Article 10

WHY
SERVICE

STINKS
Companies know just how good a customer you areand unless youre a high roller,
they would rather lose you than take the time to fix your problem

BY DIANE BRADY

saved for them is not time saved for us, says Claes Fornell, a
University of Michigan professor who created the schools consumer satisfaction index, which shows broad declines across an
array of industries. Fornell points to slight improvements in
areas like autos and computers.

hen Tom Unger of New Haven started banking at First

Union Corp. several years ago, he knew he wasnt top of the
heap. But Unger didnt realize just how dispensable he was until
mysterious service charges started showing up on his account.
He called the banks toll-free number, only to reach a bored service representative who brushed him off. Then he wrote two letters, neither of which received a response. A First Union
spokeswoman, Mary Eshet, says the bank doesnt discuss individual accounts but notes that customer service has been steadily improving. Not for Unger. He left. They wouldnt even give
me the courtesy of listening to my complaint, he says.
And Unger ought to know bad service when he sees it. He
works as a customer-service representative at an electric utility
where the top 350 business clients are served by six people. The
next tier of 700 are handled by six more, and 30,000 others get
Unger and one other rep to serve their needs. Meanwhile, the
300,000 residential customers at the lowest end are left with an
800 number. As Unger explains: We dont ignore anyone, but
our biggest customers certainly get more attention than the rest.
As time goes on, that service gap is only growing wider.
Studies by groups ranging from the Council of Better Business
Bureaus Inc. to the University of Michigan vividly detail what
consumers already know: Good service is increasingly rare
(charts). From passengers languishing in airport queues to bank
clients caught in voice-mail hell, most consumers feel theyre
getting squeezed by Corporate Americas push for profits and
productivity. The result is more efficiencies for companies
and more frustration for their less valuable customers. Time

FLYING
Canceled flight? No problem. With top
status, youre whisked past the queue,
handed a ticket for the next flight, and
driven to the first-class lounge. The rest can
cross their fingers and come back tomorrow
Andrew Chans experience with Ikea is typical. The Manhattan artist recently hauled a table home from an Ikea store in
New Jersey only to discover that all the screws and brackets were
missing. When he called to complain, the giant furniture retailer
refused to send out the missing items and insisted he come back
to pick them up himself, even though he doesnt own a car.
Maybe he just reached the wrong guy, says Tom Cox, customerservice manager for Ikea North America, noting that the usual
procedure is to mail small items out within a couple of days.
NO ELEPHANT? Life isnt so tough for everyone, though.
Roy Sharda, a Chicago Internet executive and road warrior is a
platinum customer of Starwood Hotels & Resorts World1

ANNUAL EDITIONS

CHARTS BY RAY VELLA/BW

wide. When he wanted to propose to his girlfriend, Starwoods

Sheraton Agra in India arranged entry to the Taj Mahal after
hours so he could pop the question in private. Starwood also
threw in a horse-drawn carriage, flowers, a personalized meal,
upgrades to the presidential suite, and a cheering reception line
led by the general manager. Its no wonder Sharda feels he was
treated like true royalty.
Welcome to the new consumer apartheid. Those long lines
and frustrating telephone trees arent always the result of companies simply not caring about pleasing the customer anymore.
Increasingly, companies have made a deliberate decision to
give some people skimpy service because thats all their business is worth. Call it the dark side of the technology boom,
where marketers can amass a mountain of data that gives them
an almost Orwellian view of each buyer. Consumers have become commodities to pamper, squeeze, or toss away, according
to Leonard L. Berry, marketing professor at Texas A&M University. He sees a decline in the level of respect given to customers and their experiences.
More important, technology is creating a radical new business model that alters the whole dynamic of customer service.
For the first time, companies can truly measure exactly what
such service costs on an individual level and assess the return
on each dollar. They can know exactly how much business
someone generates, what he is likely to buy, and how much it
costs to answer the phone. That allows them to deliver a level of
service based on each persons potential to produce a profit
and not a single phone call more.

customer rolls altogether or facing fees that all but usher them
out the door. A few years ago, GE Capital decided to charge $25
a year to GE Rewards MasterCard holders who didnt rack up at
least that much in annual interest charges. The message was
clear: Those who pay their bills in full each month dont boost
the bottom line. GE has since sold its credit-card business to
First USA. Others are charging extra for things like deliveries
and repairs or reducing service staff in stores and call centers.

BILLING
Big spenders can expect special discounts,
promotional offers, and other goodies
when they open their bills.
The rest might get higher fees,
stripped-down service, and a machine
to answer their questions

FRONT-LOADING ELITE. Thats a far cry from the days

when the customer was king. In the data-rich new millennium,
sales staff no longer let you return goods without question while
rushing to shake your hand. And they dont particularly want to
hear from you again unless youre worth the effort. How they
define that top tier can vary a lot by industry. Airlines and hotels
love those who buy premier offerings again and again. Financial
institutions, on the other hand, salivate over day traders and the
plastic-addicted who pay heavy interest charges because they
cover only the minimum on their monthly credit-card bills.

Instead of providing premium service across the board, companies may offer to move people to the front of the line for a fee.
There has been a fundamental shift in how companies assess
customer value and apply their resources, says Cincinnati marketing consultant Richard G. Barlow. He argues that managers
increasingly treat top clients with kid gloves and cast the masses
into a labyrinth of low-cost customer service where, if they
complain, you just live with it.
Companies have always known that some people dont pay
their way. Ravi Dhar, an associate professor at Yale University,
cites the old rule that 80% of profits come from 20% of customers. The rest nag you, call you, and dont add much revenue, he says. But technology changed everything. To start, it
has become much easier to track and measure individual transactions across businesses. Second, the Web has also opened up options. People can now serve themselves at their convenience at a
negligible cost, but they have to accept little or no human contact
in return. Such huge savings in service costs have proven irresistible to marketers, who are doing everything possible to push their
customersespecially low-margin onestoward self-service.

The result could be a whole new stratification of consumer

society. The top tier may enjoy an unprecedented level of personal attention. But those who fall below a certain level of profitability for too long may find themselves bounced from the

Almost everyone is doing it. Charles Schwab Corp.s toprated Signature clientswho start with at least $100,000 in assets or trade 12 times a yearnever wait longer than 15 seconds
2

Article 10. WHY SERVICE STINKS

partner with Mercer Management Consulting Inc., estimates

that gross margins in many industries have shrunk an average of
5 to 10 percentage points over the past decade because of competition. Customers used to be more profitable 10 years ago,
and theyre becoming more different than similar in how they
want to be served, he says.
The new ability to segment customers into ever finer categories doesnt have to be bad news for consumers. In many cases,
the trade-off in service means lower prices. Susanne D. Lyons,
chief marketing officer at Charles Schwab, points out that the
commission charged on Schwab stock trades has dropped by
two-thirds over the past five years. Costs to Schwab, meanwhile, vary from a few cents for Web deals to several dollars per
live interaction. And companies note that theyre delivering a
much wider range of products and services than ever before
as well as more ways to handle transactions. Thanks to the Internet, for example, consumers have far better tools to conveniently serve themselves.
Look at a company like Fidelity Investments, which not only
has a mind-boggling menu of fund options but now lets people do
research and manipulate their accounts without an intermediary.
Ten years ago, the company got 97,000 calls a day, of which half
were automated. It now gets about 550,000 Web site visits a day
and more than 700,000 daily calls, about three-quarters of which
go to automated systems that cost the company less than a buck
each, including development and research costs. The rest are handled by human beings, which costs about $13 per call. No wonder
Fidelity last year contacted 25,000 high-cost serial callers and
told them they must use the Web or automated calls for simple
account and price information. Each name was flagged and
routed to a special representative who would direct callers back
to automated servicesand tell them how to use it. If all our
customers chose to go through live reps, it would be cost-prohibitive, says a Fidelity spokeswoman.
ENTITLED? Segmenting is one way to manage those costs efficiently. Bass Hotels & Resorts, owners of such brands as Holiday Inn and Inter-Continental Hotels, know so much about
individual response rates to its promotions that it no longer
bothers sending deals to those who did not bite in the past. The
result: 50% slashed off mailing costs but a 20% jump in response rates. As information becomes more sophisticated, the
whole area of customer service is becoming much more complex, says Chief Marketing Officer Ravi Saligram.

to get a call answered, while other customers can wait 10 minutes or more. At Sears, Roebuck & Co., big spenders on the
companys credit card get to choose a preferred two-hour time
slot for repair calls while regular patrons are given a four-hour
slot. Maytag Corp. provides premium service to people who
buy pricey products such as its front-loading Neptune washing
machines, which sell for about $1,000, twice the cost of a toploading washer. This group gets a dedicated staff of product
experts, an exclusive toll-free number, and speedy service on
repairs. When people are paying this much, they not only want
more service; they deserve it, says Dale Reeder, Maytags general manager of customer service.

BANKING
Theres nothing like a big bank account
to get those complaints answered and
service charges waived every time. Get
pegged as a money-loser, and your
negotiating clout vanishes
Of course, while some companies gloat about the growing attention to their top tier, most hate to admit that the bottom rungs
are getting less. GE Capital would not talk. Sprint Corp. and
WorldCom Inc. declined repeated requests to speak about service divisions. Off the record, one company official explains that
customers dont like to know theyre being treated differently.
Obviously, taking service away from the low spenders
doesnt generate much positive press for companies. Look at
AT&T, which recently agreed to remove its minimum usage
charges on the 28 million residential customers in its lowestlevel basic plan, many of whom dont make enough calls to turn
a profit. To a lot of people, its not important that a company
make money, says AT&T Senior Vice-President Howard E.
McNally, who argues that AT&T is still treated by regulators and
the public as a carrier of last resort. Now, its trying to push up
profits by giving top callers everything from better rates to free
premium cable channels.
SERIAL CALLERS. Is this service divide fair? That depends
on your perspective. In an era when labor costs are rising while
prices have come under pressure, U.S. companies insist they
simply cant afford to spend big bucks giving every customer
the hands-on service of yesteryear. Adrian J. Slywotzky, a
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ANNUAL EDITIONS

WERE SORRY, ALL OF OUR AGENTS ARE BUSY WITH MORE

VALUABLE CUSTOMERS
Companies have
become sophisticated
about figuring out if
youre worth
pamperingor
whether to just let
the phone keep
ringing. Here are
some of their
techniques:

CODING

ROUTING

TARGETING

SHARING

Some companies
grade customers
based on how profitable their business is.
They give each
account a code with
instructions to
service staff on how to
handle each category.

Based on the customers code, call centers

route customers to
different queues. Big
spenders are whisked
to high-level problem
solvers. Others may
never speak to a live
person at all.

Choice customers
have fees waived and
get other hidden
discounts based on
the value of their
business. Less valuable customers may
never even know the
promotions exist.

Companies sell data

about your transaction
history to outsiders.
You can be slotted
before you even walk
in the door, since your
buying potential has
already been
measured.

Consumers themselves have cast a vote against high-quality

service by increasingly choosing price, choice, and convenience
over all else. Not that convenience always takes the sting out of
rotten servicewitness priceline.com Inc., the ultimate selfservice site that lets customers name their own price for plane
tickets, hotels, and other goods. Many consumers didnt fully
understand the trade-offs, such as being forced to stop over on
flights, take whatever brand was handed to them, and forgo the
right to any refund. And when things went wrong, critics say, no
one was around to help. The results: a slew of complaints that
has prompted at least one state investigation. Priceline.com responds that its revamping the Web site and intensifying efforts
to improve customer service. While many consumers refuse to
pay more for service, theyre clearly dismayed when service is
taken away. People have higher expectations now than two or
three years ago because we have all this information at our fingertips, says Jupiter Communications Inc. analyst David
Daniels.

No wonder attrition in this group is down by 50% since 1996,

while the percentage of unprofitable customers has slipped to
21% from 27%.

LODGING
Another day, another upgrade for
frequent guests. Sip champagne
before the chef prepares your meal.
First-time guest? So sorry. Your room
is up three flights and to the left
Even for the lower tier, companies insist that this intense
focus on data is leading to service thats better than ever. To
start with, its more customized. And while executives admit to
pushing self-help instead of staff, they contend that such service
is often preferable. After all, many banking customers prefer
using automated teller machines to standing in line at their local
branch. American Airlines Inc., the pioneer of customer segmentation with its two-decade-old loyalty program, says its not
ignoring those in the cheap seats, pointing to the airlines recent
move to add more legroom in economy class. Says Elizabeth S.
Crandall, managing director of personalized marketing: Were
just putting more of our energies into rewarding our best customers.
MARKED MAN. This segmentation of sales, marketing, and
service, based on a wealth of personal information, raises some
troubling questions about privacy. It threatens to become an intensely personal form of redliningthe controversial practice of identifying and avoiding unprofitable neighborhoods or
types of people. Unlike traditional loyalty programs, the new
tiers are not only highly individualized but they are often invisible. You dont know when youre being directed to a different
telephone queue or sales promotion. You dont hear about the
benefits youre missing. You dont realize your power to negotiate with everyone from gate agents to bank employees is predetermined by the code that pops up next to your name on a
computer screen.

Indeed, marketers point to what they call a growing culture

of entitlement, where consumers are much more demanding
about getting what they want. One reason is the explosion of
choices, with everything from hundreds of cable channels to
new players emerging from deregulated industries like airlines
and telecom companies. Meanwhile, years of rewards programs
such as frequent-flier miles have contributed to the new mindset. Those who know their worth expect special privileges that
reflect it. Says Bonnie S. Reitz, senior vice-president for marketing, sales, and distribution at Continental Airlines Inc.:
Weve got a hugely educated, informed, and more experienced
consumer out there now.
For top-dollar clients, all this technology allows corporations
to feign an almost small-town intimacy. Marketers can know
your name, your spending habits, and even details of your personal life. Centura Banks Inc. of Raleigh, N.C., now rates its 2
million customers on a profitability scale from 1 to 5. The real
moneymakers get calls from service reps several times a year
for what Controller Terry Earley calls a friendly chat and
even an annual call from the CEO to wish them happy holidays.
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Article 10. WHY SERVICE STINKS

HOW TO IMPROVE YOUR PROFILE

Even if youre not a big spender, there are ways to improve

your standing with companies in order to command better service. The key is to recognize that your spending habits, payment history, and any information you volunteer can be used
for or against you. Whats more, if you do think youre being
pegged at a low tier, there are ways to get the recognition you
feel you deserve.
The first step in fighting segmentation is to be stingy with
the information you give outespecially if its unlikely to
help your status. Dont fill our surveys, sweepstakes forms, or
applications if youre not comfortable with how the information might be used. Be wary when a company asks if it can
alert you to other products and services. A yes may permit
them to sell data that you dont want distributed.
PIGEONHOLING. The Consumers Union points out that
its unnecessary to fill out surveys with warranty cards. Just
send in a proof of purchase with your name and address. Protecting your privacy is a significant tool to prevent yourself
from being pigeonholed as undesirable, says Gene Kimmelman, Washington co-director for the CU. Its equally important to recognize what kind of information companies are
looking for. If you dont live in an upmarket Zip Code, consider using your work address for correspondence. Be optimistic when estimating your income or spending: The better
the numbers look, the better youll be treated.
Still, its tough to keep personal information to yourself,
especially when companies are compiling data on the business
they do with you. A critical concern for all consumers is their
actual payment record. Donna Fluss, a vice-president at the
technology consultants Gartner Group Inc., advises pulling
your credit history at least once a year to check if there are any
liens or mistakes. You may discover that youre listed as having missed a payment that you thought you made on time,
she says. The three main reporting bureausExperian, Trans
Union, and Equifaxcharge a small fee for a copy of your
credit history. If, however you have recently been denied
credit, employment, or insurance, such a report is free from all
three companies. The largest bureau is Equifax, which has
data on 190 million Americans, but all three may have slightly
different records based on who reports to them.
Multiple credit cards can be a mistake, especially if theyre
the no-frills variety that are frequently offered to less desirable

MAKING THE GRADE

How to get better service
CONSOLIDATE YOUR ACTIVITIES Few
things elevate status and trim costs like spending
big in one place. Be on the lookout for packages or
programs that reward loyal behavior.
PROTECT YOUR PRIVACY Avoid surveys and
be frugal with releasing credit-card or Social
Security information. The less companies know,
the less they can slot you.
JUMP THE PHONE QUEUE If you want to
reach a live human, dont admit to having a touchtone phone at the prompt. Or listen for options that
are less likely to be handled automatically.
FIGHT BACK If you feel badly treated, complain.
Make sure management knows just how much
business you represent and that youre willing to
take it elsewhere.

candidates. Not only can they drain the credit you might need
for other activities, but theyre also unlikely to propel you into
a higher category. Using a spouses card or account is also to
be avoided, because it robs you of a chance to build your own
credit history. If a mistake is made on your account, fight it.
Pros disagree on tactics for bypassing the service maze.
One customer representative argues that when calling a service center its better to punch in no account number if youre
a low-value customer. The reason? Without proper identification, he says, a live person has to get on the line. Pretend
youre calling from a rotary phone, he advises. But another
tactic may be to punch zero or choose an option thats likely
to get immediate attention.
In the end, resistance may be futile, and the best strategy
for beating the system may be to join it. Shop around for the
best company, and try to consolidate your business there.
These days, the best way to ensure good service is to make
yourself look like a high-value, free-spending customer.
By Diane Brady in New York
mation, says Hopkins, adding that the practice is common
throughout the industry.
Those who dont make the top tier have no idea how good
things can be for the free-spending few. American Express Co.
has a new Centurion concierge service that promises to get
members almost anything from anywhere in the world. The program, with an annual fee of $1,000, is open by invitation only.
Were seeing a lot of people who value service more than
price, says Alfred F. Kelly Jr., AmEx group president for consumer and small-business services. Dean Burri, a Rock Hill
(S.C.) insurance executive, found out how the other half lives
when he joined their ranks. Once he became a platinum customer of Starwood Hotels, it seemed there was nothing the hotel

When the curtain is pulled back on such sophisticated tiering,

it can reveal some uses of customer information that are downright disturbing. Steve Reed, a West Coast sales executive, was
shocked when a United Airlines Inc. ticketing agent told him:
Wow, somebody doesnt like you. Not only did she have access to his Premier Executive account information but there was
a nasty note about an argument he had had with a gate agent in
San Francisco several months earlier. In retrospect, he feels that
explained why staff seemed less accommodating following the
incident. Now, Reed refuses to give more than his name for fear
of being coded and marked for repercussions. United
spokesman Joe Hopkins says such notes give agents a more
complete picture of passengers. Its not always negative infor5

ANNUAL EDITIONS
posits of more than $4 billion, 68% are segmenting customers
into profitability tranches while many more have plans to do so.

operator wouldnt do for him. When the Four Points Hotel in

Lubbock, Tex., was completely booked for Texas Tech
freshman orientation in August, it bumped a lower-status guest
to get Burri a last-minute room. Starwood says thats part of the
platinum policy, noting that ejected customers are put elsewhere and compensated for inconvenience. With the right
status, says Burri, you get completely different treatment.

Tiering, however, poses some drawbacks for marketers. For

one thing, most programs fail to measure the potential value of
a customer. Most companies can still measure only past transactionsand some find it tough to combine information from
different business units. The problem, of course, is that what
someone spends today is not always a good predictor of what
theyll spend tomorrow. Life situations and spending habits can
change. In some cases, low activity may be a direct result of the
consumers dissatisfaction with current offerings. We have to
be careful not to make judgments based on a persons interaction with us, cautions Steven P. Young, vice-president for
worldwide customer care at Compaq Computer Corp.s consumer-products group. It may not reflect their intentions or future behavior.

RETAILING
Welcome to an after-hours preview
for key customers where great sales abound
and staff await your every need.
Out in the aisles, its back to self-service
The distinctions in customer status are getting sliced ever
finer. Continental Airlines Inc. has started rolling out a Customer
Information System where every one of its 43,000 gate, reservation, and service agents will immediately know the history and
value of each customer. A so-called intelligent engine not only
mines data on status but also suggests remedies and perks, from
automatic coupons for service delays to priority for upgrades,
giving the carrier more consistency in staff behavior and service
delivery. The technology will even allow Continental staff to
note details about the preferences of top customers so the airline
can offer them extra services. As Vice-President Reitz puts it:
We even know if they put their eyeshades on and go to sleep.
Such tiering pays off. Thanks to its heavy emphasis on top-tier
clients, about 47% of Continentals customers now pay highercost, unrestricted fares, up from 38% in 1995.
Elsewhere, the selectivity is more subtle. At All First Bank in
Baltimore, only those slotted as top customers get the option to
click on a Web icon that directs them to a live service agent for
a phone conversation. The rest never see it. First Union, meanwhile, codes its credit-card customers with tiny colored squares
that flash when service reps call up an account on their computer
screens. Green means the person is a profitable customer and
should be granted waivers or otherwise given white-glove treatment. Reds are the money losers who have almost no negotiating
power, and yellow is a more discretionary category in between.
The information helps our people make decisions on fees and
rates, explains First Union spokeswoman Mary Eshet.
Banks are especially motivated to take such steps because
they have one of the widest gaps in profitability. Market Line
Associates, an Atlanta financial consultancy, estimates that the
top 20% of customers at a typical commercial bank generate up
to six times as much revenue as they cost, while the bottom fifth
cost three to four times more than they make for the company.
Gartner Group Inc. recently found that, among banks with de-

PAY NOT TO WAIT? Already, innovative players are

striving to use their treasure trove of information to move customers up the value chain instead of letting them walk out the
door. Capital One Financial Corp. of Falls Church, Va., is an acknowledged master of tiering, offering more than 6,000 credit
cards and up to 20,000 permutations of other products, from
phone cards to insurance. That range lets the company match
clients with someone who has appropriate expertise. We look
at every single customer contact as an opportunity to make an
unprofitable customer profitable or make a profitable customer
more profitable, says Marge Connelly, senior vice-president
for domestic card operations.
In the future, therefore, the service divide may become much
more transparent. The trade-off between price and service could
be explicit, and customers will be able to choose where they want
to fall on that continuum. In essence, customer service will become just another product for sale. Walker Digital, the research
lab run by priceline.com founder Jay S. Walker, has patented a
value-based queuing of phone calls that allows companies to
prioritize calls according to what each person will pay. As
Walker Digital CEO Vikas Kapoor argues, customers can say: I
dont want to wait in lineIll pay to reduce my wait time.
For consumers, though, the reality is that service as weve
known it has changed forever. As Roger S. Siboni, chief executive of customer-service software provider E.piphany Inc.,
points out, not all customers are the same. Some you want to
absolutely retain and throw rose petals at their feet, Siboni
says. Others will never be profitable. Armed with detailed
data on whos who, companies are learning that it makes financial sense to serve people based on what theyre worth. The rest
can serve themselves or simply go away.
With bureau reports

Reprinted with special permission from Business Week, October 23, 2000, pp. 118-122, 124. 2000 by The McGraw-Hill Companies, Inc.