Questionable Customer Service

David MoonBlog

by David Moon

One of my favorite companies with which to do business is 1800contacts. From the time it took me to walk from my desk to the elevator one day this past week, I called an 800 number and ordered six months’ worth of lenses that arrived two days later. My call was immediately answered by an actual person—one who was courteous and seemed genuinely appreciative of my business. I understood every word she said—an impressive accomplishment given that my native language is redneck Alabamian.

I also spent 32 minutes on hold this past week with my cell phone carrier. Once I got to a person, I was eventually advised that I needed to go to their store to resolve my problem. I am not going to name the company, but its name rhymes with “splint.”

At the store, I was advised there might be a 15-minute wait to see a technician. Over an hour later, I met with someone who said she could resolve my issue, but it would require a return visit to the store.

I’m not shocked that my wireless carrier has experienced a monthly customer churn rate of approximately 2.8 percent over the past 36 months. (“Churn rate” is rate the percentage of customers who terminate service for any reason.)

Verizon Wireless has the lowest churn rate among the major providers, with AT&T a close second. U.S Cellular made the most improvement since 2013, dropping from a peak monthly churn rate of 2.65 percent to 1.69 percent.

Not surprisingly, earnings at Verizon and AT&T increased 150 and 200 percent over the past three years, while US Cellular swung from a 2014 loss to a gain in 2015.

The parent company of my carrier lost money each year since 2013. (Notable, however, was its honor this past week for outstanding customer service to the deaf community.)

Admittedly, wireless is just one of the many services offered by these companies—but it is the most profitable segment of their business. Or least unprofitable, in the case of my carrier.

Research on the relationship between customer service and stock returns diverges significantly.

Customer service is only one of many factors affecting the most correlated series with stock returns: corporate earnings. The relative importance of customer service on earnings and stock prices, however, is industry dependent. JC Penny regularly earns high customer service scores, but it is in an industry that was difficult even before being eaten away by big box discounters and Amazon. Outstanding customer service will have little positive impact on fax machine manufacturing revenues.

And proof that brand loyalty can be a powerful force is that Borders’ customer satisfaction ranking was among the top quintile of US companies in 2012 and 2013, despite closing its last store in 2011.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN)