A tired employee is updating shipping orders late at night at a textbook brokerage. They make a mistake in the code and accidentally ship outdated management textbooks to an important customer. Three days later, classes have begun, and with demanding course loads, the students already feel behind. Many are seeking immediate replacements. Cue the angry phone calls and emails.

Thankfully, it is possible to repair the damage done. In fact, if this delicate situation is managed correctly, the company might actually come out ahead with its customers, a phenomenon known as the service recovery paradox.

The service recovery paradox is a phenomenon in which a customer who experiences a problem with a product or service, but has that problem effectively resolved, is more likely to have a positive impression of the company than a customer who never experienced any problems. Essentially, when a company is able to effectively recover from a service failure, the customer’s satisfaction can actually increase beyond what it would have been if the failure had never happened.

How can your company use this paradox to its advantage? Every department in a company can make a mistake that sends out ripples. It all comes down to your apology message — and how you document, memorialize, and share the apology process both internally and with external stakeholders.

How to Craft an Apology Message

1. Restore lost value.

Your customer believes the balance of “fairness” has been thrown off by this problem. They want to know what you’re going to do to restore the perception of lost value they have incurred. Offer to repair the situation to secure the attention and trust of your customers. If you don’t lead with this step, the rest of the message won’t be nearly as effective.

In the textbook situation, examples could include sending additional resources related to the book that provide additional learning value. Perhaps there are videos, simulations, or other materials the school or students didn’t pay for that enhance the learning experience. The key is providing something that has perceived high value to the customer, but lower cost to you.

2. Acknowledge responsibility.

This doesn’t need to be overly complicated, but it is critical that you distinguish between offering an excuse for what happened and accepting responsibility for the mistake.

After the example coding mistake, pointing blame at another entity, like a supplier or distributor, would cause distrust and derail the apology. Your message has to clearly say that you take full responsibility for ensuring that the problem is resolved in their best interest. That your aim is to regain their full faith and confidence in you as a partner. And that you’re taking proactive and preventive steps to protect them from any further issues.

3. Explain the problem.

Customers want to know you have been able to precisely identify the problem and its root cause. This increases confidence that your proposed fixes will protect them from the same problem happening again.

In the case above, the textbook broker should explain that the code, while always functional, was referencing an outdated set of tables in the company’s database because of a manual coding error. You can acknowledge the mistake, and because you told customers that you’re creating multiple safeguards to fix the problem — tailored to the specific issue — the apology is much more likely to be received well.

4. Describe how you will fix the issue.

In this step, you are specifically explaining how you have fixed the problem and describing what measures you put in place to ensure it doesn’t happen again.

In the textbook example, this could include performing random audits of shipping orders to ensure additional, manual verification, as well as creating redundancies in the coding software that provide further checks on orders — such as checking whether a book going out is more than a year or two old, which could mean it’s a mistake and warrants extra attention. It could also include changing your process to not perform updates during peak busy seasons.

5. Express your regret.

The actual expression of regret (the “we’re sorry” part) is most effective once you’ve sufficiently addressed the concerns above, making your expression of regret even more sincere because it’s backed up with a lot of action. Customers respond better to a sincere apology. It’s important not to lose sight of the fact that your customer’s business was damaged, so acknowledge those effects.

In the textbook example, the broker should say something along the lines of, “We are sorry for the disruption to your business during a busy season for you. Hopefully, you can see and feel our commitment to retaining your confidence and trust. We apologize to both your company and your customers.”

This kind of statement conveys true regret and sincerity while also stressing that the problem is being addressed.

Sample Apology Message

Here’s an example of an apology message to use as a guide. In this case, a company is apologizing to a customer about a software outage that happened during one of their busiest times. It covers all of the critical parts you want to include in an apology message.

I want to attempt to repair any possible problems this outage caused for you, your team, or your employees. First, I have been approved to provide your company with a one-month refund, twice the length of your benefits sign-up period. It is an expanded refund in recognition that this happened at a peak time for your company. I have also directed our customer service team to manually check all sign-ups that occurred after the software came back online to be sure they were captured accurately. I will let you know the outcome as soon as it is complete, no longer than one week from now.

The software outage was entirely our fault. It should not have happened at all, let alone during such a critical time for your business. We take full responsibility and are committed to ensuring it will not happen again.

I fully regret that this outage occurred, and our teams are making the necessary changes to make sure it does not happen again. Our outages should be reserved for planned downtime, with advance communication, and we regret that we failed on both accounts in this situation.

To let you know what occurred, your software went down after a major power outage at one of our data centers. Your workload was rerouted to our other data centers, as part of our backup plan and service agreement. However, the second center your content was assigned to was down due to preventive maintenance and a hardware update. This caused your system to go down for a period as the system reconfigured to find the next alternative for your workload. We have now updated our redundancy system to avoid anything like this in the future.

I am exceptionally sorry for this outage, and as soon as I knew about it, I was in constant communication with our technical teams until it was resolved. On behalf of our company, I would like to apologize not only to you, but to your leadership team and all affected employees.

Document, Memorialize, and Share Your Apology Process

It is critical to explicitly document the apology effort made to the customer. That way, if someone makes another mistake in the future, the company can turn to an objective framework to craft a new apology message. By learning from the company’s past, your employees can avoid what didn’t work and provide better responses to future service failures.

Your apology process should also be shared and shown to outside stakeholders. This phenomenon, known as boundary spanning, is critical to the service recovery paradox because it not only shows vulnerability from the organization, but also shows other customers that the company can be relied upon in times of distress.

Businesses are bound to make mistakes and disappoint their customers. But how you build your apology message and your careful attention to executing it appropriately can make the difference between losing those customers or increasing their loyalty.

The last few years have brought disruption after disruption to bear on the ways companies and customers interact. Arguably, the company-to-customer connection has been more disrupted than supply chains or operations, and more affected by disruptors like Covid and technology than any other key relationship. Think of the rise of e-commerce — which hockey-sticked during the pandemic; or the sudden (or seemingly sudden) ubiquitousness of self-checkout kiosks at grocery stores and pharmacies; or the ever-greater prevalence of voice response systems, to which you must listen closely because the “menu options have changed.” Or, recall the Covid-19 shutdowns and subsequent bounce-back, which altered everything from how diners eat to how sales reps call on B2B customers.

These trends and sudden swings have created significant difficulties for middle market companies and — as we will see — a very important challenge and opportunity for their growth ambitions.

With all of this change has come a dramatic upsurge in customer dissatisfaction. Actually, that’s understating it; we’ve seen an upsurge in customer rage. The newest edition of the Arizona State University W.P. Carey School of Business survey of customer rage found that last year 74% of customers said that they have experienced problems with a product or a service — up from 47% two decades ago. The survey goes on to note that customers are getting angrier and angrier about how they are treated when they deal with companies — and are far less reluctant to express their rage not just to companies, but on social media for all to see. Some of that rage may reflect a rise in general incivility, rather than any specific company failure. But companies bear a good share of the blame; after all, the #1 customer frustration is being unable to talk to a person when they have a problem — and the #2 complaint is that they can’t even find out how to contact the company at all.

From Leaders to Laggards — How Most Companies Are Failing Their Customers

Why? Our analysis suggests that many companies have fallen victim to what they see as a zero-sum game between high-quality service and low cost. Indeed, according to a nationwide survey we conducted, just 15% of companies successfully combine both — i.e., high levels of efficiency and advanced data and analytics combined with high levels of proactive outreach and service — and we call them “Leaders.” Amazon, Amex, and Apple come to mind, and get an “A” in our book.

Go too far in one direction, and you are a “Big Spender,” putting more money into customer service, support, and success than you are getting back in terms of profitability and loyalty. Go too far in the other, and you’re a “Miser,” penny-wise and pound-foolish, frustrating and ultimately losing customers because you don’t connect with them on a level that matters to them.

Surprisingly, 41% of the companies we surveyed fall into the unfortunate “Laggard” category, where they see customer support as a downstream cost center requiring minimal investment, and suffer from low customer satisfaction ratings and high customer churn.

Addressing this tension between cost efficiency and customer intimacy is important for companies of any size, but it’s especially important for midsize companies, particularly those upper-middle-market companies with ambitions to rise to the top of their industry. In many cases, they built their brand, and their differentiation from the big guys, on the idea of personalization — of being closer to their customers than their multinational rivals can be — while also offering more sophistication, a broader offering, and more underlying service capability than small businesses can.

Herein lies the core challenge: to grow, they need to build customer capabilities that are scalable, but if they do that at the expense of proactive connection with customers, they will lose their identity and a big piece of their competitive edge.

Escaping the Zero-Sum Game Approach

We don’t think service and scale are a zero-sum game. On the contrary, we’ve seen company after company make it work, often realizing results in the first year. For example:

• A mid-market payroll solutions provider (with ~2,000 employees) working in a niche part of the industry reduced their servicing cost by 30% and set-up a “Customer Success” team to nurture client relationships and enhance loyalty. The result: a 650% increase in their net promoter score and a substantial increase in wallet share, helping them to gain an edge over the competition in just one year.
• A $500M revenue data storage and protection company reduced its customer-service operating costs by 20% by eliminating duplicate systems and reducing complexity and cost-to-serve by improving the alignment and communication among sales, renewals, and services teams. Revenues rose by 10% in the first year after implementing a Customer Success program that was laser-focused on proactive customer contact, improved wallet share, and improved loyalty.
• A cybersecurity company with ~1K employees increased its use of automation to reduce support costs by approximately 15%; but the same system improved call routing to serve customers better and faster, resulting in a substantial increase in its customer satisfaction score. NPS nearly doubled and customer attrition dropped by 5%, increasing Net Retention Revenue (NRR).

How do they do it? By undertaking three things simultaneously and with a get-stuff-done sense of urgency:

Have a strategic point of view about who you want to be to your customers.

There can be reasons to spend big on personal touch (for example, in a new industry or for a luxury product or service), and reasons to under-invest (e.g., you are in a commodity business where price and availability are more important than anything else). But most companies should seek a competitively advantaged sweet spot where the right kinds of hands-on, proactive attention meets the right kinds of automation and efficiency. You need strategic clarity about what that sweet spot is — and to back that up with the right measurements and incentives.

Do the research to understand your customers’ biggest frustrations and pain points.

What is your brand promise that customers expect you to deliver? Is it a high-touch white glove service (think a Four Seasons hotel) or is it transactional support focused on saving you time (like a Motel6). How do customers perceive the value of your brand, what do they expect to be delivered, and where are your failure points? Use that knowledge to identify a handful of key initiatives that can make a difference in the next six months. For example, rather than forcing self-service or automation on all of your clients, you might be able to meet them in their preferred channel of choice e.g., self-service for tactical queries (or digitally-savvy customers), vs. white-glove customer care for others.

Update your understanding of the art of the possible.

Advances in AI and machine learning in just the last three years have transformed customer relationship management, just as they have rendered (on the upstream side of things) a lot of old ERP systems obsolete. You can now quite inexpensively get real-time customer data at a granular level and build individualized profiles of customers’ needs. It is also easy to route the most valuable or unhappy clients to the most senior or tenured customer care specialists. And the landscape continues to evolve quickly with newcomers like ChatGPT.

Midsize companies especially need to continually explore these options for two reasons: First, because these evolving digital enablers give companies the edge they need to move up from “Laggards” to “Leaders” with more customer insights, views into Customer Lifetime Value (CLV), propensity to churn (improving loyalty), and customer sentiment. Second, your competition is using it, and the bar is rising for everyone.

It Can Be Done: How Winning Companies Are Realizing Tangible Value

As companies continue to navigate this uniquely disruptive environment, we are seeing more leaders protecting their customer base by optimizing customer experience and loyalty. For midsize companies especially, when acquiring new customers or expanding market share becomes increasingly unpredictable, investing in enhancing customer experience, Customer Lifetime Value (CLV) and Net Retention Revenue (NRR) becomes a powerful way to preserve and expand revenue.

Investing in systems and processes won’t be enough. We have found that to win, companies need to focus on three key things to achieve real change:

Elevate customer success to be a core part of the business strategy.

Increasingly, customer experience is seen as a competitive differentiator, especially as more companies stumble in their attempts to shift to digital solutions. Investing in experience and loyalty can drive topline growth, but only if leadership agrees that customer success should have a seat at the table, right next to sales and marketing in terms of strategic importance to your brand’s growth.

Manage technology investments through the business first, not IT.

It is critically important to view digital solutions as strategic business investments, and not technology investments. Time and again we see winning companies frame their core challenges, solutions, vendor selection, and even operationalization as top-down, strategically aligned efforts where IT provides implementation support, rather than acting as the gate keeper. Don’t fall for the latest shiny object — remain true to the brand promise and core objectives.

Appoint a Customer Success leader to take ownership of measurable impact.

Real change will require a change in mindset, and most important, sustained commitment over time to implement needed initiatives, lead training efforts, integrate systems changes, and track financial impacts. Appointing a dedicated leader is critically important to have real ownership to keep Customer Success top of mind as a strategic imperative for growth, even in the most disrupted markets.

In this uniquely disruptive and uncertain environment, it makes sense for companies to invest in protecting their customer base by optimizing customer experience and loyalty. When acquiring new customers or expanding market share becomes increasingly unpredictable, investing in enhanced customer experience, Customer Lifetime Value (CLV) and Net Retention Revenue (NRR) becomes a powerful tactical lever to preserve and expand revenue.

It can be done. And, with rapidly evolving digital solutions, it can be done faster and more inexpensively than ever. More winning companies are converting this time of disruption into an opportunity to implement customer success solutions to expand revenue and gain a competitive edge. The only question now is: As we emerge from disruption, will you be a Leader, or a Laggard?

Many businesses focus on acquiring new customers with deals, expensive adverts, promotions and freebies. But is it at the expense of retaining their existing customer base? While it’s unrealistic to expect all of your customers to stay loyal, you should still aim to retain as many as possible.

Shifting your focus from growth to retention can save you time and money.

How to Improve Your Business’ Customer Retention

It’s more expensive to attract new customers than it is to retain existing ones. Not only are repeat customers more likely to recommend your product and refer more people to your business, they also generate larger transitions and spend more money the longer they stick with you. After all, happy customers will buy more.

With that in mind, here are seven tips to increase customer retention.

1. Email marketing

If you’re plagued by abandoned shopping carts and a drop off in repeat custom, it’s time to improve your email marketing. More than two-thirds of customers abandon carts before purchase due to indecisiveness and other things competing for their attention. Think of all those sales you’re losing. It’s worth sending some abandoned cart emails to prompt customers to complete the checkout process. A carefully worded email can increase purchase rates by 19%, while a second reminder has a whopping 54% success rate. Marketing tools like Sendlane can design and automate a dynamic email sequence for you, making the process a breeze.

2. Focus on customer service

The best kind of customer service is accessible, transparent and responsive. Multichannel support lets your customer contact you on their terms across a range of platforms. Give your customers a choice of touchpoints to reach you easily and provide self-service options like FAQs and chatbots.

You can be proactive in gauging how your customer feels by gathering feedback using surveys. The net promoter score (NPS) is one of the most simple and effective methods of measuring customer satisfaction, as it rates how likely someone is to recommend a brand to a friend on a scale of 1-10. Closing the loop on feedback is important, so send a customised thank you email or respond directly to any feedback.

3. Implement user accounts

User accounts save your existing customers’ payment information and other details, which make repeat purchases much easier. While they are popular with regulars, new customers might see the registration process as too much of a commitment for a one-off purchase – but, of course, one-off purchases can often lead to repeat purchases.

So while it’s worth offering a guest check-out option for the first order, after it has been completed, you can offer the user the option to open an account. This gives the customer enough time to decide if they are likely to use your company again.

4. Offer a customer loyalty scheme

Loyalty programmes offer customers rewards such as discounts, freebies and exclusive deals. The rewards you provide depend entirely on your company’s product, objective and values, but they give customers a reason to keep buying from you. Some examples are air miles, points-based programmes and tier-based programmes, where customers can unlock higher levels of rewards if they spend more.

According to Accenture, more than 90% of businesses already have some form of loyalty programme.

5. Offer deals on subsequent purchases

Emailing first-time shoppers with discounts for further purchases is a great way to secure repeat custom. Special offers and promo codes can also entice back shoppers who haven’t bought anything from you in a while.

Once you have enough information to build an individual buyer persona, you can send them personalised offers. Alternatively, you could offer a referral bonus that rewards customers for bringing you new business.

6. Engage with customers on social media

Social media is a great platform for engaging with customers and showcasing your brand’s personality. You can even post special deals, competitions and insights. These posts can make you seem more approachable and appealing to your target audience. They also provide an opportunity to deal with complaints and negative comments before they escalate.

7. Use a CRM to manage customer relationships

The rise of e-commerce has blurred the lines between sales and service. Businesses now have multiple touchpoints and opportunities throughout the buyer’s journey to build better customer relationships and sell more. Investing in a dedicated customer relationship management (CRM) system gives multiple teams a 360-degree view of the customer. It provides a single platform that can be used across a range of devices and is linked to a company’s email, social media and other apps.

Customer loyalty is valuable, so it’s up to you to keep delighting your customers so they come back. These tips are a good starting point for keeping your current customer base happy and creating a mutually beneficial relationship. Add value to every customer interaction and watch your business grow exponentially.