER SYSTEMS, INC.
Glenn M. Smoak
Paragraphs 1 and 2:
Explain the situation. "Without trying to pass off responsibility, we always let customers know where the problem was: with the airline, with one of our agents, or with a computer person in our office.
"I tried to make a presentation that indicated what our dilemma was. The verbiage was for drama, to say that we have a lot of problems here: that, as you know, our insurance company, one of the best in the world, will not cover this, that nobody will cover consequential damage -- but that we'll make up the difference.
"I was very proud to make this offer, because I knew that it was an investment in the future. So I agonized over this letter. I really did want to get across that we didn't have to do this, but we were going to, anyway."
Explain what you're doing about the basic problem. "There still is no insurance company that will cover downtime because of a delay. We have an agent still looking around, but all the insurance companies say that someone would take advantage of a guarantee like that big time, and they don't want to be involved with that someone. The point here is that we wanted our customers to know they wouldn't get better coverage from another carrier, in case they were thinking about switching."
Say this ["We value your business."]. "We say this because we do. We're in such a highly competitive field that the loss of any customer means something."
On the other hand, don't beg. "I think it leaves a better taste in the customer's mouth when you're not saying, 'We'll do anything; can I put your kid through college? Just don't drop us."
Lay out exactly what you're doing for them. "We decided to pay the customers in full for their losses. Earlier, we had asked them to send us documentation as though they were making an insurance claim, with a receipt saying what the loss cost them. I think it's good to do it that way, so that they take what's being done seriously and realize we're not just pandering to them. I think they respect you a little more if you show you understand the temptations in your offer. But our customers are straight with us because we're straight with them.
"We offered credit in order to spread the cost out, but if they had asked for cash, I would have written out checks. None of them did."
Respond when you have complete information. "This wasn't our first communication. I'd been handling this problem personally, getting the barometric pressure from each customer and finding out how much of a problem each delay was. We're in touch with these folks almost daily anyway, but we kept them up to date while we had all the back and forth with Lloyd's, which was busy with Exxon at the time and in no mood to deal with this. We had worked to develop trust with our customers, so that when we said, `We're working on it,' they didn't think we were giving them the runaround. We had, of course, told them that somehow we were going to make it right for them and wouldn't leave them twisting in the wind."
Ask for an acknowledgment. "I suggested that they call me because I wanted them to know that if they had something to say, they could say it to me. I also wanted to reemphasize that I was directly involved. Instead they called the salespeople they already had relationships with, which was fine. And they were extremely pleased; it was very heartwarming."
Benchmark yourself against a Bad Form. "This, in contrast, is the letter we got from American Airlines:"
May 12, 1992
Re: Airbill 62575111
This is in response to your letter regarding claims on the above shipments.
Per your letter, Sterling had earlier filed claims for delay and had been reimbursed fifty percent of the freight charges for these shipments in accordance with our tariffs. Unfortunately , we cannot reimbuerse [sic] you for the credit amount issued to your customers. These items are by legal definition "special damages" not contemplated by or known to the carrier when it receives a shipment. Under Common Law and our Conditions of Contract, we are not liable for special damages.
Please let me assure you that our handling of the above shipments was not typical of American Airlines' Cargo service. We hope that we shall have an opportunity to prove that to you soon.
AMERICAN AIRLINES, INC.
Cargo Claims Administration
Mail Drop --
I had sent the airline copies of my letter, saying, 'This is how we stand behind our customers; how about you?' And we got no call, nothing. I would have appreciated a gesture, but the airline did only what it had to, refunding 50% of the air-bill charge, which was $75 or $100 for the three claims. It was a learning experience. Seeing how much American infuriated me -- and we're a $20,000-a-month customer -- I knew how angry my customers would have been if we hadn't come through. If I didn't have to use American anymore, I wouldn't, but sometimes you just don't have a choice."