Inc. surveyed 13 CEOs to uncover the truth about all those clichÉs the so-called experts keep reciting. Surprise -- the customer isn't always right

This is a test.

Everyone at the seminar is busily taking notes. The customer-service expert is sharing an inspirational tale about a taxi driver who serves fresh fruit and has a client list longer than your arm. His stories take you back to your early days, when everything seemed simple: you and your customers -- pals forever. The speaker's words echo in your head: exceed expectations, and you'll have a customer for life. . . . Back at the office, your bookkeeper informs you that a chronically miserable customer is 120 days in arrears -- again.

Do you (a) demurely inquire what more you should be doing to delight this client? (b) furiously demand to know what right this deadbeat has to mess up your cash flow? or (c) none of the above?

It's not easy to strike a balance between what you do to survive and what the experts propound. Thanks to a congestion of management consultants relentlessly parroting old saws, customer service has come to mean everything and nothing at all. And too many people have run into serious difficulties when the glib formulas of those experts break down under real-world conditions. To transcend the truisms, Inc. spoke with successful company builders from Manhattan to Madill, Okla. Their businesses, with sales ranging from less than $1 million to more than $22 million, are outstanding in industries as diverse as dentistry and plastics manufacturing. The women and men who lead those companies have learned to make the clichÉd rules of good customer service work for them.

ClichÉ: "The customer is always right."

Yes, but. "Often customers know what they want but don't know how to convey it," says Bess Herzog, founder and chief executive of $3.9-million Topique Associates Inc., a Houston construction company. "Our challenge is to interpret their wishes and figure out whether we can fulfill them." Herzog forges ties with her customers' architects, who are just as important to her as her customers are, she says.

Once upon a time. "Before I started this business, I was inclined to think that the customer was always right," says Rachel Hubka, president of $3.5-million Rachel's Bus Co. "Now I take exception." She started her school bus service on the streets of Chicago's West Side, hoping to make a dent in unemployment. She embraced customer service -- providing spotless buses, computer confirmation of orders, and well-trained drivers wearing suits and ties -- to stand out from the 35 other school bus companies in Chicago. But margins remained as thin as her picky first-grade passengers.

So recently she said good-bye to one on-again, off-again, demonstrably wrong customer. That school owed her $1,800 and refused to pay up. And it wasn't just the money. Teachers at the school sometimes left their charges unsupervised. Still, the decision was a real handwringer. "It really hurt, because it was a community school," Hubka says.

Both untrue and untenable. It would be impossible to make decisions if all customers were right all the time. "Some customers are more right than others," suggests George Riggs, president of Embroidery Services, in Erlanger, Ky., which last year sold $10 million worth of embroidered clothing to resort gift shops, up from $600,000 worth in 1989.

"Twenty percent of our customers dictate what the rest of the world gets." He knows he can't please everyone. "That's why we have competitors. Gee, I sound callous as hell. Yes, I do mind losing customers." He explains, "It's a fine line we walk. A lot of our designs and colors are requested by customers, but no one customer dictates. If 5 out of 10 say something, we listen. That's called market research." But even though 85% of sales come from just 20% of the designs, Riggs stocks 600 designs.

Absolutely wrong, but the customer doesn't need to know that. "We often have to sell our solution, tactfully, without saying, 'You're wrong!' " says Bob McAdams, managing partner at Carneiro, Chumney & Co., a $3.5-million accounting firm in San Antonio. "There are a lot of gray issues in accounting, especially in tax matters."

Craig Carrel, cofounder of $4.5-million Team One Plastics, agrees. "We make sure customers at least feel they're always right." Team One, in Albion, Mich., makes parts for automobiles and medical devices. "If a customer is blatantly wrong, we won't let it slide. But we try to see it as an opportunity."

Sometimes dangerously wrong. Ned Guilbeau, president of $10-million Lafayette Woodworks, a Louisiana maker of doors, windows, and moldings, deals with many "do-it-yourselfers" who build their own homes. "If the customer wants us to do something technically incorrect, we might have serious problems; our product could look really bad," he says.

ClichÉ: "Educate a customer, and the order will be yours."

If you stop talking long enough to listen. "You shouldn't try to take charge totally. All customers have good ideas about what they want," says Ron Jackson, founder and CEO of Contract Manufacturers. Contract, in Madill, Okla., makes animal trailers, including one for ostriches. "Going to an extreme has been our call to glory."

Jackson's biggest challenge is persuading short-sighted dealers to welcome unusual requests from potential customers. "Dealers shouldn't tell their customers they're out of touch with reality, because the customers will find someone else who'll listen." Jackson tells his dealers, "When you educate yourself, you educate your customer." He advocates team sales. The dealer should be proud to say, "This is what we all came up with -- salesperson, manufacturer, and customer." Last year Contract's collaborative approach reaped $12 million in sales, up from $3 million in 1990.

Ease up there, professor; we're in a hurry. Cactus & Tropicals, a $1.5-million Salt Lake City nursery, publishes "Cactus Care" tip sheets, makes house calls, and faxes advice to customers with troubled cacti. "I have to educate my customers, or they come back with dead plants," wails Lorraine Miller. Still, she concedes, there is the danger of overkill.

"If a customer doesn't care, I shut up," she says. "When I'm waiting on people, I see what they want." Her customers range from the high-flier with double-parked BMW who "wants the plant for a dinner party," to the black-thumb gardener who pleads, "Come over and take care of my houseplants."

So Miller tailors her service. She is rewarded with an average purchase of $100, which far outshines a norm closer to $50. During a recent house call on a wilting $1,800 Rhapis palm, Miller explained that the pot was the culprit, and the owner forked over $700 for a more appropriate one.

Eventually. Marc J. Beshar, a 38-year-old dentist with a thriving Manhattan practice, knows that not everyone finds his new-patient interview comforting. But the hour-long first visit gives him the chance to explain his philosophy of dental care. He sits down with each patient before he touches a tooth. "When I ask, 'How do you feel about being here?' some answer, 'What the hell kind of question is that?"

He lost both patients and staff when he instituted that "information-please" approach to dentistry. But last year the practice started to grow. Word of mouth has brought him all the business he needs. Beshar's loyal patients value his personal technique and the extras -- like the free baby-sitting service -- that go with it.

In Beshar's case, the well-educated customer is key to repeat business. But surely, all the information in the world can't persuade someone to choose a root canal? "You'd be surprised," he says. "I'm selling high-quality dentistry, and I get people to define how much they value their teeth."

But inform employees first. "I do educate customers, but I guess I'm more into educating my employees," says Rachel Hubka. She holds workshops for her bus drivers on the fine art of asking for business. "At breakfast meetings we go over how to thank the customers and how to tell them they were a good group." Hubka printed business cards for the 125 drivers and pays them commissions on every new charter client they bring in.

Lorraine Miller, too, holds in-house seminars for her 30-person staff. One month the seminar is about "the plant as factory"; another month, it's about customer service. "There's a lot of role-playing of extreme situations." Workers need to learn how to handle customers who bring back expensive plants.

Along with pruning and mulching, certification in customer service is a requirement for field-workers at $22-million Ruppert Landscape, in Ashton, Md. Employees study "the handshake and 'How can I help you?' The basic icebreakers," vice-president Chris Davitt explains. "When the worker is covered with dirt, the customer might not want to ask for help."

ClichÉ: "You're lucky if a satisfied customer mentions your company to a few friends, but you'd better believe that unhappy customers complain to everyone they know."

Make sure they complain to you. Only comfortable customers make a ruckus. Those who aren't blab to everyone but you. Business-to-business sellers are dealt a double wallop: their unhappy customers complain not only to friends but to sales reps, "who pass it on to others who see an opportunity to take over sales territory," Embroidery Services' George Riggs says. Smart CEOs get the scoop quickly and contain the damage. Riggs appeals to about a dozen customer confidants. "I can pick up the phone anytime and talk to them. 'Where are we screwing up?' 'Who's selling better stuff?' They tell me."

And Hubka recently refunded $3,200, more than the price of a charter -- though it nearly killed her. Her drivers were tardy, they took the wrong route, and the passengers, a class of inner-city eighth graders, arrived too late at their destination. There are times when you can negotiate a fix and even share the cost with the customer. Not that time. The morning after the mishap, she issued a $3,200 credit.

"It took some real soul-searching," she reflects. She pauses to do the math: "140 parents, teachers, kids -- that's a lot of bad publicity." But, all in all, Hubka is lucky. When her customers are unhappy, they don't wait to write a letter, she says. "They call immediately. I always know." She attributes that honesty to the trust she and her 23-person staff have developed. Hubka's charter coordinator, Carolyn Braggs, who is also chief "mediator" of service and invoice disputes, took the call from the angry school. "The school felt comfortable enough to call Carolyn." And it is still a customer. That's the up side.

And just think what they'll say when you make them happy again. One CEO on the customer-service lecture circuit implores his audience to see complaining customers as the only kind that help a company grow. He claims he purposely and regularly ships mildly faulty products -- just for the chance to demonstrate his company's responsiveness. An apocryphal tale? Perhaps, but it's often true that once pacified, a disgruntled customer emerges as your best publicist. Nurserywoman Miller recalls a customer who congratulated her on a business award. "He said, 'Remember that time I bought a fuchsia that died, and you replaced it? Well, I told 100 people about that."

And you may not even be at fault. A third party could be to blame. Act as intermediary to devise a solution, and you'll be double the hero. When a consumer wrote a nasty letter to trailer maker Contract Manufacturers, CEO Ron Jackson himself called the customer and discovered that the tires were the issue, not the trailer. He arranged for replacements and reimbursement from Goodyear.

So how about preventive maintenance? In customer-service circles, no news is bad news. Ruppert Landscape gets a respectable 60% return on its twice-a-year customer-satisfaction surveys. Most of the 650 accounts give the company high marks. But it's the 40% who don't respond that cause management to worry. "We assume the worst," says vice-president Chris Davitt. "Those customers could be about to leave, and we need to reach them. We do a follow-up letter that yields another 20%." A manager visits or phones the remaining 20% and those who gave Ruppert a negative report. It's time-consuming, but it pays off in increasingly larger renewal contracts and fewer bad debts.

Take a deep breath, and don't panic. Whatever you do, don't lose your sense of humor. You'll never win 'em all. Miller has learned how to put a troubling situation into perspective. To the man who complained that his matching plants were no longer identical, she explained, "I'm not God!"

Ned Guilbeau of Lafayette Woodworks turns truly outrageous complaints over to the arbitration service of his local Better Business Bureau. "It can save legal fees and sometimes customers" because they appreciate the chance to "argue in front of an impartial person." He recently settled one outlandish consumer complaint -- about seven-year-old wood that rotted from homeowner neglect -- for less than $400, and he kept the customer, too.

ClichÉ: "You should always do whatever it takes to satisfy a customer."

If you do, what does that say about you? Jeff Thompson, CEO of Peripheral Outlet, a $24-million direct marketer of Macintosh computer memory in Ada, Okla., couldn't wait to fax us his reply: "No! If a customer's demands are totally out of line, and a company capitulates, perhaps losing money in the deal, how can that possibly cement a good relationship?" Thompson, by the way, is just 22, but he has 7 years of business battle scars to support his point of view.

He cites the case of a New Hampshire man who threatened to sue for a shipping-charge refund when his order wasn't delivered overnight -- during a crippling blizzard. Some customers have insisted their orders arrived half filled, even though three Peripheral employees check each outgoing box. "It's a minute percentage of customers, but it comes up every week," says Thompson. "Mail order is a rough business. We take losses all the time. We're known for being more courteous than everyone else." But he insists, "We have the right to ask customers to be honest and courteous, too."

Only when it makes long-term sense. "We can't always do whatever it takes, but we try," says Team One Plastics' Craig Carrel. Team One makes plastic parts that others build into assemblies for automotive and medical manufacturers. Earlier this year a loyal customer asked Team One to take back an already-approved part. "It had a defect, but no one knew until the car company said, 'Take it back." Carrel did, swallowing a loss of thousands of dollars. "But the fix is small compared with what this customer has spent and will spend," he says. "A good customer can be worth $1 million over 5 to 10 years."

Still, Carrel doesn't bite the bullet for just anyone. "It's not always a matter of volume, but the relationship we have." In some cases, he splits the cost of a fix with the customer. "That usually works." If it doesn't, it could be the impetus to part ways.

Know your limit. "Even when a customer comes back after a month with a dead plant, I say, 'I'm so sorry,' and I replace it," says Lorraine Miller. "I don't argue, because the person's next purchase is usually a good one." She draws the line at customers who swap more than three times. "But I do it in a nice way," gently reminding people that she is selling a perishable product.

Builder Bess Herzog goes so far as to detail her expenses for querulous customers -- a practice that goes too far for many CEOs. But, she says, "I don't have a problem explaining the bottom line. They may have no idea what my insurance costs me. I've never had someone say I'm charging way too much."

You don't have to be perfect. The more you understand your customers' needs, the more forgiving they'll be of little screw-ups. George Riggs of Embroidery Services knows his clothing-store customers depend on tourist traffic. "My clients do 80% of their business in two months of the year. Shipments have to be right, and they can't be late. . . . If I help stores get two to three more inventory turns a season, that's customer service." He adds, "They'll forgive us for a lot of bonehead things if we're on time."

Cut your losses. You can't afford to keep the unhappy and unreasonable customers: the chronic complainers, the late payers, the never-satisfied-no-matter-what-you-do club. George Riggs takes a tough stand on collection because, he notes, "we're past the point where we're in business because we love embroidery."

In its early years Rachel's Bus Co. would do anything to hold on to customers. Rachel Hubka trusted, waited to be paid, and suffered silently when schools seesawed between her charter service and another. But after she had been in business three years, aging accounts receivable had grown to $125,000, and she realized that some customers are more valuable than others. She established a commission structure for charter coordinator Carolyn Braggs that is tied to keeping receivables current. Receivables are now down to a respectable $25,000.

Some angry customers just want someone to listen. Ruppert Landscape has prepared a reference card for handling customers with complaints. It's stuck to every employee's phone. Step one: Thank them. "That surprises customers," says Chris Davitt. And, as a dentist, Dr. Beshar sees a lot of "anger and fear" enter his office. "We are therapists here, and I love it. I ask people to voice their worst fear, and then I make sure it doesn't happen."

ClichÉ: "If you win back lost customers, they're yours forever."

Forget it; you still have to prove yourself every time. This customer-service truism persists because it's such a comforting notion. One thing's for sure. Leaving "is a great way for a customer to get attention," says Riggs.

Lost customers sure do look like good prospects. And sometimes they are. At the Texas accounting firm of Carneiro, Chumney, the partners telephone clients who've canceled. "It's not a favorite activity of ours," admits managing partner Bob McAdams, who says client turnover is about 5% of its list of 2,500. "But we try to find out why. We want to leave them thinking we were not only gracious, but we would welcome them back. We have won some back, but it's never forever. One client constantly asks, 'What have you done for me lately?"

But will you respect yourself in the morning? Some lost customers should stay lost. Dentist Marc Beshar wants patients who enjoy being a part of the practice. He does treat emergency walk-ins but isn't surprised -- or hurt -- if Mr. Rotting Teeth never returns. "I need fewer patients than other practices need" to be profitable, he claims. "I've tried to focus on patients who value what I'm doing. What's left is a committed practice."

"We look at customers as closely as they look at us," attests Team One Plastics' Craig Carrel. "Are they quibbling over charges? What's the state of their technology? Are they forward-thinking? I don't want to work with customers who won't be around in 10 years. If they're not competitive, they might lose their business. Then we lose our time and development."

CEOs agree: the worst is to lose a customer through some fault of your own. "I always try to win those back," says Topique Associates' Bess Herzog. But she adds wistfully, "Usually, customers who are unhappy with me aren't nearly as unhappy as I am with them." She lets go of those -- permanently.

Even if you don't want them, you should care about how they leave. "Customers are out there talking, and they're not telling your side of the story," Herzog points out. "As much as possible, you need to leave them feeling as if they've won. Sometimes I drop a bad debt. I have to ask myself, 'How much is this $200 going to get me?' "

ClichÉ: "The return on the customer-service investment can't really be measured; you just have to do it."

True for the most part, but you sure can feel the difference in your business. Says Jeff Thompson of Peripheral Outlet: "We find out how well it works when a customer calls on a Friday afternoon and says, 'Your competitor told me they could get me this by Monday, but I don't believe them, and I know you will. So you get the order even though you're more expensive."

But it's the best way to gain control of your sales cycle. Carneiro, Chumney hooks 60% of its new clients on the strength of current clients' recommendations. Advertising, a poor second, pulls in only 20%. "With referrals, we're often the only firm they are considering," says McAdams. "They are already convinced." All that's left is to "confirm what they've already heard."

Contract Manufacturers has never needed a sales force. "I don't do a lot of advertising," says Ron Jackson. "I've never done telemarketing. I wouldn't know how." Contract has 90 active dealers and didn't solicit any of them. In fact, the company turns down about five dealership requests a week.

At the least, you can track your customers' growth. "You can measure the return on customer service through overall sales growth and also growth in pieces per customer," says George Riggs. Embroidery Services' average first-order size has increased from 24 pieces to about 42.

Team One Plastics has watched many accounts grow to $100,000 from initial sales of just a few thousand. In the five years they've been buying from Team One, two customers have grown to be worth $1 million in annual sales. "So we never say this is just a $10,000 customer," says Craig Carrel.

The investment in customer service will make its way onto your balance sheet; count on it. Lorraine Miller of Cactus & Tropicals has built up some 15 years' worth of assets and goodwill. Started with just a few thousand dollars, the tiny shop has blossomed into five greenhouses, a gift shop, and a huge parking lot. The profits that came with a devoted clientele allowed her to reinvest in property. "I'll have a good business to sell when I retire," says Miller. And if you believe, as the sages say, that a good customer list is your most valuable asset, then Miller's hometown list of 5,000 is worth a bundle. She typically gets a 10% response on direct-mail offers.

ClichÉ: "It costs three times as much to gain a new customer as it does to keep an old one."

The new math just doesn't add up. This pop statistic from the conference circuit alludes to the high cost of mass mailings and face-to-face sales calls. But really, if you're not mailing to a million anyway, what's the point? "I look at everything I do as getting new customers. It's not a cost," Miller protests.

And as for your current customers being "cheaper," well, don't you wish. "Once I get someone's money, I worry much more about that person than about someone I haven't sold to yet," Ron Jackson attests. Many of Jackson's customers trade up three times in six years. They start with a two-horse trailer at $2,500 and work their way to a deluxe model priced as high as $10,000. "I'm going to make more on that $10,000 trailer than on all the $2,500 ones."

A year ago, when Team One Plastics realized it had little need for cold calling, the sales team was rechristened "the customer-service department." Now, just about everyone who comes into contact with customers -- the quality team, order entry, shipping and receiving, even accounting -- reports to Team One's sales manager. Add up that overhead, and you know customer service doesn't come cheap. Yet Team One needs only one outside sales rep.

Maybe the hard truth is that it costs nearly as much to keep a customer, but the cost of your de facto sales force is money better spent.

ClichÉ: "If you keep your employees happy, you'll have happy customers."

You might find it in the Bible, right after the Golden Rule. If it weren't true, "I couldn't have moved my plant and still shipped close to 100%," says George Riggs, marveling at the ability of his 110 employees to work through a move during the season's busiest month. It's worth noting that Riggs relocated closer to his workers' homes. Furthermore, bonuses for production and attendance are distributed weekly, because, for a lot of 20-something workers, a year "is a long time to wait."

Love is not enough. The happiest of employees still need to be told how to deliver excellent service. "We teach manners right away," says Tom Wall, owner of Classy Chassis, an $830,000 chain of car washes based in Biloxi, Miss. Wall plunked down $35,000 for a full-time hiring and training manager. He reinforces lessons with bonuses for most cars washed and fewest complaints. "We tell young people they'll walk away with good skills for their next job," says Wall. It's clear they catch on. "Customers are always asking, 'Where do you get these kids?' I hear compliments wherever I go." He adds, "This is not a career-type job for many, but about 12 people have moved up, and 5 are managers."

Can customers tell the difference? Bess Herzog has no doubt. When an employee grumbles at a construction site, she's often too busy running the company to know. "If it's happening, customers are often the first to let us know, even if," as she says, "they don't realize what they're telling us."


Quick ways to gauge customer satisfaction

Rachel's Bus Co. refers to the "off-peak principle." In the peak season, there are never enough buses, so there's plenty of business for everyone, explains president Rachel Hubka. "But after the peak, you end up with the accounts that really value your customer service."

Carneiro, Chumney & Co., a San Antonio accounting firm, encloses a short questionnaire with each invoice. It saves stamps, but there's another reason for doing it. "When a customer pays the bill, it's the ultimate evaluation," says managing partner Bob McAdams. Of those who return the card, only 1% give Carneiro less than a 4.2 rating on a scale of 5. "It's one more snapshot of how we're doing."

Team One Plastics, in Albion, Mich., involves its employee teams. "We often work with a dozen key people at a customer site of 100 or more employees. When problems occur, their 12 can talk to our 12," says cofounder Craig Carrel. "How we all interact is part of the give-and-take of building a relationship."

Classy Chassis, a chain of car washes based in Biloxi, Miss., balances its need for speed with "exit people" who check quality before customers drive off. And customers of its special detailing services (like hand waxing) rate performance. "We see 300 to 400 cars a day, so we focus on 10 to 25 at each of our car washes," says owner Tom Wall. Those who fill out a survey get 50% off their next wash. Demand for detailing work, a profit maker, has grown considerably.

Customer-comment cards are often served up with dessert, but Chef Allen's, a North Miami Beach, Fla., restaurant, tops them off with a phone call. "For parties of eight or more, we call the host of the party the next day to make sure it went OK," says owner Allen Susser. "We know with a big party we can lose control of what happens. The host of the party may not want to complain in front of others, and hosts tend to be important customers who spend a lot of money."


Our apologies to Carl Sewell, author of Customers for Life. His ideal is becoming, well, a myth. The reason has little to do with customer service and plenty to do with our changing economy. These days, a customer for life is as likely as a job for life.

Manufacturer Team One Plastics expects to turn over some key accounts. Cofounder Craig Carrel plans on it. "Not all our customers are growing as fast as we are. If they're growing in their industry, it's OK, but even current customers will reach a point where they don't grow anymore." For competitive reasons, "sometimes we mutually agree to a limit on the business we do together."

The dream of a customer for life, though, still burns bright. It has just been edited a bit. "As long as we have a good two-sided relationship, if we both like how we work, then it's a customer for life," says George Riggs of Embroidery Services. He says his best customers "can give me hell, but they respect the way I react to it."