Learning From the Customer
"This is customer service," Bill Crutchfield takes the liberty of explaining, because to the untrained eye, it looks an awful lot like someone hacking into a brand-new stereo receiver with a screwdriver and a flashlight. "A lot of companies get into trouble, because they think customer service is just how you deal with your back-end complaints," he elaborates. "Customer service is everything you do." In Crutchfield's case, that includes hiring technicians to dissect stereo equipment.
We are in the Charlottesville, Virginia, headquarters of Crutchfield, the namesake electronics retail business Bill Crutchfield started 37 years ago from the basement of his mother's house. Specifically, we are in the research department, a bunkerlike space in which Crutchfield's tech team is busy poking, prodding, and measuring the latest models of flat-screen TVs, speaker systems, and a slew of other high-end audio-visual gear, all in the effort to make sure the employees are familiar with every detail of each of the 9,000-plus products Crutchfield sells. The techies will share what they learn with the copy department, where all those details will find their way into catalog descriptions; and with the sales team, which will use them to steer customers toward the right product; and finally with the company's call center and tech support staffs, which must be ready to answer any question that comes up.
Sure, manufacturers provide spec sheets for their products, but those spec sheets often don't give enough details; and when they do, the details are often not clearly explained. The Crutchfield research team will take measurements, count the inputs and outputs, and make note of every feature. If the company is going to promise a customer that a new speaker is powered by a pair of 6.5-inch woofers, there is only one way to make sure. "We'll have the warehouse send one over, and we'll take it apart to see what's going on inside," says Phil Jones, director of Crutchfield's tech support.
Why would any retailer go through the trouble and considerable expense of doing such in-depth nosing around? Zappos is famous for its customer service, but it's not cutting up the latest pair of Air Jordans to see exactly what kind of stitching Nike uses.
Here's one way to think about it: Imagine being on the phone with someone who has absolutely no concept of how to tie a necktie. Now, imagine it is your task to walk him or her through the process of tying the perfect Windsor knot. Could you do it? Or would your patience run out the fifth time you had to explain exactly which end went through which loop?
You now have a glimpse into the life of a Crutchfield employee. Only instead of helping people master their neckties, Crutchfield's tech support team fields calls from frantic car owners who have just pried open their dashboards to install their new car stereos, only to get the queasy feeling that they are in way over their heads. Or homeowners staring at boxes full of home theater components and not having the first clue where to begin. Easing such customers' fears and answering their questions are Crutchfield strong points.
With annual sales of roughly $250 million and about 500 employees, Crutchfield is barely a blip on the radar screen of big-box retailers like Best Buy, which had sales of more than $49 billion in 2010. But Crutchfield is debt free and has managed to avoid layoffs throughout its 37-year history. The company has a five-star rating from Yelp, and it is the only online retailer to win the Circle of Excellence award for 11 consecutive years from BizRate, a website that rates the customer service provided by online retailers.
It's all about putting yourself in the customer's shoes, says Bill Crutchfield. "If they want to buy a car stereo, one of the first things they are going to ask is, 'Will it fit into my car?' or 'Will I run into any problems installing it?' If you don't know, you really aren't serving the customer. The only way to know is to do what we do: Take the car apart, and check it."
He is not kidding. Buy a car stereo for, say, your 2009 Ford F-150, and you will receive Crutchfield's custom-produced, 15-page instruction booklet specifically for a 2009 Ford F-150. The booklet details each step involved in removing the car's original radio and replacing it with your Crutchfield purchase. Included in those instructions are photos of Crutchfield technicians pulling out the factory radio in a 2009 Ford F-150, stripping door gaskets, running wires, and unscrewing door panels to install the new speakers. Crutchfield has guides for more than 16,000 vehicles in its database, many with photos of the tech crew working on specific models. (To get those photos, Bill Crutchfield arranged a handy barter agreement with the owners of Charlottesville's local car dealerships. They let Crutchfield's technicians photograph demonstration installations in their vehicles, and, in return, the dealerships receive a lifetime of free service for the stereo systems in the cars on their lot—provided the stereos are brands Crutchfield sells.)
All retail businesses, of course, depend on their customers, but Crutchfield's bond with his goes especially deep: He insists his customers helped save his fledgling mail-order car-stereo business from an early demise. In 1974, Crutchfield was a 31-year-old bachelor living with his mother in the house he grew up in and working as the general manager of a forklift company. Fair to say, life wasn't going as planned. Four years earlier, Crutchfield had been the commander of a Titan II intercontinental missile crew while serving as a commissioned officer in the Air Force at California's Vandenberg Air Force Base. After leaving the service, he headed to Hollywood, where he wrote a screenplay about his experiences as a missile commander. Despite a few nibbles, Crutchfield couldn't find a buyer for his movie, and before long, his savings ran out. He loaded up his car and returned home to Virginia.
Once he began working for the forklift company, Crutchfield started squirreling away his salary with thoughts of starting a business of his own. He decided he would launch a venture that would incorporate his latest hobby, restoring classic sports cars. Crutchfield settled on the car-stereo business after trying in vain to find a do-it-yourself stereo for an old Porsche 356 he was hoping to restore and sell for a profit.
But he quickly learned that the $1,000 he had so far saved wouldn't go very far toward launching a mail-order electronics business. There was a catalog to produce, ads to buy, and most daunting of all, inventory to purchase. Help came in the form of a bank president, himself a Porsche owner, who understood at some level the value of the business Crutchfield was hoping to start. Without asking for a business plan, the banker extended Crutchfield a $25,000 line of credit.
The company was a one-man operation. Crutchfield was the customer service department as well as the shipping department, technical support department, catalog producer, copywriter, and company photographer. Because he was still working full time at the forklift company, many of the customer service practices in place today were born of necessity, like same-day shipping. "I'd leave my job at 5 o'clock, race down to the post office to pick up the few orders that were in the P.O. box, race home and pack them in my mother's basement, write a personal thank-you letter, pack them in my car, and drive them to UPS to make sure they got out the same day," Crutchfield says. To field late-night customer service calls, he had a separate telephone line run to his bedroom.
Despite these personal touches, seven months into the business, Crutchfield was $20,000 in debt. It was only a matter of time, he realized, before he would have to concede defeat and liquidate the business. But as a last-ditch effort to understand where he had gone wrong, Crutchfield mailed a one-page questionnaire to everyone who had requested a catalog, customers and noncustomers alike.
The feedback from that questionnaire, he believes, saved the company. Customers didn't have a problem with Crutchfield's pricing. The product selection was more than adequate. They simply were intimidated with the prospect of installing their own car-stereo systems.
With that in mind, Crutchfield got to work producing a more polished and user-friendly catalog that included an easy-to-follow article on car-stereo installation techniques, helpful photographs, and, for a dash of marketing, a few customer testimonials from the survey. Something clicked. In the first quarter of 1975, monthly sales were under $4,000. After the mailing of the revised catalog in April, sales leaped to $13,763. The following month, sales rose to $22,000.
That survey, Crutchfield says, taught him the importance of listening and responding to customers. It was that simple, and it worked. From 1975 to 1982, the company's sales continued to rise. As the auto industry started to produce cars that came equipped with high-quality stereo systems, Crutchfield diversified his product line to include home audio products, telephones, and other personal electronics.
Yet as the company grew, Crutchfield soon found himself overwhelmed. He had difficulty transmitting the company's service culture to his middle managers, and without the help of effective managers, he was unable to keep close tabs on his 50 employees. Customer service representatives were losing their focus and zeal. Salespeople were looking to pad their commissions by selling customers high-end equipment they didn't want or need. The warehouse was so bureaucratic that same-day shipping had simply evaporated.
Sales had continued to grow each year through 1982, but the rate of growth was slowing. Then, in 1983, sales fell 10 percent, and the company's earnings turned negative. All this while Crutchfield was paying to construct a new building. "We didn't have the resources to last more than another year or so," he says.
When the University of Virginia's McIntire School of Commerce examined Crutchfield's situation for a 1984 case study, the faculty case writer concluded that "increases in sales just seem to lead to greater increases in inefficiency in operations. Crutchfield Corporation has gotten bigger than Bill Crutchfield can handle. This loss in operating income is a very obvious signal that things are going wrong."
Crutchfield had already come to a similar conclusion. "It's like when you start gaining weight: it just creeps up on you very gradually," he says. "I woke up one day and realized that this was not how I built this company. A lot of dysfunctional behaviors had crept into the company from the time I started adding layers of management."
Crutchfield dug in and started looking at every aspect of the business. He listened in on customer service calls, read letters from disappointed customers, and broke down the compensation plan for the sales team. To return the company to its roots, Crutchfield wrote down a set of core beliefs that harked back to the days when the company was still young: namely, exceeding customers' expectations, maintaining a passion for continuous improvement, and treating co-workers with dignity and respect.
Crutchfield met with each employee to explain the importance of the core values and the consequences of not adhering to them. Staff members were given a chance to adjust and improve, but those who didn't buy in were soon let go. "From that moment on, it really made things very easy," Crutchfield says. "We don't need a 500-page manual on how to behave. Just treat people the way you want to be treated."
Adherence to those core beliefs helps explain why character, not technical know-how, is the most important thing managers look for when interviewing new employees. "The fundamental question I ask prospective hires is, 'Do you like helping people?' " says Phil Jones. "It sounds stupid, but some people don't. You can train them on the tech stuff, but you can't train somebody to enjoy helping other people. That's either there or it isn't." Those who do like helping people tend to stick around. "I've been here 18 years, and there's a guy in my department who still calls me 'the new guy,' " says Jones. "He's been here for 30 years."
The company's ties with its vendors are also solid. "Crutchfield is fair, but they're also demanding," says Bob Weissburg, president of sales and marketing for D&M Holdings, owner of consumer electronics brands such as Denon and Boston Acoustics. "They require a lot from their vendors by making sure that we can always back up any claims we make."
Good relations with vendors paid off in the 1990s, when catalog companies were struggling to make sense of the then-new phenomenon of e-commerce. Crutchfield got a leg up launching its Web business, when, for instance, it was the only retailer authorized by Sony in 1996 to sell its products online, a monopoly the company held for close to three years.
Internet orders now account for about 70 percent of the business, but Crutchfield is still very much in the catalog business; it mails out more than 30 million per year. "Contrary to what some Internet consultants will say, the catalogs will continue to be around," says Crutchfield. Add to that the toll-free hotlines whose numbers are plastered all over the company's website, throughout the catalogs, and on the boxes the company ships to customers. "It's a three-legged stool," Crutchfield says. "All three of those components are just our way of making it easy for our customers to communicate with us."
Of course, no company is perfect. If you want to find a TV with a lower price than Crutchfield's, you probably won't have much difficulty. As one commentator on BizRate complained, "Prices are a little on the high side for middle-income folks." That's something Bill Crutchfield won't deny.
"We're never going to be a Walmart or an Amazon, and you can go on the Internet and find hundreds of retailers who are selling this type of product for less than we do," he says. "But you're not going to be able to find a retailer who provides the level of service we provide. People have the assurance that if they call us, there will be a highly trained, nice person on the other end of the phone who can truly help them if they need it. To some people, that's very important."
It also costs a lot of money to provide. "We run an expensive operation, and it is a big investment," he says. "Our overhead is probably significantly higher than most of our competitors'. If I were to sell the business to a company that was looking for short-term profits, there is a lot of low-hanging fruit here. A lot of money could be made by cutting out all these services and then riding the coattails of our great franchise. But in the long run, they would ruin the company, and in five years, there would be nothing left."
If that sounds familiar, it is because that is pretty much the path Circuit City followed on its way to oblivion. In 2007, the struggling electronics giant announced the layoffs of 3,400 of its most experienced and best-paid salespeople. They were replaced with lower-paid but far less knowledgeable workers. Crutchfield says he will never let that happen as long as he is in charge. "Ours is a business where you need to be able to relate to people," he says. "Crutchfield is a business you need to run with soul."