How to Prevent Your Customers From Failing

Customers do not merely purchase services; they are also often actively involved in their design and delivery. In this respect they are co-producers, which means that they not only have an impact on the quality of their own experiences but also influence the satisfaction of other customers, and they can help or hinder the productivity of front-line employees and the company. Customers also frequently fail in their co-production role.1 Research indicates that about one-third of all service problems are caused by the customer.2 As companies increasingly shift work to customers and incorporate more self-service technologies, customers will take on even greater responsibility for service quality. As a result, their failures will become more critical.

Poor co-production by customers has financial implications. For example, the World Health Organization has identified the failure of patients to take prescribed medications correctly as a major global problem. In the United States, only 51% of patients follow their medication regimen for high blood pressure. Evidence shows that 96% of patients who adhere to their prescriptions have control over their blood pressure versus 18% of those who don’t adhere to their prescriptions.3 Similarly, The Merck Manual, a leading medical text, has identified 15 reasons why patients don’t take their medicine, ranging from misunderstood instructions and financial concerns to forgetfulness and apathy. These failures led to 23% of nursing-home admissions, 10% of hospital admissions and countless additional medical appointments, tests and procedures.4 Such customer failures add significant and unnecessary costs to the medical system.

We define a customer failure as any action by the customer that has a negative impact on that customer’s experience, the experience of other customers or the company’s productivity. Unfortunately, widely used performance measures and quality frameworks such as the Malcolm Baldrige National Quality Award, the Balanced Scorecard and the various versions of the International Organization for Standardization (ISO) are mostly silent on the contributions of customer co-production to company performance. Based on our research, we have developed a framework for preventing customer failure.

This framework evolved out of findings from two long-term research programs, one related to service failure and recovery and the second focusing on customer participation in services. (See “About the Research.”) For this component of the research, we conducted interviews with senior managers, front-line managers and customers on the subject of customer failures. We also conducted several case studies and carried out an extensive search of secondary sources for reports of best practices in customer failure prevention.

High-Performing Customers: A Competitive Advantage

Customers typically participate at several points in the service experience.5 They first select the provider and prepare for their own role in the service. Then, while the service is being performed, customers carry out their primary responsibilities, frequently interacting with employees, technology or other customers. Finally, after the service is provided, customers may give feedback and often continue performing tasks required to maximize the benefits of the experience.

Imagine having the best-performing customers in your industry. High-performing customers are valuable. They may ask questions that enable them to perform their roles effectively, help other customers or assist companies by giving feedback on areas for continuous improvement. They perform roles efficiently and may take on tasks that employees would otherwise perform.

Such high-performing customers can also provide companies with a unique and difficult to imitate advantage. As a result, these customers can be a basis of sustainable competitive advantage — if companies first successfully deal with customer failures. However, our research has found instances of high-performing customers to be rare. Furthermore, customer performance is deeply embedded in the service system, making it difficult to copy. This competitive perspective is related to Prahalad and Ramaswamy’s view of “coopting customer competence” as a source of competitive advantage.6 In other words, companies can build on customer skill and knowledge to improve service design and execution.

Prevention is Key to Managing Customer Failure

Service companies try to win on reliability and, failing that, to win on recovery by fixing problems. Given the inevitability that the company will not always win on reliability, considerable attention has been directed toward developing effective responses to service failures.7 As part of a case study we developed about the hospitality industry, we interviewed several managers, including the founder of the Delta Hotels chain, based in Toronto, Ontario. Our interviews revealed that while most companies we spoke with felt they did a very good job designing and implementing procedures to deal with their own failures, managing customer failures was far more difficult. In this published example, a manager with Delta Hotels describes what happens when overbooking results in a confirmed guest being left without a room: “If the overbooking situation is clearly the hotel’s fault, we arrange and pay for accommodation at a similar hotel for the night. We will also pay cab fare to and from that hotel (to bring you back when a room opens), plus pay for a long-distance call to let the office or spouse know of the change. In addition, members of the Delta Privilege frequent guest program also get $200 in cash, plus an invitation to a free weekend with their spouse at some future date.”8

However, the same Delta Hotels manager offers the following perspective when a customer rather than the company is at fault: “In situations where the traveler is at fault, the solution is left to the discretion of the reception desk staff. If your reservation says you must check in before 6 p.m. and you show up at 6:30 p.m. and have not bothered informing the hotel you will be late, you are at the mercy of the clerk if there are no rooms available. We are mortified when that happens. Remember, their goal is to resolve the situation in such a way that people want to come back and stay with us.”

This example illustrates a common theme, revealed in many of our interviews, concerning the challenges in recovering from customer failures. First, it is often difficult to reach agreement on who is to blame for the problem, which can lead to conflict. An important finding from our research is that there are frequent disagreements between customers and companies regarding who is really responsible for the “customer” failure. Attempting to make customers responsible for their failures can result in an uncomfortable situation for both staff and customers. Even when customers admit fault, they expect the company to help solve the problem, and if they don’t get help, they often lose trust in the company.9 Furthermore, customers may not even be aware of their failure or may be unwilling to report it. For example, in our case study of the golfing industry, we found that while most golf courses have a stated policy on how long golfers should take to complete a round, players are generally ignorant of the metric.

However, not holding customers responsible for their failures removes any incentive for them to improve their performance the next time. In fact, it reinforces the costly behavior and is one reason many companies are aggressive in holding customers accountable. Another challenge is that customers and service providers make substantially different types of errors. What organizations have learned from handling their own failures may not be useful in recovering from customer failures.10

These problems suggest that it is very difficult to execute a successful “recovery” when customers fail. Therefore, efforts to manage customer failures should focus on the pursuit of reliability and failure prevention. In other words, although the company can pursue both reliability and recovery to improve its own performance, reliability is of paramount importance in improving customer performance. There is a three-step framework for preventing customer failures:

Step One: Collect Diagnostic Data on Customer Failure Points

Preventing customer failures requires a systematic examination of the situations in which customers have a negative impact on their own experiences, on the satisfaction of other customers or on the companies’ front-line employees or their productivity.11 While our interviews with senior and front-line managers added to our understanding in this area, most of the companies we spoke with during that part of our research had only an ad hoc process in place for gathering this information, rather than a systematic procedure. We observed systematic approaches to gathering data about where customers might fail in many of the companies that were part of our case study research. From this research, we developed sets of questions that companies can use, at various levels of the organization, to identify likely sources of potential customer errors. (See “Understanding Why Customers Fail.”)

At the strategic level, senior managers need to understand how customer co-production contributes to both business strategy and operational excellence. One strategic issue involves deciding upon the division of labor between service employees and customers; factors to consider include what best creates value and uniqueness in service delivery in the eyes of customers and inimitability in the eyes of competitors. Then, to achieve operational excellence, the company’s senior management should specify the customer’s co-production role. Creating this customer role specification is essentially the same task as conducting a job analysis for employees. The company needs to analyze what “critical behaviors” customers will be required to perform, in terms of the importance and frequency of each behavior.12

Partners in an accounting company we studied believed that successful client participation was critical to their concern’s performance. They found the keys to preventing customer failures to be selecting the right clients, ensuring that clients understood their role, setting expectations for client performance and identifying potential support, such as helping a client find a good bookkeeper. The company also explained to clients how their performance would affect the fees they would be charged. Finally, the accounting company partners recognized that poorly performing clients get frustrated, and that, in turn, often leads to poor morale in the office. They set pre-engagement meetings to communicate to clients, and the staff members who would be working on their files, their responsibilities and to address any initial concerns. These meetings also identified why the client was changing accounting companies; this information was useful in better understanding what types of customer failures might occur in the future.

For a company’s middle managers and line managers, the focus should be on identifying customer failures and developing specific strategies to prevent them. Front-line employees, meanwhile, can provide a reality check for senior management’s plans regarding customers’ expected roles. Front-line employees can also provide insights into how customers are actually performing and affecting all aspects of the service system. Furthermore, front-line staff members are in a position to observe the underlying causes for customer failures. In researching a case study about the diet industry, we found that Jenny Craig Inc., based in Carlsbad, California, and Weight Watchers International Inc., based in New York City, recognized that the key to successful dieting was not creating a pill, drink or meal plan that generated weight loss; the key was preventing clients from losing motivation and giving up. Managers and front-line personnel tracked the reasons clients had for failing to comply with the weight loss plan and then either co-created solutions with the client or offered suggestions based on past clients’ experiences. The front-line personnel also tracked progress over time through individual and group meetings and identified barriers to staying on track.

Current and lost customers provide unique insights into the challenges customers face in performing their roles. They can supply detailed descriptions of the strengths and weaknesses of the company’s systems for customer support. The accounting company we studied had annual reviews in place to see if customers achieved their goals. Clients generally voiced concerns over any stress they experienced in getting work to the accountant on time and in the proper condition to get the best value. That frequently led to some changes in the processes and responsibilities of the parties.

Step Two: Identify Root Causes of Customer Failure

After identifying potential customer failures, companies should give careful consideration to the failures’ underlying causes. In our interviews with customers and organizations, we observed a clear difference in perceptions of the cause of apparent customer failures. Employees and managers initially tended to focus on the customer as the source of the problem, stating reasons such as “the customer misunderstood or was not prepared,” “they lacked motivation,” or “they didn’t follow directions.” The tendency of managers and employees to put the blame on the customer immediately reflects what is referred to by psychologists as “fundamental attribution error.” That is, when a failure occurs there is a bias to find a person to blame, rather than blaming the problem on a system or task. In the case of customer failures, service providers tend to jump to the conclusion that the problem is the customer’s fault, rather than attribute the problem to situational causes.

Customers, on the other hand, often believed that the organization could have prevented them from failing and was at least partly responsible for most “customer” failures. We found that, over time, after repeated customer failures, managers and employees began to recognize that many of the failures could have been prevented if the service system was changed. However, if managers and front-line employees frequently err initially in identifying the true causes of a customer failure, that may significantly delay, or even preclude, putting remedies in place.

An example of a relatively simple problem from our case research highlights this problem clearly. A large hotel chain had identified a customer failure that appeared in all of their hotels. Customers were demanding a refund for in-room telephone charges that they believed were unjust. The management of the hotel chain was confused, because in the drawer below each telephone was a little black book that outlined all telephone charges. The management believed the customers failed, since it was their job to read the information. This perceived failure was costly; if the hotel chain gave the customer a refund, the company lost revenue, but if it didn’t give it, the customer left the hotel irate at the unexpected charges.

The customers told a very different story. They believed that the information regarding the phone charges was not well displayed and that the charges were hidden on the bill. They blamed the hotel for not making both clearer. The hotel was shocked to learn this, but in this case the solution was simple. A laminated card was placed over the phone, and customers had to remove it to use the phone. This card had all telephone charges clearly outlined and could not be missed by a customer who happened to be using the hotel phone for the first time.

As this example illustrates, companies need to conduct a root-cause analysis when an apparent customer failure occurs, rather than just relying on intuition. We use what is known as an Ishikawa or fishbone diagram to illustrate that observed customer failures may have multiple root causes that need to be considered. (See “The Root Causes of Customer Failures.”) Fishbone diagrams, so named because of their shape, are a popular tool for determining the underlying causes of problems. Once a company has identified a customer failure, that failure is placed on the right side of a fishbone diagram. Building the diagram involves brainstorming to determine all of the possible reasons a specific failure occurred and then grouping those reasons by category; the categories form the body of the diagram. After all of the possible root causes of a problem are identified, businesses can investigate further to pinpoint the actual causes of the customer failure.

Systematic approaches like this one facilitate the analysis of customer failures. Moreover, they show how redesigning the service delivery system can help prevent customer failures. Typically, the underlying causes of customer failure lie in one or more of four categories: people, processes, servicescape and technology.

People

This category focuses on customers and front-line service personnel. Customer attributes that frequently lead to customer failures include lack of the skills needed to perform the expected role effectively and efficiently; poor attitude and effort; insufficient preparation; poor fit between the customer and the service; and failure to communicate important information correctly to the service provider. Another factor that often contributes to customer failure is a lack of role clarity, so that it is unclear what a customer and an employee are each supposed to do and in what order.

Processes

By addressing process design issues, companies can reduce the chances of customer failure. Root causes of failures in this category include complex processes, lack of available information to clarify procedures, and an overall design that is difficult for customers to learn and use.

Servicescape

The term “servicescape” refers to the physical environment that customers encounter at the service site.13 The environment consists of three core components: ambient conditions; spatial layout and functionality; and signs, symbols and other objects. The servicescape has an impact on customers’ mood, attitudes, comfort and physical movement as well as on their understanding of their responsibilities. Ambient conditions, such as temperature, noise and lighting, have a direct sensory impact on customers. Spacing and functionality refers to how the environment is laid out and the way equipment and furnishings are arranged. Physical tools such as signs and symbols are used to convey to customers expectations, instructions, general guidance and rules of behavior.

Technology

The increasing adoption of self-service technologies has led to greater consideration of the characteristics that lead to successful technology use by customers. In a finding consistent with other studies, our research indicates that technology that is easy to use, well designed, functional, accessible and well supported reduces the chance of customer failure.14

Step Three: Establish Preventive Solutions

Once the common causes of a given type of customer failure have been identified, the next step is the development of preventive strategies. The complexity of solutions to customer failures varies dramatically. While the hotel example showed that simply putting a laminated card over the phone cleared up customer confusion over phone charges, such “foolproofing” or “poka yoke” (a Japanese quality control term that means “mistake-proofing”) techniques are not sufficient in complex cases like dieting or many of the other customer failures we examined. For example, in the dieting industry, it is important for companies to understand the psychology of the client and recognize lifestyle issues and other barriers to success. Generally, when customers’ roles are more complex, failure prevention strategies need to take on greater sophistication.

In the interest of clarity, we’ve listed five categories of solutions below. However, in reality, strategies may need to be combined to achieve the desired result. Throughout our research, we found that multiple strategies were often needed to prevent customer failures. The examples provided here come from both our primary research and from best practices identified in secondary sources.

Redesign processes.

The more complex the customer’s role, the more likely the customer will make a mistake. Redesign of the customer’s role and process changes can reduce failures significantly. For example, Jenny Craig has helped customers comply with weight loss programs in an industry with a very high customer failure rate. After frequent redesigns, Jenny Craig’s system now revolves around personalized one-on-one sessions with a weight loss expert who provides both educational and moral support. The company also sells nutritious prepared foods so customers don’t make poor shopping decisions. These strategies help overcome many of the reasons clients fail to comply with their diets.

Netflix Inc. offers an example of a company redesigning a standard business model in its industry. Netflix, based in Los Gatos, California, redesigned the DVD rental business by charging a flat fee and allowing customers to return DVDs by mail at their leisure. This change removed the failure points associated with customers either incurring a penalty by forgetting to return the rental on time or having to return it without watching the movie. Interestingly, Blockbuster Inc., based in Dallas, Texas, has reacted to such innovations by removing late fees for videos held past their due dates, opting instead for a one-week grace period, after which the customer is assumed to have purchased the product.

Implement technological solutions.

Technology solutions to customer failure problems can either be implemented internally, to support employees, or externally, for customer use. Glitz!, a clothing store in the Mall of America in Bloomington, Minnesota, is an example of a company that offers a technology solution for employees. The store offers a prom dress registry to help customers avoid the embarrassment of selecting a dress that someone else in their school has purchased. When a prom dress is purchased at Glitz!, the information is logged into the computer software program and all future purchases at Glitz! are checked to ensure that a failure dreaded by customers — a duplicate prom dress at the same dance — does not occur. The program ensures that customers can buy with greater confidence.

Circuit City Stores Inc. is another example of a company using a database to overcome customer failure. Circuit City, a consumer electronics retail chain based in Richmond, Virginia, keeps a virtual copy of purchase information in case customers fail to keep, or, lose their receipts. The company recently ran a series of television commercials showing a customer fumbling through his pocket for a receipt for the product he is returning. The salesperson smiles and explains that the receipt is not necessary, because the company’s database keeps the records for the customer.

Expert systems, which assist customers in making the right purchase decisions from a large set of choices, are a good example of a technology used directly by the customer. Financial service companies, particularly those offering online investments, have used expert systems to allow customers to self-diagnose their risk tolerance and financial needs to determine an appropriate portfolio of retirement investments.

Manage customer behavior.

To prevent customer failures, it is necessary to leverage the same three factors that shape employee performance — role clarity, ability and motivation15 — to create high-performance customers. First, companies must provide role clarity by clearly communicating performance expectations to their customers. Companies need to ensure that their customers understand where they should be, when they should be there and what they should be doing at various points in the process.16 Recent studies have highlighted the importance of using managerial expertise to clarify the customer’s role.17 Saturn Corporation, based in Spring Hill, Tennessee, trains novice buyers about proper vehicle maintenance, which reduces the chances of two common customer failures: breaking the warranty contract and not maintaining the value of the car. TrixiePixGraphics, a Seattle-based provider of gifts and fictitious newspaper stories, provides on its Web site a list of the most common mistakes customers make and describes how to avoid them.

Some companies remind customers when payments are due to help them act in a timely manner and thus avoid a penalty. For example, New Peoples Bank Inc., based in Honaker, Virginia, provides e-mail notification about credit card bills that are due in less than 24 hours. USAA, a financial services company headquartered in San Antonio, Texas, reminds customers who are in the military to suspend their car insurance before they go on overseas assignments, so they can save money.

Another way that businesses seek to improve their customers’ performance is by motivating them with rewards or punishments. Companies such as banks, rental companies, airlines, hotels and credit companies penalize consumers for violating the terms of a purchase agreement, in order to compensate the company for customer failures and encourage customer discipline. For example, many financial services providers charge a fee for late credit card payments. It is also common for professional service providers to charge a no-show fee.

However, there are important caveats about the use of penalties to prevent customer failures. Customers who are punished for an error are more likely to be critical when the organization fails and are more likely to expect more in return. What’s more, customers’ acceptance of a penalty is influenced by their perceptions about whether the penalty was unavoidable or resulted from personal negligence. Even if the customers agree that they are at fault, the penalty may weaken the relationship if the customers feel they have been loyal to the company. Generally, companies should introduce punishments only when they are confident that they have done enough to help the customer avoid the failure. Also, competitors may not charge the fee and may use that as a marketing tactic.

Another approach is to reward customers for avoiding failure. Gordian Health Solutions Inc., which offers integrated health management services to employers, identified that employees’ failure to participate in health, lifestyle and disease management programs was a major opportunity for Gordian’s customers, the employers. Gordian, based in Nashville, Tennessee, undertakes an analysis of insurance claims with employers to identify the savings that could be made on claims if employees successfully take part in various health programs. Gordian examines the root causes for a low participation rate in an employer’s programs and highlights possible solutions to increase participation at a given corporation. Gordian has found that instant incentives to take part in programs, such as a 20% reduction in an employee’s contribution to health insurance premiums, in most situations work better than delayed rewards, although the types and amount of incentive will vary among companies.

Encourage “customer citizenship.”

Our research reveals that customers’ support of one another could play an important role in preventing customer failures. For example, in our diet industry case studies, it was easy to observe how Weight Watchers clients support one another and frequently prevent failures from occurring. One way is through encouragement at meetings, where clients share success stories and support those having difficulties. Furthermore, in our study of the golf industry, it was clear that golf courses rely on players not only to behave appropriately, play at a reasonable pace and fix any damage they do to the course, but also to respect and support fellow players.

We consider the phenomenon of customers helping one another prevent failures an aspect of “customer citizenship.” Customer citizenship is voluntary, discretionary behavior by customers that supports the company and/or other customers. Research indicates that perceived fair treatment by the company and customer satisfaction and commitment encourage customer citizenship behavior.18

Vigil Health Solutions Inc., which provides technology that supports the care of dementia patients in long-term-care facilities, used customer citizenship to help overcome a customer failure that it observed: Front-line caregivers at the facilities often had limited education and were uncomfortable with new technologies. As part of its strategy for training customers, Vigil, which is headquartered in Victoria, British Columbia, identified a number of caregivers in each customer organization who picked up on the technology quickly and liked helping others. The company called these caregivers “star trainers” and trained them to act as internal champions for the technology and provide informal support for the rest of the workers.

Improve the servicescape.

The service environment has an impact on how customers think, feel and behave, and it contributes to both positive experiences and customer failures. The golfing industry has been a leader in incorporating servicescape design into customer failure prevention practices. Management recognizes that customers are largely responsible for the length of time it takes to play and for routine course maintenance, such as fixing ball marks on putting greens. A course that takes too long to play and is not maintained well by the players ends up with dissatisfied customers, lower revenue and higher maintenance costs.

We observed a variety of approaches designed to support faster play and encourage routine maintenance. Several courses provide a chart at the first tee to help players select the appropriate tee to play from based on their skill level or handicap. Signs indicate the expected time to play a round and clocks placed at several locations indicate the actual pace and inform players whether they are keeping up with the expectations. Also, global positioning systems (GPS) have recently been included in some golf carts to give players a precise distance for their shots. That information reduces a player’s decision-making time and makes it less likely to judge the distance incorrectly. To encourage players to take care of putting greens, some courses provide a free tool for repairing ball marks. At some other courses, groups of players are each assigned to focus on repairing ball marks at a specific putting green.

A Management Imperative for the Future

Companies like Weight Watchers already recognize that avoiding customer failures is a management imperative and a source of competitive advantage. In the future, customers are likely to seek more control of service design and delivery. Companies, in turn, will look not only for deeper customer relationships but also for cost efficiencies through customer self-service. As a result, customer failures are likely to increase — unless companies pay attention to identifying potential customer failures, recognizing their root causes and implementing creative approaches to prevent them. Creating an organizational culture that values preventing customer failures — and then investing in systems to achieve that goal — will become an increasingly important contributor to a company’s competitive advantage.