Cost ReductionStaff

The Economics of Customer Service

The rain was torrential, and the wind was whipping.  The fringes of Hurricane Florence were pummeling the Jersey shore, yet, there was my family, cold and wet, trudging along the beach on our way to an upscale pizzeria.  My niece had been baptized, so we were suffering through the storm to celebrate her big day.  As all eighteen of us approached the door, we noticed that chairs were stacked on top of tables, lights were off and the dining room appeared deserted.  A girl peaked out from the kitchen and mercifully let us inside, only to inform us that, due to the treacherous conditions, the restaurant was closed.  An understandable decision, however, my sister-in-law had made a reservation for us and confirmed it the day before.  We were hungry, wet and pissed.

Sometimes things go wrong, and, according to science, there’s an effective and an ineffective way to apologize.  University of Chicago economist John List was inspired by a bad Uber trip to conduct a study on the effectiveness of apologies.  Using random Uber customers as his subjects, he tested multiple forms of apologies: no apology, basic apology (just acknowledging something went wrong), status apology (taking ownership of the error), and a commitment apology (a promise to do better in the future).  Some subjects across all four groups received a $5 promotion.  The results were obvious – an apology alone is not sufficient to encourage the customer to return, but an apology with a coupon was effective in negating the bad experience and earning the customer’s business back.  List’s assessment of the findings was that, “the firm needs to make sure that when they apologize, they take proper discretion in that the consumer understands that there was a true cost to that apology.”

When running a restaurant, an obvious “cost” is providing a comp to the disgruntled customer.  If the customer complains about a longer than expected wait, under or over cooked food, or poor service, a comp may be in order.  Be proactive; if you can foresee an issue, like the kitchen is overwhelmed so you know food is dragging, a good move could be to preempt the complaint by comping an appetizer, drink or dessert.  Don’t forget to make an apology and state to customers why you’re providing the comp, then they’ll know you’re aware of the problem and willing to fix it. 

Make sure to budget for comps, otherwise they can add up to profit loss.  Also, don’t dole out comps indiscriminately.  Only provide comps for legitimate reasons that are clearly within control of the restaurant.  Most importantly, train your staff to be polite and respectful when receiving a complaint and to quickly take the complaint to a manager who can help.

Eventually, my mom got in touch with the owner of the pizzeria.  He offered to pay for the meal we had delivered from a different restaurant, and provided my family with a $150 gift certificate to his restaurant.  Needless to say, we were very satisfied!


Cost ReductionStaff
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