Best Buy, the number one electronics retailer, is doing quite well, thank you. But as of Sunday, March 8th, the number two largest electronics chain, Circuit City, will be closing its doors for good. (For some depressing pics, see Harry McCracken take in The Tragic Last Days of Circuit City.
But if an HDTV is an HDTV at any store, why then is Best Buy prospering while Circuit City, after 60 years peddling electronics, is padlocking its doors forever? "When a business chops everything, they put themselves on a death spiral," Scott McKain, principal of The Value-Added Institute recently told the Sacramento Bee. "(Without customer service) you drive customers away, so what do you do? You cut more? If you emphasize product over customers, you're always going to lose out."
While Circuit City's started the liquidation process at the end of last year, the retailer really began its death spiral long before that when it, "...got rid of its most senior employees, and what that meant was that the remaining people didn't know what they were talking about," McKain said. "That spelled the beginning of the end."
Further proof that great customer service and support is critical to a company's bottom line appears in BusinessWeek's most recent special report, Extreme Customer Service; When Service Means Survival. In its story, Customer Service: When Service Means Survival, BW reports that over the long haul companies with rising American Customer Satisfaction Index (ACSI) scores out perform those with lousy customer service. The magazine even suggests following ACSI scores as an investment strategy with lower risk: "An investor who bought the above-average and rising-score portfolio and simultaneously sold short the below-average and falling group had slightly better performance over the 10-year period with much less volatility."
"The link between ACSI scores and stock prices continued in the most recent downturn, according to [University of Michigan Ross School of Business Professor Claes Fornell]. For example, retailers that improved ACSI scores in 2008 saw share prices fall 30%; the S&P 500 declined 38%. Merchandisers with declining scores saw shares plunge 57%. 'Companies that improved customer satisfaction were punished less,' says Fornell."
The moral of this post is pretty obvious: Customer service and support is vitally important in good times and in bad. And you can bet the thousands of employees and their families that were affected by closure of Circuit City now wish that their senior management hadn't lost sight of that fact.