Do you know the lifetime cost of a reputation attack?
“Resistance at all cost is the most senseless act there is.”
Friedrich Durrenmatt
When most businesses look at how much it’s going to cost them to restitute an unhappy customer, they focus only on what it will cost them today. They baulk at the idea of providing a refund or compensation because, well, no one likes to give back revenue that’s already on the books.
It’s this reluctance to provide a refund that often causes a small reputation crisis to flair up and get worse. While superficially it may make sense to avoid this expense, in the long run you risk losing a whole lot more.
Lifetime customer value
If you spend any amount of time in marketing, you’ll eventually hear the phrase “customer lifetime value.” There are many interpretations of that statement, but Wikipedia offers a simple explanation:
The present value of the future cash flows attributed to the customer during his/her entire relationship with the company.
In other words, the amount of money can you expect to make from one customer while they have a relationship with you.
When facing a reputation crisis, you should consider not just the lifetime value of keeping this customer happy, but the lifetime cost of them becoming a detractor.
Lifetime detractor cost
Let’s say you have a customer that is not happy with your web site hosting company because their server crashed and they lost an entire day of productivity and business. They write a blog post about you and suggest that a refund of their past month’s hosting fees would make up for their inconvenience. That amounts to $100.
You look at their request in disbelief. There is no way you’re going to refund the $100 for a one-day outage. You deny their request and so they cancel their service and take their business elsewhere. You’re fine with that because you know that you can easily replace them with another customer.
As ESPN’s Lee Corso would say, “not so fast!”
Not only do you have to consider the lost revenue of your unhappy customer—the lost lifetime customer value—but you also need to consider the effect their complaint will have on your ability to attract new customers.
The blog post they wrote about you is now sitting in the top ten of Google’s search results. As a result, you lose out on the business of 10 new customers a month because they fear that they will have a bad experience with your company. If you assumed they too would have purchased a $100 a month hosting plan, and stuck around for at least a year, that equates to $12,000 in lost revenue.
You lost a total of $13,200 in revenue all because you decided you couldn’t afford to refund your detractor the $100 they had requested.
The intangible costs
In addition to the lifetime cost of a detractor, you should also consider the intangible costs involved when you decide not to acquiesce to their demands.
Time – the amount of time you spend going back and forth with your detractor could be better spent on growing your business.
Distraction – you’ll spend a lot of time explaining to future customers why this happened. You also run the risk that your attacker will become a “determined” detractor—a Troll that continually looks for ways to bad mouth you.
Sleeping – you’ll lay awake at night, mentally sparring them. Thoughts such as, “I should have told him this” or “He has no right to attack us,” will ebb and flow through your mind and disrupt your sleep.
Repairing – don’t underestimate how much time and money you will have to spend to clean up your online reputation. Many online reputation firms charge in excess of $10,000 a month to clean up a bad Google reputation.
Is that $100 refund starting to look a lot more reasonable yet? 😉
Come to an agreement
When coming to a resolution with an unhappy customer, it’s important to make sure that you are both on the same page about what is expected. This is not the time to shove a non-disparagement agreement in their face or insist that they take down their blog post—that can easily backfire and make the situation worse. Instead, confirm with them that by offering the refund, or providing the compensation agreed upon, they will consider the matter resolved to their satisfaction.
The idea is to meet or exceed their demands so that they not only stop attacking you, but they will want to go back and update their blog post or remove their negative review. While you don’t want to make your offer conditional on their retraction, you can imply that you want to make them happy again, so that they will want to tell others how well you handled the situation.
Restitution
Most of the time it will be better to simply say you are sorry and offer your customer some kind of compensation. Not only will this avoid the lifetime cost of a detractor, but studies suggest that an unhappy customer that receives restitution will tell more people about how great you are than one that never had a problem in the first place.
The only time when it makes sense to dig in your heels and fight them is when they are making defamatory remarks or using tactics to undermine your reputation. On Day 28 you’ll learn how to handle those types of reputation attacks.
