The Cost of Bad Business Policies: No Brand Loyalty

When it comes to running a business, everyone knows that the customer is key. However, some businesses seem to forget this age-old wisdom, resulting in poor customer experiences that can seriously hamper growth. It’s bad business policies that quietly shoot companies in the foot – something that happens all too often.

In this post, we’ll look at a few hypothetical scenarios that very closely mirror real situations. The goal is to demonstrate how not to structure your company policies so that they aren’t the leading cause of dissatisfaction from your audience. You want to avoid negative brand equity at all costs, and we’ll help guide you away from some of the pitfalls many businesses are prone to.

Kim Cooper
Director of Marketing, Amazon Alexa

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The Fallacy of Rigidity

Imagine signing up for a paid subscription for a travel company that promises you special deals on flights. The annual membership fee is $99, and you pay for the first year, hopeful that the promised discounts will materialize.

Unfortunately, they don’t. So you decide not to use the service at all. A year later, the company charges you another $99 for membership renewal. You contact them to ask for a refund since you haven’t used their service. Their response? They flatly refuse, citing that “because of company policy,” they can’t acquiesce your request.

What’s wrong with this picture?

The company’s rigid adherence to its “no-refund” policy, despite clear evidence that you haven’t used nor benefited from their service, essentially compromises customer trust. Such a hardline stance can do more harm than good, not just for one customer but potentially for many.

If customers are unhappy, they’re less likely to refer your business to others. Worse, they might even share their bad experiences publicly, tarnishing your brand image. It’s a lose-lose situation. The customer feels ripped off, and you’ll likely incur a negative payout on your brand’s reputation for your decision to cling to a marginal sum of cash.

Is it worth retaining a $99 charge, or whatever amount for your sold merchandise or services, if it results in a damaged reputation and loss of potential customers? It’s one thing not to be walked all over by people trying to exploit your brand via a loophole, but it’s another to deny everyone by default solely on the grounds that you might keep your earnings by any means necessary.

The takeaway: Consider the long-term impact on your brand’s reputation before retaining charges. While it’s essential to protect against exploitation, denying refunds or claims by default to maximize earnings can harm your brand and deter potential customers. Always weigh the immediate financial gain against potential reputational damage.

The Importance of Flexibility

The truth is that some policies may need to be flexible to adapt to specific customer experiences. Offering a refund in a case like this could have turned a bad experience into a positive one, encouraging customer loyalty and positive reviews. Additionally, flexibility doesn’t only apply to small transactions. Consider larger financial commitments, too.

Take the case of a fairly new conference event where attendees have the option of buying a $7,500 VIP ticket or a $1,500 general admission ticket. Although the event is overall well-received, many VIP ticket holders feel that the value for what they paid in the package isn’t justified. Inevitably, the VIP ticket holders begin complaining, and the event organizers now have to make a decision.

Do they dig in their heels and issue a statement that the event is already paid for and they can’t issue refunds, or do they accommodate the wide-sweeping dissatisfaction of their VIP attendees and downgrade their passes to general admission tickets, refunding the difference?

We’d mentioned that the event is fairly new (say, in it’s second year of operating), so impressions are vitally important if they’re going to attract current event-goers to come back in subsequent years. In this case, we’ll say they chose the second option, refunding their VIP attendees the difference.

It’s a tough pill to swallow, but it’s the smarter option to take when you’re factoring the potential for the amount of damage that disgruntled VIP pass purchasers could inflict on the event’s future success through word of mouth (especially to general admission attendees).

This quick and judicious move, made during the event, diffused a potentially volatile situation. Customers who could have been vocal critics turned into appreciative attendees, looking forward to the next event. It’s a classic case of turning lemons into lemonade.

The takeaway: When you’re in the wrong, own up to it and make it right. No product or service is perfect right out of the gate. What matters is how you handle the imperfections.

Long-Term Thinking: The Warren Buffett Way

Business magnate Warren Buffett once wisely advised, in one of his annual letters to shareholders, that if you must choose between short-term revenue and protecting your brand, always opt for the latter. Short-term gains can lead to long-term pain. A quick profit at the expense of customer satisfaction can spell disaster for any brand in the long run.

Think about Alex Hormozi for a second, the guy who gave away thousands of dollars worth of courses for free. All customers had to do was maybe buy a book. This gesture built significant goodwill, making customers more likely to talk positively about the brand and its offerings.

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(Image Source: Ippei)

In the business world, positive reviews may not skyrocket your growth, but negative ones can exponentially damage it.

It’s baffling that companies are still willing to risk negative impact for short-term profit. This kind of “pennywise, pound foolish” approach only leads to a loss of brand equity.

So, why not build a business that stands the test of time by investing in customer satisfaction and long-term relationships?

Last Word on Bad Business Policies: Just Don’t Do It

The real cost of bad business practices is not just financial; it extends to brand reputation, customer loyalty, and future growth. You should structure your business’s offers toward more than just immediate profits. Instead, strive for lasting success through customer satisfaction by providing incomparable value in your product or service.

After all, it’s not just about winning customers – it’s about keeping them.

So the next time you’re faced with a choice between a rigid policy and a flexible customer-centered approach, remember: short-term gain can lead to long-term pain. Make choices that protect and elevate your brand for the long haul. It’s not just smart business. It’s the right thing to do.

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