Why do companies jeopardize customer relationships by doing stupid things?  (e.g. Volkswagen’s emissions scandal, BP’s oil rig safety omissions, and Wells Fargo taking advantage of their customers)

Long ago a mentor taught me a “fresh” perspective about a deal we were trying to close. At the time, the approach seemed pragmatic and savvy. Now it seems dishonest and avoidable. Here’s the scenario:

Our customer wanted a telecom circuit within 30 days of placing an order and even though we knew it would take 45 days we committed to 30 days anyway.  I wondered aloud why we would promise something we knew we couldn’t deliver.  My mentor explained it this way: “If we don’t promise the circuit in 30 days, our competitor will win.  In 30 days, when the customer realizes we’ll miss the date we’ll only be 15 days away from completing the circuit.  So even if the customer is upset, they won’t switch because to do so would mean the competitor’s 30-day clock would start.  At that point the customer would have to decide if they wanted the circuit in 15 days from us or in 30 days from our competitor (more likely 45).”

So our choices were:

  1. Take a deal in which we knew we would miss the deadline, upset the customer, and erode trust
  2. Explain what we could do, describe why we were competitive with other market participants, and hope to earn the business through honesty
  3. Pass on the deal and preserve our integrity

Unfortunately, when faced with the dilemma of acting honorably and losing money or compromising their standards and damaging customer relationships, most companies say “what the heck,” reach for the money, and select Choice 1.  Such companies neglect the fact that “closing” a deal is much different than “opening” a customer relationship.  To companies about to pursue such misguided actions I offer two perspectives:

  1. This Wharton article about the best way for companies to apologize
  2. A reminder that “fixing” poor experiences soothes nerves in the short term but does little to improve customer loyalty. (More here at “Is the Service Recovery Paradox Real?.”)

The answer to my original question (“how do we turn risky business into rewarding customer relationships?”) is to tell the truth, close the deal and open the relationship.  (It can be done.)

Wharton marketing professor Richard Meyer sums up the pivot point with the question, “Why do we need the apologies to begin with? I mean, why not have better management that precludes the need for having them?”

Risky Business: Act Ethically Now or Apologize Later?
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