In times when customers are exposed to diverse customer service experiences globally across different sectors especially amid the outbreak and spread of COVID-19, it goes without question that customers are bound to compare their experience whether good, bad or ugly.

Customer Compensation

While no business is perfect and there will always be periodic product or service defects and the good news is, businesses have an opportunity to make up for customer experience gaps by having a well-thought-out customer compensation plan or structure.

Customer Compensation refers to something (usually of financial value) offered to a customer to make up for a product defect, service defect or an unpleasant customer service experience that would negatively impact a customer’s loyalty.     

Across the different stages of a customer’s journey, there will be times when a business falls short of its customer’s expectations, especially expectations arising from promises made before a customer buys a product or service. Inline, there are different scenarios in a customer’s journey that will displease him or her and if not swiftly resolved and properly managed, this can lead to gross customer dissatisfaction with his or her overall experience with a business or product or service, a reduction in customer lifetime value, negative word of mouth from the customer to family and friends as well as a declining rate of product adoption by prospective customers in the future.

Benefits Of Customer Compensation

One of the ways a business can win-back a customer displeased with a product defect, service defect or poor customer service experience is by offering something of commensurate financial value to the customer to make up for it.

Done right, having a plan to compensate customers:

• Shows a customer that a business is paying attention to his or her experience
• Demonstrates to a customer that a business holds itself accountable and has integrity
• Helps a business recover customer’s loyalty i.e. repeat purchase howbeit there were moments of displeasure
• Equips customer support teams with the right capabilities to improve first contact resolution on customer complaints because they have a guide to recovering failures in a customer’s experience and win-back customers on the spot

How Businesses Can Compensate Customers

There are several ways a business can offer something of value to a customer to make up for a poor customer service experience, product defect or service defect. Generally, these ways fall under two (2) broad categories i.e. direct or indirect compensation.

While direct compensation is compensation that offers value somewhat commensurate with a customer’s spend which the customer is required to redeem from the business i.e. future credit, discount on next purchase, vouchers, or money back, indirect compensation is the type of compensations that a customer do not need to redeem from a business e.g. unrelated gift items like branded souvenirs and more.

For customer compensation to be effective,  there are several things or rather components that should be put into consideration i.e.

• Identifying customer compensations scenarios i.e. at what times should a customer be compensated?
• Quantifying and qualifying customer compensation scenarios i.e. how will the customer complaint be investigated to ascertain customer is eligible for compensation to recover customer dissatisfaction?
• Identifying or mapping scenarios to commensurate compensation i.e. what type of compensation should be applicable to a customer factoring in the customer’s lifetime value?
• Having a budget exclusively for compensating customers i.e. how much does the business need to set aside for customer compensation?
• Distributing customer compensation budget across responsible parties within an organization (this also serves as a way of curbing drivers of dissatisfaction especially holding responsible parties with the highest disbursement rate accountable)
• Tracking customer loyalty outcome post compensating a customer i.e. what is the effect of compensating the customer? How did it boost the customer’s overall experience? Did the customer buy it again? Did the customer tell others about how accountable the business is and how it can be trusted to deliver value or make up for value lost?

In Summary

Overall, it is highly beneficial to a business to have a plan to compensate customers and create a customer compensation policy that guides its employees in executing it. 

Here are some examples. Southway Housing Trust in its commitment to provide quality services to its customers and to get things right the first time, created/updated its customer compensation policy and claims procedure to offer some form of compensation when things go wrong. 

Another example (in the financial services sector) is Axis Bank. It created its own customer compensation policy to establish a system whereby the Bank compensates customers for the financial losses they could incur due to deficiency in service on the part of the Bank or any act of omission or commission directly attributable to it.

Having a well-articulated customer compensation plan and stand operating procedures (SOPs) as well as training business teams to execute the same is indeed required to boost your customer’s experience from a recovery perspective. It helps you redeem a situation that can negatively impact your customer’s loyalty and advocacy.

I hope you find this helpful?

Any other thoughts on how customer compensation can support customer experience activities in a business? Let me know.

deBBie akwara

She is referred to as one of Africa’s leading customer experience entrepreneurs & educators launching CX businesses & Africa’s first globally-recognized CX certification courses.  

She is the founder & principal at Niche Customer Experience Consulting Firm, a globally recognized CX thought leader & influencer, CX keynote & conference speaker, author and co-founder; Customer Experience Professionals West Africa (CXPWA). Network.