One of my friends in India emailed me this morning, asking me for my thoughts about why companies seem to spend all sorts of money on things like sales and marketing initiatives and then not so much on anything that relates to training for the people who actually service those customers.
Yes, it is an interesting paradox: LOTS of corporate expenditures are on advertising and sales training and marketing personnel while expenditures relating to customer service and people aren’t so apparent.
My reactions are complex but straightforward. One real issue is that “investments in people” have no visible impact on anything measurable on the asset side of the financial accounting processes. People and investments in training are simply viewed as a COST of doing business! They are not seen as a benefit.
GAAP (Generally Accepted Accounting Principles) are the definitive source of accounting guidelines that companies rely on when preparing financial statements, presenting the details of a company’s financial operations. The impacts can be found in such places as quarterly balance sheets and income statements, 10-Q filings, annual reports and other online investment information. People are NOT valued in these things (although many will contain the pictures of the most senior management and some mention that, “people are our most important asset.”
Since management, analysts and investors routinely use these standardized GAAP metrics to gauge a firm’s financial health, those drive executive behavior. So, if people investments are not rewarded in how the investment community views a company’s prospects, senior managers are always under pressure to improve “results” by cutting expenditures on training and staffing.
And the paradox is that the impacts of cuts will NOT impact short-term reporting results. It takes a while for the impacts of not investing in people to be felt in the financials… Those of us old enough to remember “re-engineering” will remember the huge cuts made to people that resulted in all sorts of long-term problems for corporate results. Those data were convincing — downsizing was NOT a good idea when it came to long-term company growth.
On the other hand, spending Really Big Bucks on some fancy marketing scheme can have an immediate impact on sales as well as an immediate impact on the investor and customer perceptions of that same company. After all, having a Super Bowl advertisement means that the company must be successful and growing, right?
Here is another aspect of this same situation to give one pause: Investments in customer attraction versus investments in customer retention!
Take the total amount of expenditures for the acquisition of NEW customers. This should include all the marketing and advertising expenses, the amount spent on sales training and salaries of the staff and the allocated expenses of senior management that spend time focused on sales and marketing. Plus office space, retirement costs (yeah, right!) and similar.
Now, with that number, discover the total number of new customers actually added and divide to get The Average Cost of Acquiring ONE New Customer. (On occasion, you will find this number incomprehensible, like the number of stars in the Milky Way galaxy or similar…)
And, now for an even more interesting adventure, try to find the expenditures that are made on behalf of retaining those customers you have acquired at such great costs. See if you can find an expenditure for “customer service training” or for some budget to spend to resolve customer complaints.
My point is simple: companies spend lots and lots of money (and they always have) on the acquisition of new customers. Often, they have to take them away from another company — and if the customers are dissatisfied, that is less difficult. But they spend little on retaining them with good service quality practices, investments in people and training and skills, etc.
With mediocre experiences, customers really do not have too many reactions. Meeting expectations does not generate much of a reaction. You will not get referrals, but most customers will also not complain.
For many, reactions look like this:
On the other hand, poor customer service — even to loyal customers – will generate reactions, and often public ones.
To illustrate, read this very negative Forbes Magazine article on Best Buy and how they are being viewed (quite negatively, BTW, including my own negative personal experience years ago and my commitment to Never Again set foot in one of their stores, no matter what.):
Experienced employees have had some practice (and often some actual training) in how to deal with customers effectively and how to retain them over the long haul. This prevents them from becoming a customer of your competitors in addition to giving your company their business.
Take a look at YOUR relative expenses on marketing and on retention and see if they are in balance.