Street Smarts

by Norm Brodsky

  Let me tel you about an experience I once had on a flight from New York to California. As usual, I was flying JetBlue. I boarded the plane with the other passengers, and the door closed. As we sat there, buckling our seat belts and checking out the televisions in front of us, a middle-aged man with slightly graying hair stood up in the front of the plane. He had on the long apron that al JetBlue flight attendants wear, with his name stitched onto it. “Hi,” he said, “my name is Dave Neeleman, and I’m the CEO of JetBlue. I’m here to serve you this evening, and I’m looking forward to meeting each of you before we land.”

  Sure enough, as soon as we reached our cruising altitude, he and the other attendants started coming down the aisle with the baskets of snacks that JetBlue offers passengers to stave off their hunger pangs en route to their destination. Of course, if the passengers in the rear had had to wait for Neeleman to serve them, they would have starved. Beginning in the first row, he slowly made his way through the plane, stopping to chat with anyone who cared to talk to him, answering every question people asked. I was sitting in the eleventh row, and it took him more than an hour to reach me. “Nice airline you have here,” I said. “Where do you come up with al these great ideas—like the televisions? ”

  “I get most of my ideas on flights like this one,” Neeleman said. “The customers tel me what they want.”

  “Oh, listening to your customers,” I said. “What a novel idea!” He laughed.

  After talking to me and the other people in my row for about twenty minutes, Neeleman excused himself and moved on to the next row. I went back to watching television. The other flight attendants continued making their rounds. When they came by my row, I asked them if they’d ever worked with their CEO before. “Oh, yeah,” one of them said. “We bump into him al the time.”

  “So what do you think of him?” I asked.

  “He’s very nice,” she said. “What you see is what you get.”

  Sitting there, I couldn’t help reflecting on Neeleman’s business acumen, not to mention his devotion to his company. After al , he didn’t have to spend five and a half hours doing customer service. I’m sure he’d put in a ful day’s work before ever setting foot on the plane. I’m also sure he could have used the time productively in other ways.

  Then again, look what he got out of his conversations with customers—al those wonderful ideas, to begin with. He told the guy across the aisle from me that JetBlue would soon be implementing one of them, Wi-Fi in its airport lounges, and that it was working on providing another, high-speed Internet connections on flights.

  Second, by keeping in touch, he had a real-time sense of the market. He knew firsthand what was going on out there, and he could see trends before his competitors. That’s one of the biggest advantages of having direct contact with customers. Markets change. Technologies change.

  Customer wants and needs change. If you have your finger on the pulse of the market, you’re a step ahead of the competition. If you don’t, you run the risk of getting blindsided.

  Meanwhile, Neeleman was also shaping the company culture. Employees saw him working the crowd, going out of his way to help a customer, and they did the same. They heard him talking about the plans to introduce new services, and they spread the word. Above al , they knew that Neeleman wasn’t sitting behind a desk somewhere, counting his stock options. He was putting in overtime, and he was doing it with them. They could rest assured that he understood what was happening on the front lines because he’d been there. He was on their team—and vice versa—not just in words but in deeds. And the result? An unusual level of trust, respect, and goodwil al around.

  The whole experience had an interesting effect on me as a businessperson. I’ve long believed in the type of leadership and service that Neeleman exemplifies, but I don’t always demand it from my own suppliers. I’ve tended to make excuses for them. After flying with Neeleman, those excuses seemed pretty thin. I mean, there I was, getting first-class, in-person customer service from the CEO of an airline that had sold me a ticket for $154. Shouldn’t I expect the same from suppliers to whom I was paying tens of thousands of dol ars? I wound up firing our insurance broker, our accounting firm, and our bank. When they didn’t understand why, I suggested they take a trip on JetBlue.

  Ask Norm

  Dear Norm:

  One of my salespeople recently resigned and started his own company competing with mine. I subsequently learned that he had been conducting his new business on the side while he was still working for me. What should I do?

  Vennie

  Dear Vennie:

  You should do nothing. Keep building your company and forget about the guy. Don’t let this incident cause you to lose focus on what’s real y important to your business. People waste a lot of time and energy worrying about ex-employees who become competitors. When employees leave to go into competition, I wish them wel and send them a plant. It’s a cactus. This guy should be history as far as you’re concerned. If he’s an unethical person, he’l eventual y get his comeuppance.

  —Norm

  The Bottom Line

  Point One: Customer retention is the key to growth, and you retain customers by building strong relationships with them.

  Point Two: One way to build relationships with customers is to help them become smarter buyers by teaching them your business.

  Point Three: Make a point of treating old customers like new prospects. Otherwise, it’s easy to start taking them for granted.

  Point Four: You wil lose contact with your customers as your company grows unless you build customer face-time into your schedule.

  CHAPTER TEN

  How to Lose Customers

  I have a little game I like to play. I keep track of the number of episodes of bad customer service I hear about, or experience, over a six-month period and use that as a rough gauge of the general level of customer service in my part of the world. It’s gone up and down over the years, but—no matter where it stands—Fm always struck by the number of service providers who seem to believe that a customer exists only to help them maintain a comfortable lifestyle.

  Take the dentist I went to when I needed to have my teeth capped. His office—on Park Avenue in Manhattan—was one of the most spectacular I’ve ever seen. The bathroom was al shiny black marble and chrome. On my initial visit, I was given my own “personal hygiene space,” where I could keep my special toothbrush in a little locker with a key. The doctor did a thorough examination and took X-rays of my mouth from every conceivable angle. He then had me return a few weeks later to hear how he intended to proceed.

  He had an elaborate presentation planned. As I sat in his office, he started to explain to me in great detail what he was going to do, and why, and how. I interrupted him. “OK,” I said. “I believe you. What’s this going to cost?”

  “The total?” he said. “About $45,000.”

  I was floored. “Wel , Doc,” I said, “I was given a list of the four best dentists in the city, and you were right at the top, but that price is unbelievable.”

  “Do you mind showing me the list?” he asked. I gave it to him. He smiled as he looked it over. “This one was my student,” he said. “And this one used to work for me. I trained him myself.”

  “Is he any good?” I asked.

  “Yes, he’s very good, but he’s in Rockvil e Centre, on Long Island,” he said. “You could probably get your teeth done there for less, but you wouldn’t get al this.” He motioned around the office.

  I got out of my chair and said, “Thanks a lot, Doc.”

  “Where are you going?” he asked.

  “I’m going out to the guy on Long Island and see what he charges,” I said. “But I’ve got to say one thing. This is a bad sales pitch you have, tel ing me I’m paying for your Park Avenue office.” I walked out and made an appointment with the dentist in Rockvil e Centre, who charged half of the Park Avenue dentist’s fee. I said I’d come at the latter’s suggestion. He didn’t believe it. I tol
d him the whole story. He laughed and asked how much the Park Avenue guy had wanted. “I’l tel you,” I said, “but only after you finish the job.”

  “Why?” he asked.

  “Wel ,” I said, “you’re probably going to raise your prices, and I don’t want you to do it now.” He laughed and laughed—but he didn’t deny it.

  Raising Prices

  To be sure, price always plays a role in the customer relationship, and there’s no easier way to lose customers than to hit them with a sudden, and big, price increase. No one wants to do that, but—if you don’t raise your prices gradual y over time—you could wake up one day and discover you have no choice.

  My wife, Elaine, came across a good example. For years, she was getting her hair done at a salon near our home. She started going there partly because the location was convenient, partly because she was tired of the fancier places in the area. Price was not an important factor, although it didn’t hurt that the owner, Judy, charged substantial y less than other salons for the same services. Elaine took advantage of the lower rates by going twice a week instead of once.

  Ask Norm

  Dear Norm:

  We are a $40 million manufacturer, and we distribute our products through 250 independent dealers in North America and Europe. How can we use the Internet to sell products to the end user without upsetting our loyal dealers?

  Chris

  Dear Chris:

  I doubt your dealers wil be upset as long as you sel at the same price they charge and give them a commission on any sales in their area. In fact, they’l probably encourage you. It’s trickier if you’re planning to sel your products for less. You’re going to need the dealers’ permission to do that, and you may have to agree to pay them their normal commission on the sales in their area. In any case, the key here is communication. I’d start by sending out a questionnaire to the dealers. Tel them you want to give them an opportunity to make a lot more money by earning commissions on sales over the Internet. Explain how the system would work, and ask them what they think. As long as you communicate properly, you should be al right. If you don’t, you’l have a problem no matter what you do.

  —Norm

  Then one day Judy suddenly announced a set of huge price increases, effective immediately. A basic cut went up 25 percent, as did the cost of a blow-dry. The price of a coloring jumped 85 percent. The increases came as a shock to the customers. Some of them were angry enough to talk about leaving. Even Elaine was upset. She asked Judy why she’d done it. Why such big increases? Why do them al at once?

  “I don’t have a choice,” Judy said. “We haven’t had a price increase in ten years. I’ve been giving the staff raises every year, and I haven’t been getting any additional income. Now I’m at a point where I can’t go on without a significant increase. I won’t be able to pay my bil s. The place won’t survive.”

  She had my sympathy. It’s never easy to raise prices. As for big increases, you make them at your peril. There’s simply no way to do it without antagonizing customers and thereby putting your most important relationships at risk. Faced with resistance, a lot of businesspeople are tempted to forgo price increases altogether, or at least to put them off for as long as possible. If you do either one, however, you’re making a big mistake.

  Granted, you may not feel the pain for a while. If your sales are going up, you’l probably be able to take home the same amount of money from one year to the next. As a result, you may not see the risks you’re taking. In the short term, you’l think you’re doing fine.

  But, in fact, two things are happening. First, your profit margins are shrinking—because your costs are going up. Certain costs always rise. It’s what I cal “creeping expenses.” Some types of expenses have a life of their own. If you don’t watch them like a hawk, they go up al by themselves.

  They may even go up if you do keep an eye on them. In most smal businesses, for example, you can count on payrol increases every year. You can expect regular hikes in insurance rates as wel , and I’m not just talking about health insurance. The costs of utilities and supplies also have a tendency to rise over time. OK, some things have grown cheaper over time—basic phone service, for example—and faster computers let people work ever more efficiently than before. Nevertheless, your average costs per dol ar of sales are going to rise from year to year. They may rise only 2

  percent annual y, but compound the increases over five or ten years, and eventual y you won’t be earning a profit anymore—unless, of course, you raise prices.

  Even if you don’t let the problem go that far, however, you’re damaging your business in other ways by not raising prices on a regular basis. For one thing, you’re gradual y undermining the perceived value of your services or products. Like it or not, there’s a natural tendency to link quality and price. I’m not saying you always have to charge as much as the most expensive suppliers, but—if the gap between your prices and theirs gets too large—customers wil start to regard you as the cheap alternative in the market.

  At the same time, you’l be undermining the real value of your business as a whole. That’s a point most smal -business owners miss. They look at the company only as a source of income. They forget that it’s also a major asset, probably their most valuable one, and—like any asset—it needs to be maintained. That means, among other things, making sure the company has strong profit margins—as good as or better than the rest of the industry. If you let your margins erode, you’re going to have trouble when you try to sel the business. Indeed, you may not be able to sel it at al .

  It’s sort of like sel ing a house. If the place needs a new roof, buyers wil discount the price accordingly, or they’l look for a house that doesn’t need one. By the same token, business buyers are going to shy away from a company with weak margins, especial y if they’re weak because prices are too low. Who wants to buy a business and immediately start raising prices? Even under the best of circumstances, it’s tricky to maintain a customer base through a change of ownership. It’s almost impossible when you have to begin by doing something that wil antagonize every customer you have.

  That’s why I believe that, as a matter of sound business practice, companies should raise prices on a regular basis. The increases don’t have to be big ones. Sometimes they can’t be. I’ve often had to fight for one, but I always insist on raising the price at least a little. Had Judy raised her prices a dol ar or two per year over the course of the decade, she’d have had competitive rates at the end of it, and no one would have complained.

  Instead, she was forced to take the kind of action that was certain to drive her customers crazy.

  Rules for Rules

  If al else fails, you can always lose customers by providing real y poor customer service. The use of that technique seems to have increased over the past thirty years. Some people blame the trend on changes in the workforce. That may be a factor, but I think the major fault lies elsewhere. In most cases, it’s not the employee who creates the problem. It’s the employer. How? Usual y by establishing a bad rule.

  Ask Norm

  Dear Norm:

  I have a small business that tutors people in writing. I’ve been running it out of my home as a sole proprietor, using independent contractors. One woman who has been editing for me wants to come on as a full-time employee doing marketing and sales. I need someone to do that. Still, taking her on full-time would be a bigfinancial commitment. She might also generate more business than I could handle. So am I crazy to consider hiring her?

  Sharon

  Dear Sharon:

  It’s never crazy to hire an employee, provided you have the need and understand the financial consequences. That involves determining the additional sales you’l have to generate in order to cover the new expenses. To do that, add up those expenses over a period of time and divide by your average gross margin. Suppose, for example, that in the first year it wil cost you $39,000 to bring on this employee and make other changes, and your gross margin
is 30 percent. You would then need to increase your annual sales by $130,000 at the same gross margin to cover the new expenses and maintain your current profitability. To reduce the risk, try an experiment. Have her work part-time in sales and continue doing her editing until you both have a better sense of the new arrangement.

  —Norm

  Here’s an example from my wife’s uncle Arnold, who lived in upstate New York until he passed away. He was a great businessman himself. Once he told me about an experience he’d had when he took his car to be repaired at a dealership in town. This was the second time he’d brought it in for the same problem. When he returned to get the car, he was told the bil came to a couple hundred dol ars. “Fine,” he said, “but I want to take it for a test-drive, just to make sure the problem is real y fixed.”

  “OK, but you have to pay first,” said the guy at the service desk. “We aren’t al owed to let any car leave here until the bil has been paid.”

  Now, Arnold was not a stranger to these people. He’d been doing business with them for forty years. He used to be the head of administration at the local hospital. In that capacity, he’d purchased five or six cars a year from the dealership, which had even assigned a salesman to his account.