Wednesday, 23 September 2015

What has happened to Customer Service?

A good buddy of mine and me often get together and discuss how our experience with the service from different companies is painfully getting worse. Either he or I regularly experience really poor service from one company or another. We then ring and share our experience.

It happened to him again recently and he dutifully reports in and explained his experience again. It got us discussing what is it that is causing this regular experience. Why is it that companies on such a regular basis let us down in this department and why is it that when you do experience good service it stands out  so glaringly.

We came up with a few that we feel are all contributing and they are listed below. I would be interested in hearing if you feel we have missed and what specifically they might be.

Our list:
·      Australia hasn’t experienced a recession for over 25 years. There are multiple generations who have never had to run a business at a profit during difficult times. So anyone who entered the workforce at or after 1990 falls into this bracket. Assuming they were 20 at the time means any one younger than 45 hasn’t really experienced what it takes to run a company profitably in difficult times. How many of the customer service departments of companies today are run by someone at or younger than 45? We think there are quiet a few. So the demands on customer service and consequences for not providing first class service haven’t been great for quiet some time. Do you feel a change in the wind coming?
Which raises the question – what are you doing in your business to prepare for and to thrive from this change in the wind?
·      Cost cutting initiatives often transfer costs from the company to the customer. The airline websites are a clear example of this. In today’s Internet driven world the effort in finding suitable flights, making and paying for the booking is pushed back up the supply chain to the customer.
·      Businesses are becoming comfortable with the disconnection brought on by technology. Telephone and Internet providers are another example. Have you had a problem with their service and tried to get service recently? You are provided with a list of things to try while you wait on the line for a customer service person to answer your call. You are told one million four hundred and twenty three thousand six hundred and twenty three (1,423,623) times how important your business is to them. You are told that the call will be recorded for customer service improvement purposes – yet it never improves. Who listens to these things? An finally when the calls are actually answered by a human being, those behind the keyboards are comfortable hiding behind the screen/phone line. They can get you to do all the work, unplug this, re-plug that, restart this and take a photo of that and send it to us.

Something serious is missing here don't you think? What do you think it could be?

© David Ogilvie 2015 All Rights Reserved

David is a global expert in profitability improvement and maximising investments in ERP systems.

Tuesday, 8 September 2015

Discounting: The Profanity of Quiet Times

The financial press of late has been full of stories of how the economy is turning for the worse, how China’s downturn will be bad news for Australia and how unemployment is set to rise.
As I was reflecting on this news, I recalled a recent shopping expedition. My better half and I spent a lovely day in the city utilizing all the gift cards I had received as Christmas presents. I was simply amazed by the number of stores offering massive discounts on their products. With the increase of For Lease signs in shops, it is not hard to tell that retail has been tough. However, the amount of discounting on offer was something I don’t recall having seen quite at this level before. (I humbly admit I am not an avid shopper, so that doesn’t necessarily mean much.) Having had a retail arm at a previous business I owned, I was really feeling for them, knowing full well the level of damage discounting does to your profitability.
While there are a small number of legitimate reasons for discounting in some industries (fashion, for example, when the current stock is out of style), in general terms I abhor discounting. And in fact even in fashion, superior supply chain management and inventory control can help prevent the need for clearance sales. Discounting places substantial pressure on profitability.
The level of damage done can be clearly demonstrated by examining the widely used profitability discount matrix. In summary, this is a traditional matrix that shows the gross profit (GP) percentage on one axis and the percentage of your price cut on the other. The intersecting cells indicate the increase in sales volume that is required in order to make up for the discount you have provided. Let me repeat that: The increase in sales required to make exactly the same level of gross profit. Not more, but exactly the same amount.
For example, if you are operating with a 25% gross margin and you reduce your sales price by 10%, you will have to increase your sales by 66.7% to make the same dollar profit. This is also assuming you can accomplish the following things:
a)     You are actually able to achieve a 66.7% increase in sales as a result of the discount.
b)    You are able to achieve this increase without incurring any increase in other operational costs, such as additional sales people or delivery costs. A detailed “cost to serve” analysis will help you here. (If you don’t know what cost to serve is, give me a call—you’re missing out big time.)

The increase required to cover the reduction escalates rapidly the higher the discount goes. For example: Again your GP is 25%. A discount of 13% requires an increase in sales of more then double (110%). So for an additional 3% increase in the discount, an additional (approx.) 30% increase in sales is required to make up the difference. 
Hopefully, you can quickly see why competing on price is the scourge of business. My philosophy is always to compete by providing extra value, not a lower price. When times are competitive, look for ways of adding value to your customers’ experience rather than reducing the price. If you don’t have a copy of this discount matrix, send me an email at with “Discount Matrix” in the subject line, and I will forward you a copy.
© David Ogilvie 2015 All Rights Reserved
David is a global expert in profitability improvement and maximising investments in ERP systems.
Contact Details:

Phone:                        +61 (0)438 787 759

Tuesday, 1 September 2015

Business Lessons Learnt from Saturday’s Dinner

Some businesses can’t help themselves and don’t seem to want to succeed. The following story and subsequent business lessons come from a recent dining experience.

Saturday evening last week, I decided to go out for dinner. Being in Perth and being 4,500 km away from home on a project, I quite frankly didn’t feel like cooking, so out I went dining on my own—something I get quite used to. I had seen a TV segment on a new part of town that had recently been redeveloped, so I decided to go and have a look.

The segment had obviously done its job, as this section of the city was substantially busier than other parts of the city. While walking through the arcade, I found a restaurant that caught my eye. It was busy but not full, having quite a few tables available, and without Reserved signs on them. I approached the concierge, and she said she needed to check with her manager to see if they would take a table for one. She came back and politely told me there weren’t any tables available. I pointed to the 10 or so tables I saw with no one sitting at them and asked, “But what about those?” and she responded with, “I’m sorry, sir—we have no tables available.”

I went on to another restaurant, had my dinner and then went for a walk around the city that took me past the first restaurant. Lo and behold, as I walked past, there were the tables—still empty. How would you be feeling about now?

It made me wonder, What was that manager thinking, and what was he trying to achieve? While not having spoken to him to get the exact specifics, I can’t help thinking he was trying to maximize the use of the tables. He had tables for two and four available, but by putting one person on a table for two, that table was only yielding him 50% of its potential.

Compare this to a successful restaurant near my unit where I often visit and where the owner has a completely different mind-set on how to manage this situation.

His restaurant is substantially busier than the one I visited on Saturday, yet he manages to fit me in without any difficulty at all. Before you ask, there is no substantial difference in the number of tables at either restaurant. His approach is to take me in and make sure I receive quick service. The waiters are quick to give me the menu, ask for my drink order and get my dinner order. The meal is delivered quickly, as is the bill, which is delivered soon after I have finished eating and have indicated that I don’t want dessert. His mind-set is about table churn. I have often seen the table reset and a couple sitting at it by the time I have paid my bill at the counter.

His restaurant’s reputation and business are enhanced because of his actions:
·      He takes me in while being busy even though I am a table for one.
·      He ensures that I get quick service.
·      He resells the table shortly afterward.

One manager was focusing on maximizing the numbers at the tables at any particular point in time, while the other owner was focusing on maximizing the number of people throughout the evening. Quite a different target and quite a different result. It goes to show that you need to be careful where you focus.

Another lesson I see in this is that the owner of the first business seems isolated from what is happening on the front line. This separation between the manager and the daily activities of the business is the main thrust of the TV reality series called “Undercover Boss.” (You may wish to review my article on this show and the lessons to be learnt from it.)

These lessons become even more important when you consider the current economic climate in Perth at the moment. Just walking around, it is easy to see that Perth’s economy is not in good shape. Every day a new shop empties out and a For Lease sign is posted. Office space is available everywhere as companies either close up or close their Perth office.

Perth has had it good in the recent past. Recent prosperity is one of the reasons why everything here is so expensive and why the quality of service is, to be frank, quite bad. Businesses here have not had to work hard to get patronage. Particularly in the hospitality trades, pubs and restaurants provide very low levels of service and charge expensive prices for substandard meals.

The rotating nature of the mining boom means that new people are rolling through the city every few months, so businesses haven’t needed to work on the basics of building a loyal following amongst their customers. When one rotation finishes, the next group of people comes through; many of them are new, and so the cycle continues. This cycle means that business will come through the door whether organisations do a good job or not.

The lower commodity prices will change this, and when it does (as it seems to be doing at the moment), these operators will struggle. My local Italian restaurant will continue to thrive while those new ones, yet to learn these lessons, will soon be moaning about how the bad economy is the cause of their struggles.

Lessons to be learnt
Successful business people focus on maintaining the basics and executing them flawlessly. They get what they focus on.
What are you focusing on at the moment? Could a mind-set rearrangement help you and your business? Here are some things you can do tomorrow:
·      Take a look at how your mind-set is impacting your business.
·      Shop your business and find out what is really happening.
·      Ensure your focus is on improvement activities like these:

o   What is my customer’s experience like?
o   What is my return on capital?
o   Can I increase my inventory turns?
o   Do I have customer payments that are outstanding for longer than 60 days?

If you want assistance in any of these areas, contact me:
David Ogilvie
Phone: +61 (0)438 787 759
© David Ogilvie 2015 All rights reserved

David Ogilvie is a global expert in profit improvement and maximising ERP investments.