Why a Pyrrhic victory is a great way to lose a customer for life

Companies don’t grow by making a sale. They grow by attracting and retaining customers, which sometimes requires losing a battle to win the war.

I was in Atlanta to support a family member who required significant surgery and had selected the doctors at Emory’s Winship Cancer Institute for the procedures. The Atlanta location made sense, even though it was over an hour away from her home, or two and a half hours in rush hour traffic, assuming there wasn’t a major crash on the Atlanta beltway.

We made reservations for two rooms at the Holiday Inn near the Institute in central Atlanta. The idea was this would reduce stress, and guarantee we would get her to the hospital in time for the 8:00 a.m. Monday surgery. Since all the details of the surgery weren’t worked out when we made the reservations, we chose the “best flexible rate” reservation that allowed us to cancel up to 6:00 p.m.

When we arrived in Georgia Saturday evening, we discovered that we needed to extend our stay for two nights and that there was more than one Emory Winship Cancer Institute facility in Atlanta. We had reservations near the wrong one. I logged back onto the IGH Rewards Club website and made reservations for two rooms for two nights at the other Holiday Inn near the correct facility. By then it was 8:00 p.m. Saturday. I then attempted to cancel our reservations at the other Holiday Inn.

The hotel reservation clerk said, “I’m sorry, but it’s too late. You would have had to cancel them two hours ago.”

I didn’t believe the reservation clerk understood, so I said, “My reservation is for tomorrow. I paid the higher rate so I had the flexibility to cancel if I had to change it. Don’t I have until 6:00 p.m. Sunday to cancel?”

“No,” the clerk said, “you would have had to do it by 6:00 p.m. today.” I asked to speak to her supervisor.

I explained to the supervisor that I had used the IGH Rewards Club website and had already made new reservations for two rooms for two nights at their other Holiday Inn in Atlanta. We were in the midst of a family crisis with an operation Monday morning. I felt that for a long-time customer they would certainly waive the first night cancellation fee, over $300, since I had actually increased the number of nights we would be staying at a Holiday Inn.

“No,” the supervisor replied, “policy is policy.”

If that was the case, I asked them to cancel the reservations at both Holiday Inns. I asked her, “You’re willing to lose four nights because of policy?”

“Policy is policy,” she said.

“You understand that you are not only losing the other reservation, but 100% of my future business?” I said, hoping one last time for a different answer.

“Policy is policy.” Her final words struck me as ironic: “Is there anything else I can do for you?” You’ve done quite enough, I thought.

After canceling the new two-night, two-room reservation at the Holiday Inn, I made reservations at one of the other five hotels near the facility where the operation would be done. Holiday Inn won this battle. And when I went back to review the terms of the original reservation, the fine print did say “Saturday.” (This was at odds with my decades of hotel stay experience. In the past, it seemed to me, I always had the option to change a reservation that day, usually up to 4 p.m. Ah well, standards do change over time.)

So, policy is policy. But IGH lost me as a customer. Their corporate cash flow (from me) was immediately cut in half that week. (The original reservation was for two rooms for one night.) And they lost the “net present value” of my future business. More significantly, they lost a loyal customer.

In Tom Peters’ classic book In Search of Excellence, he relates the story of Stew Leonard's, a Connecticut and New York supermarket chain with records for the highest revenue per square foot. They have only two rules: "RULE # 1: THE CUSTOMER IS ALWAYS RIGHT!  RULE #2: IF THE CUSTOMER IS WRONG, SEE RULE #1." Stew Leonard set the rule after winning a battle with a customer who tried to return a bottle of milk she said was spoiled. Both the dairy manager and Leonard tasted the milk and told the customer she was wrong. They refunded the cost of that bottle but left such a bad taste in the customer’s mouth that she never shopped at the store again. Leonard reviewed the total revenue an average customer generated and concluded that he had not just lost the value of a bottle of milk, he had lost all that customer’s future value. Whenever I’m near Danbury I drop by the store. Before shopping, I read and reflect on the rules, which are engraved on a large rock in front of the store.

A famous study for Coca-Cola in 1981 found that a median of 10 people heard about a bad customer experience -- and that was in the days before the Internet and social media. (I expect more than 10 people are reading this article at this very moment.) Stories of poor customer service will echo on the Internet forever -- as will positive stories. The stories of Nordstrom’s customer service are legendary.

Many studies have shown it is over five times as expensive to obtain a new customer as it is to maintain an existing one. An existing customer is usually less sensitive to price as well as being a source of referrals. How do you maintain that existing customer?

• Follow Stew Leonard’s rules. When you have a bad customer, as we all do from time to time, fire them. But never, never give any customer a reason to fire you.
• Communicate the importance of focusing on the customer relationship rather than on the individual sale. There’s no entrepreneurial fairy that funds employee’s paychecks; customers do. Coach your employees to turn customers into “raving fans.”
• Establish policies that empower customer service employees to make smarter decisions. “I’ll see what I can do and let you know” sounds much better to a customer than “policy is policy.” It’s even better if the customer service employee can make the decision themselves, i.e., as they do at Nordstrom. If an employee turns out to not have sufficient judgement to execute this responsibility, fire them, but don’t institute a policy that hog-ties the rest of the customer service department.

And one final suggestion. Never, never allow your customer service people to use the phrase “policy is policy.” Remember, a Pyrrhic victory is not a win at all.