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The economics of great customer service

My friend Rishi Rawat sent me this great story of common-sense customer service.

From: Rishi Rawat
To: Andy Sernovitz
Subject: My Keurig story

Hi Andy,

Just over a year ago we purchased a Keurig coffee machine.  It gave us superb service right up to the day when it unexpectedly died.  I dreaded calling customer support because I knew we were just out of our 1 year warranty.

I called customer support who asked if I had tried a few troubleshooting steps.  I had.  So they transferred me to technical support.  The gentleman at the other end made be try a few things and then said, “Rishi, I know you are just out of warranty but I’m not going to be a stickler about this.  You’ll receive a new machine in the next 3-5 business days.”

I was shocked; not only did they not have to do this but this was quite an expensive machine.  I was super excited and that’s when it hit me.  While Keurig must be given props for excellent service, the reason they do this in the first place is because it makes economic sense.

Here is the math:

  • The machine retails for: $169.95
  • The manufacturing price is probably less than $70 (a guess)
  • We consume a box of 80 K cups every month.  These retail for: $43.95
  • In the last year the total $ amount of K cups consumed by us is: $43.95 X 12= $527.40

I’m sure their marketing team has calculated a customer word-of-mouth index.  I don’t know what their actual multiplier index is but can tell you we’ve got my mother-in-law to buy a machine and demoed ours to at least 5 other couples.

Keurig’s customer support software knows this was my first service call which means I’m not a “high maintenance” customer.  Factoring in all these variables it makes sense to give me a new machine.

I bring this story to your attention because it nicely demonstrates why WOM, though obvious, is still a challenge. Many businesses don’t have a line connecting a customer to his ‘total value’. If Keurig’s customer file had my name with $169.95 next to it, there is no way they would have replaced my machine. WOM made sense only because they could quantify my ‘total value’.

More great stories on Rishi’s blog.

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  1. Kathy September 8, 2010 at 9:08 am #

    I love it. Although the company gives the impression that they are ridiculously concerned about customer satisfaction, in reality they are just doing the thing that makes the most economic sense on their behalf.

    They are an example of a company that has such a strong well designed business model that they can afford to do things that generate raving fans for customers. That is a business model that will essentially market itself on autopilot. Simply ingenious.

  2. Ken Mueller September 8, 2010 at 9:12 am #

    Awesome story. And what no one seems to factor in is the value or ROI of Word of Mouth. Great customer service = happy customers. And happy customers tell their friends. And in this case, tell their blogging friends, and now many, many more will read this, and Keurig will gain new customers. All for the cost of one machine and a little bit of time on the phone.

    And of course, the inverse is true. See Jaffe’s latest post about Delta, or United Breaks Guitars, etc. Bad customer service = disenfranchised customers. And they REALLY talk.

    Why do so many companies have a hard time understanding this very simple concept?

  3. John Milgram September 8, 2010 at 3:14 pm #

    Think of all the money you could save on advertising if you just keep your advocates happy. Why don’t more companies consider this kind of cost simply as “marketing expense?”

  4. Sara Blum September 10, 2010 at 8:49 am #

    They wouldn’t want their coffee to leave a bad taste in your mouth!


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