Customer Wallets Are Tight: So Is Empathy the Best Strategy?

The unemployment rate in the U.S. may have hit a four year low. U.S. government sources are claiming that the initial claims for unemployment benefits have fallen by 5,000 applications to a seasonally adjusted figure of 348,000; but this doesn’t mean that customers have become more open to spending more money. Yet it is good to hear that employers in the U.S. have created 245,000 jobs per month between December 2011 and February 2012. On the face of it, at least for the short-term, these figures suggest that growth is returning to the U.S. market.

However, Ziad K Abdelnour author of Economic Warfare: Secrets of Wealth Creation In The Age Of Welfare Politics thinks that, in the long term, the policies of the U.S. government and the U.S. Federal Reserve are going to cause more havoc. In Abdelnour's view, President Obama's administration is overly focused on job creation as it attempts to "buy" the country out of recession with increased budget deficits. Abdelnour believes that this is eventually going to damage the U.S. economy because the U.S. government is not concerned with empowering individuals to create growth. He argues that this, in turn, will create more sustainable economic growth than the U.S. government proclaims to have achieved. This means that the current figures it presents can’t necessarily be applauded as they may represent a false economy, one that’s more concerned with fairness than enabling "wealth creators" to make money.

British newspaper The Guardian reported on March 22, 2012 in "UK Retail Sales: What the Economists Say" that things aren’t quite as rosy in the U.K. as they might appear in the U.S. (at least according to the Obama administration’s figures). In the article, published a day after the British government had announced its budget, IHS Global Insight’s economist Howard Archer comments that U.K. unemployment is still rising, (albeit at a reduced rate) and that he thinks consumer confidence is improving along with it since the end of 2011.

Archer also points out that the U.K.’s retail sales have been falling more than was previously expected; dropping 0.8% in February 2012. The fall has led to a revision of January 2012’s forecast increase from 0.9% to just 0.3%. At the time of the revision, there was also a resounding fear that a double-dip recession could fall upon the U.K., particularly because the eurozone crisis was still in full swing and in many people’s minds, it hadn’t quite been resolved.

In fact, at the beginning of March 2012, British newspaper The Daily Telegraph reported that unemployment within the region hit an all time high of 10.7% earlier in the year. Eurostat revealed that 185,000 people had lost their jobs within a month. In a more recent article for the newspaper, Ambrose Evans-Pritchard quoted Klaus Baader of Société Générale who said that the eurozone’s economic outlook was "deteriorating drastically." Baader added that the "economic slowdown and fiscal austerity has hit the labour market much harder than had been previously thought." Inflation is also rising, which will put more pressure on the hard-hit European consumer.

Regarding the U.K., Archer said that the British consumers’ purchasing power is "being squeezed appreciably as, despite falling back, consumer price inflation (of 3.4% in February 2012) is currently still running well ahead of earnings growth (at 0.7% in January 2012)."Consumers are still struggling to pay off debts that they have accrued due to the recession, and with all of these pressures bearing on their shoulders they aren’t as confident monetarily as the economy would like them to be.

Consumers (and indeed, other types of customers) are therefore being more discerning about how they spend their money - which has led stores and supermarkets to offer significant discounts. Yet, a price war isn’t always the answer for companies that wish to encourage their customers to loosen their wallets and to begin spending again. The problem is that this strategy can lead to diminishing returns and it can be a very risky one for the small retailers in particular. The larger retailers have greater economic power, so they are more likely to win. Furthermore, some customers may actually be prepared to spend more if a company either adds value to a product or service offering; or if that firm manages to do its utmost to solve a problem that a customer is faced with. This issue therefore raises the question about whether adding empathy to customer service is the answer.

Customer Service Differentiation

Customer service, whether it is delivered in-store or through a contact center, is one way that a company can add value and differentiate themselves from their competition. However, Jamie Lywood, managing director of the U.K.-based Compathy, believes that the way customer service staff has been trained in the past represents a problem. "Traditional training has been about the learning process, scripting, product familiarization and the mitigation of liability, but empathy is about relating to each individual customers' emotional and physical needs whilst appreciating the corporate boundaries." Companies are in danger of losing their customers; and they could end up disengaging their employees, too as many of them aren’t demonstrating any or sufficient empathy. "Consumers are re-trenching into the next primary states of mind – those of price and convenience, and unfortunately the knee-jerk reaction of most companies is to pander to these states rather than build for the future," Lywood explains. To him, empathy is a means of recession-proofing the relationship between the supplier and the customer. This is because empathy can increase customer loyalty as it will offer them a sense of belonging and it will increase their trust in the brand.

Customer Disloyalty

Customer loyalty is not something that can be taken for granted in any situation. Nicola Millar, customer experience futurologist at British Telecom (BT), says that the consumer surveys that BT has undertaken suggest that 46% of customers are no longer loyal. "There are a few factors that determine loyalty, and they are the ones we would not think about,” she says.

What Millar means is that loyalty is correlated to what she calls "customer effort" more than customer satisfaction. In other words, customers will buy more from companies that make it easy to do business with them. Millar also says that, due to the economic situation, customers "are time-poor, shorter of money than they used to be, have more choice than ever before, [with] greater access to information and they tend to be more risk-averse."

Creating Customer Loyalty

How can we create customers that are loyal to our business if they are not willing to spend money? Millar says, "According to the research BT has done in the financial sector, the contact center is therefore becoming critical and a good experience makes 59% of customers more loyal than those that suffer a bad one." Thanks to the Internet, customers are more self-informed and aware, particularly when it comes to considering the purchasing of risky products and services, such as those offered by the financial services sector.

So, today’s customers are doing their homework and being more careful, but they are also in need of advice and re-assurance that what they are doing is right for them. Millar argues that the contact center is no longer just there to perform transactional duties: "56% of customers agree that their calls are now more complex and emotive than they used to be," she says. Customers are expecting to get through to someone who’s not only empathetic, but who’s also able to resolve their issues or answer any questions they might have. What’s more is that they don’t want to wait for anything; they want to feel that they are talking with a knowledgeable expert that can help them. It’s no longer enough to measure agent performance and service level agreements based on call volumes and call times.

What’s the point in frustrating our customers by setting limits on the length of each call? The most important achievement that any agent can strive for is the resolution of any query that is raised by a customer in a way that meets or exceeds the customer’s expectations. (But also without raising the bar too much, because customer satisfaction will drop if a company raises the expectations of its customers without having the ability to fulfil their needs).

Hire the Right People

It’s no longer sufficient to hire just anybody from off the street to answer your customer service calls. Hiring individuals with a natural flair for empathy and with the right skills - like active listening - and expertise are now required to enable customers to feel more engaged with the companies they are buying from. Consultancies, like the Gallup Organization, Booz and Co., as well as other firms, have recognised that there is a distinct and direct correlative impact between your employees and customer engagement.

Yet the trouble here is that most employees are disengaged; they are watching the clock and doing the minimum they need to do to get paid each month. Customer relations can suffer as it becomes clear that in a customer service context, the agent doesn’t care. Empathy with the customer is lost and this can disengage the customer from the brand, leading to either lost business or a reduction in profitably as the customer might just elect to go elsewhere.

"Gallup’s research indicates that where companies successfully create a positive emotional connection there’s an average premium in terms of share of wallet, profitability, revenue or relationship growth of 23% compared with the average customer," said James Rapinac business development director at Gallup Consulting (Europe) in 2011. At the time, he stressed the importance of focusing on service delivery, because the customers who experience an emotional connection with a company and its brands are more likely than others to be the most valuable ones in terms of brand loyalty and advocacy.

Rapinac also commented that the members of staff that have the most empathy are also the most likely to create that essential emotional connection with the firm’s customers, and that these employees will have a higher level of engagement if they are given the tools and the ability to make decisions rather than rely on a script to tell them how to respond to a customer’s needs. An agent cannot create an emotional connection with a customer if they are totally reliant on a call center script or computerized process, because these methods don’t always solve the customer’s problems in a manner that provides them with a memorably positive experience.

Engagement Grows Earnings

The scripting and process-driven-only approaches are very cold transactional way of relating with another human being, but the empathy gained through employee empowerment can change this dynamic into something more fruitful and engaging on both sides. In many cases, it can be argued that happy employees create happy customers.

Gallup's own research, which is discussed in its 2007 article, "Human Sigma: Bringing Excellence to Managing People", shows how this work in productivity terms. "Companies that built a critical mass of engaged employees grew earnings by 2.6 times the rate of low-engagement companies." It also found that fully engaged staff are less likely to be tempted to jump ship and leave their companies as they are more motivated than their clock-watching colleagues to ensure that the customers’ needs and expectations are fulfilled.

The Customer’s Shoes

Many commentators also feel that it’s important for a contact center agent to put himself or herself into the shoes of each customer, and that managers should occasionally call their own contact centers to experience the interaction from a customer’s perspective. "Allow staff to manage customers as if they are in the same position," says Prof. Merlin Stone, research director at Customer Framework. Stone says that the best measure of performance is the customers themselves, and he thinks that mystery shopping comes in at a close second. As for processes, they should be created in a way to facilitate customer-employee engagement and not inhibit it. According to Jaime Lywood, even President Obama believes that empathy is an invaluable tool and during the next Presidential Election year, he’ll need to demonstrate it more than ever. That’s because the creation of trust between two parties is a critical element of demonstrating empathy, and there are many Americans who believe that Obama has failed to deliver on his promises. Obama was reputed to have said that there should be more talk about the federal deficit than the empathy deficit in trying to connect with the "child who’s hungry, the steelworker who’s been laid off, the family who’s lost the entire life they built together when the storm came to town." By empathising, Obama is said to have argued that it’s harder not to act in order to help someone in need.

Better Decisions

Lywood notes say that an empathetic judge responded to Obama’s comments in May 2010: "I view that quality of empathy, of understanding and identifying with people’s hopes and struggles as an essential agreement for arriving at just decisions and outcomes." This could also be taken to mean that empathy can be a tool that customer services could and should use to encourage customers to loosen up their wallets to spend more of their hard earned cash – even though times are still tough for them. So, empathy can create more loyal than profitable customers than those that don’t experience it whenever they contact a company to address their needs and solve their issues.