Article | October 29, 2013

The Retail Paradox: Save Money, Or Spend It On Customer Service?

By John Orr,  senior vice president of retail strategy and execution, Ceridian HCM.

It’s commonplace for companies to look to improve their workforce management strategies in an effort to strengthen their customer service initiatives – especially in the retail sector. Good service is the primary reason that successful merchants complete sales, and in a competitive sales environment, businesses seek to differentiate themselves from their competitors by providing superior consumer care.

However, a paradox has ham-stringed retailers in their attempt to make sound business decisions. On one hand, some retailers have been cutting labor to back into key metrics such as wage percent and overall labor costs. On the other hand, quality customer service coverage costs money, and often, retailers have cut for so long they have self- fulfilled their own death spiral prophecy: lower labor costs in store to recoup margin, lower service levels result, lost market share and less sales growth – repeat.

This concept was of recent focus in a webinar with myself and Paula Rosenblum, managing partner at Retail Systems Research.  Rosenblum explained this paradox, citing a 2013 report from RSR about workforce management, entitled “The Store Employee in the Customer Age.”

“It’s the store employee that can make the difference to the in-store experience,” the report noted. “But getting the most value out of the employee investment remains a challenge.”

In a survey of retail business leaders conducted by RSR, 58 percent said that a “need to meet the demands of consumers for better customer service” was one of the top three challenges facing their businesses. Meanwhile, 43 percent said they needed to “reduce labor costs as a percent of sales.” These businesses know that to do both is challenging.  In today’s economy, retailers need an established position along each of the customer service quality dimensions: assurance, empathy, reliability, responsiveness, and of course store tangibles,  Without a stated competitive position on service level commitment, finding the right mix of investment and cost is impossible.

Better service?
On one hand, it’s easy to side with the 58 percent and determine that meeting customer service needs is more important. The most effective way to generate profits long-term is to build customer loyalty, and providing quality service goes a long way toward satisfying people. Service may cost money, but ultimately it will pay off in conversion rate and average transaction value increases and an overall lift in comp-store sales .

Better value?
On the other hand, the 43 percent who favor reduced costs also have a valid point. Today’s consumers are extremely price-conscious, and they have a multitude of tools at their fingertips for finding the best possible value on any given item. Earning consumers’ loyalty is difficult, but attracting quick upticks in sales by offering discounts has been a retail mainstay. However, it is the combination of service quality expectations by the consumer as set by the company and their shopping experience – which in comparison, provides the customers with his/her value proposition.  Consumers are looking for overall value and to the degree retailers meet or exceed their expectations will drive growth.

Business intelligence can help
There are no easy solutions to this conundrum, but undoubtedly, companies can make smarter decisions by using business intelligence tools to analyze their workforces. The more real-time the better as retailers have the need for speed. By examining how much money they’re spending on quality service, where and when they are spending it and what return they’re getting on their investments, retailers can better determine the  return on the labor spend.

There are many pressures affecting retailers’ business decisions. They need to spend money to give customers quality customer service, but they also need to keep their spending under control. Finding a solution to this dilemma is no easy task.

Click here to listen to the webinar.