MARCH 2, 2009 I BUSINESSWEEK.COM

IN A TOUGH YEAR,25 COMPANIES THAT

GET IT RIGHT

SIGNS OF LIFE IN THE DEAL ECONOMY

JAPAN: RUNNING OUT OF OPTIONS

SPECIAL REPORT

SERVICECUSTOMEREXTREME

THE NEW CHAMP

BUSINESSWEEK I MARCH 2, 2009

Hertz couldn’t ask for a better customer than Richard M. Gar-ber. The Cleveland-based business development manager typically rents cars from the chain 20 to 40 times a year when traveling on business for materials manufacturer FLEXcon. But now Garber is rethinking that loyalty. In the past month

he has returned Hertz cars to the Boston and Minneapolis airports only to find nobody waiting with a handheld check-in device. In Minneapolis, Garber had to drag his bags to the counter to return his car; in Boston, he finally

tracked down an employee who came out and explained that some colleagues had just been laid off. “When you’re rushing for an airplane, every minute counts,” says Garber. “The less convenient they are, the more likely I am to try someone else.”

As the economy plunges deeper into recession, many com-

By Jena McGregorIllustration by Marcos Chin

Keeping customers happy is more critical than ever. Service champs economize on everything but TLC

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HOW TO PLAY IT

when servicemeanssurvival

Inside029 A Road Warrior’s Tale: Four Stars for the Four Seasons030 A Social Networker’s Tale: Zappos and UPS Step In031 US Airways: After the ‘Miracle on the Hudson’032 The Rankings: Customer Service Champs034 How Amazon Aims to Keep You Clicking

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panies are confronting the same brutal choices Hertz faced when it announced layoffs of some 4,000 people on Jan. 16. While businesses may feel forced to trim costs, cutting too deeply can drive away customers. Hertz spokesman Richard Broome says the company has reduced “instant return” hours at some smaller airports but is making adjustments to restore that service in locations where it “might have gone too far.” Says Broome: “You try to create the right balance.”

Across the business world, managers are trying to pull off the same perilous high-wire act. Just as companies are deal-ing with plummeting sales and sinking employee morale, skittish customers want more attention, better quality, and greater value for their money. Those same customers are also acutely aware that their patronage is of growing importance to companies as others decrease their spending. BMW Vice-President Alan Harris argues that in the current environment, consumers expect “that anyone who is in the market with money to spend is going to get treated like a king.”

keep the front lines strongThe reality, of course, is that the opposite is often true. From retailers such as Talbots, which have stiffened their rules on returns, to airlines that now charge for checked bags, com-panies are stretching budgets in ways that can make things tougher for customers.

But the best performers are actually doing more to safe-guard service in this recession. Bruce D. Temkin, principal analyst for customer experience at Forrester Research, says about half of the 90 large companies he recently surveyed are trying to avoid cuts to their customer service budgets. “There’s some real resilience in spending,” says Temkin.

That’s especially true for many of the winners of our third annual ranking of Customer Service Champs (page 32). Top performers are treating their best customers better than ever, even if that means doing less to wow new ones. While cutting

Times are unquestionably tough. But cutting too deeply may only make things worse. Here are four ideas for keeping costs down and customer service solid:saFeGuarDinG service

FleX YOur wOrKFOrceCutbacks in staffing levels may be necessary as sales slow. But to keep service quality high, make the most of the workers you have. Cross- train employees so they can step up to fill a variety of needs—and you can avoid making new hires.

sPOil survivinG staFFSlashing jobs and benefits can wreak havoc on morale. If you must cut back, keep the front lines happy with flexibility and other rewards. American Ex-press, for example, now lets call center reps choose their own hours and swap shifts without supervisors’ approval.

invest in simPle technOlOGYIt may not be the best time to upgrade your call center with pricey software. But easy self-serve solutions such as in-store Web cams that link customers with remote tech experts can serve multiple locations at minimal cost.

babY YOur best custOmersNow is not the time for equal treatment. Keep your most active buyers coming back with faster service, extra attention, and flexible rules. As business travel slows, Marriott, for in-stance, is extending elite status to its best guests even if they don’t qualify under normal rules.

cuttinG just FOur rePs at a call center OF

three DOzen can senD the number OF custOmers

Put On hOlD FOr FOur minutes FrOm zerO tO 80

back-office expenses, they’re trying to preserve front-line jobs and investing in cheap technology to improve service.

If anything, the tough economy has made starker the difference between companies that put customers first and those that sacrifice loyalty for short-term gain. In this year’s ranking, based

on data from J.D. Power & Associates, which, like Business-Week, is owned by The McGraw-Hill Companies, more than half of the top 25 brands showed improved customer service scores over last year. Among the bottom 25 of the more than 200 brands surveyed, scores mostly fell.

Smart players have learned from previous downturns. Companies used to go after customer reps with the same blunt ax used elsewhere. Now managers are starting to understand the long-term damage created by such moves, from eroded market share to diminished brand value. The International Customer Management Institute, a call center consultant, has done studies that show eliminating just four reps in a call center of about three dozen agents can increase the number of customers put on hold for four minutes from zero to 80.

A better strategy is to get more out of the people you have. USAA, the insurance and financial services giant that caters to military families and ranks at No. 2 on our list, started cross-training its call center reps in 2007. Some 60% of the agents who answer investment queries can now respond to insur-ance-related calls. Not only did such training curb call trans-fers between agents, which drive up the cost of running a call center, but it also improved productivity. Even with Hurricane Ike and the stock market’s financial crisis prompting a flood of calls to USAA’s contact centers last year, the cross-training meant the company didn’t have to expand its call center staff. Existing reps are more empowered to deal with customers, even if they may also have to do more work. No. 25 JW Mar-riott is training administrative assistants to step in as banquet servers when needed. And in November, brokerage Charles Schwab, No. 21 on our ranking, launched a “Flex Force” team of employees such as finance specialists and marketing man-agers at its San Francisco headquarters to handle calls on days of, say, rapid market fluctuations.

For those that slash costs, the challenge is keeping custom-ers from noticing. Putting call center reps under one roof, for

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BUSINESSWEEK I MARCH 2, 2009

Simon Mulcahy, now a London-based senior director at Salesforce.com

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Last April, I was visiting top tech companies in Austin, Tex., while working for the World Economic Forum. On the flight in, after the attendant said: “Please put your laptop away. This is the fifth time I’ve told you,” I closed my laptop and put it down beside me. I was jet-lagged and super tired.

The next thing I know, I’m in my room unzipping my bag, thinking “Where’s my laptop?” I was at the Four Seasons, so I call the concierge, Steven Beasley, and tell him what happened. Two seconds later, he calls back and says he has American Air-lines on the phone. I explain the problem, and they say nothing has come up on the system. About five minutes later, the con-cierge phones me back and says he’s called the San Francisco airport to alert them to check the plane when it arrives there.

By that time I’ve given up. I go down to have dinner, and I’m having a predinner drink when the concierge turns up at my table and says: “Mr. Mulcahy? I’ve got your laptop,” and hands it to me. “Would you like me to take it to your room?” I’m like “what the—what?” He’d taken it upon himself to keep badger-ing American. They did another check, and in fact they still had the laptop in Austin.

The concierge could have just left a message. I was so grate-ful to him for having gone this obscenely extra mile.

a rOaD warriOr’s stOrY: FOur stars FOr the FOur seasOns

example, can eventually save as much as 35%, says Scott Cas-son, director of technology services at consultant Customer Operations Performance Center. On Feb. 12, USAA announced it will combine its six call centers into four; companies such as No. 11 KeyBank and Ace Hardware, No. 10, have also con-solidated operations in the past year. Ace plowed the savings from that move into longer evening and weekend hours for customer calls. “During tough times there are plenty of other pressures customers face,” says Ace Vice-President John Ven-huizen. “We don’t want a customer service issue to be what makes them blow their cork.”

pleasing repeat buyersHoteliers also are trying to trim in ways customers are unlikely to detect. They’re increasingly combining purchasing power to get better deals across properties that are within the same chain but may have different owners. Some hotels in the Four Seasons chain, No. 12, are joining up to buy goods and ser-vices such as coffee, valet parking agreements, and overnight cleaning contracts that each hotel once bought on its own. JW Marriott hotels are teaming up to buy landscaping services that would be costlier if contracted for separately. The Ritz-Carlton, No. 5, is doing laundry at night to save electricity and replacing fresh flowers at posh properties with potted plants. With occupancy rates falling, notes Ritz COO Simon F. Coo-per, “you have to get better because you’re forced to.”

As the game changes from acquiring new customers to

keeping old ones, companies are shifting more resources to their steady patrons. They’re the ones who pay the bills. And while first-time guests may not miss the absence of fresh flowers, repeat customers probably will. “It’s the little things that often got you in the crook of those loyal customers’ arms,” says Jeanne Bliss, a former Lands’ End service chief who now coaches customer service execs. That has led to a renewed em-phasis on “tiering”—routing elite-level customers to better agents, nicer surroundings, or faster service.

Consider No. 7, Zappos.com, the online shoe retailer whose devoted fans rave about its free shipping on both orders and returns. The retailer had typically upgraded both first-time and repeat customers to overnight shipping even though it wasn’t advertising that perk. But starting in 2009, Zappos will no longer offer overnight upgrades to first-time visitors. In-stead, CEO Tony Hsieh is moving those dollars into a new VIP service for Zappos’ most loyal shoppers. Launched in Decem-ber, the site, which for now can only be accessed by loyal cus-tomers who receive an invitation, promises overnight shipping and plans to offer earlier access to sales and new merchandise than the plain-vanilla site. (Repeat customers who aren’t yet asked to join the VIP service will continue getting the over-night upgrade for now.) “We decided we wanted to invest more in repeat customers,” says Hsieh. “We’re shifting some of the costs that would have gone into new customers.”

Some are also getting tougher on suppliers who serve their most frequent customers. No. 24 L.L. Bean dropped Bank of Ju

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Tara Hunt, a San Francisco-based marketing executive at Intuit

When companies come up with simple, low-cost ways to trim costs while improving life for customers, they’re likely to win in good times and bad. “I have a saying: ‘Fix the customer before you fix the car,’ ” says Harris. “If you focus on fixing the customer’s problem first, the rest is easy.” ~≠–With Aili McConnon in New York and David Kiley in Detroit

America as its vendor of store-branded credit cards in July 2008. The outdoor outfitter says the bank wasn’t measuring up in terms of its vaunted customer support. Complaints about long hold times and call transfers between the bank’s customer service agents were “endless,” says Terry Sutton, L.L. Bean’s vice-president for customer satisfaction. (Bank of America says it doesn’t comment on specific relationships but is “fo-cused on providing competitive products and exceptional cus-tomer service.”) L.L. Bean switched to Barclays, which meant customers had to reapply. The risk that some might not take the time was high. “From a service standpoint, it was loaded with land mines,” says Sutton. But she felt the move was worth it, especially since Barclays gave them a say on agents’ scripts and set up its call center in the retailer’s home state of Maine. Over 60% of cardholders have already switched.

Some companies are experimenting more with cheap tech-nology, such as responding to customers via Twitter after they broadcast their complaints to the world. Other tech upgrades for customers can deliver unexpected cost savings. When No. 22 BMW rolled out Wi-Fi service at its dealerships last year, the move was intended to give customers a cheap way to pass the time while their cars were serviced. The cost was next to nothing since BMW just expanded the broadband dealers already used to run their businesses. But now that custom-ers can use their waiting time productively, fewer are opting for free loaner cars, which are pricey for dealers to maintain. BMW’s Alan Harris says Wi-Fi, along with software that helps dealers better estimate loaner needs, has helped BMW cut its monthly loaner expenses by 10% to 15%.

I usually get packages sent to the office, but in December I ordered a big 110-pound storage unit from Target and needed it delivered to my house. I called UPS to check on it, and the rep said that sometimes during the Christmas season packages don’t arrive until 9 p.m.

Getting agitated, I posted on Twitter about waiting for UPS and mentioned how I couldn’t take my dog, Ridley, for a walk. After 9 p.m., I got a message from Tony Hsieh, CEO of Zappos, who started following my Tweets [comments on Twitter] after we met last year. He was having dinner with UPS’s president for the Western region and sent a message saying the guy would call me. I got a call in the next five minutes. The UPS exec got me in touch with an operations manager to arrange for a delivery the next morning so I could make a scheduled client meeting.

At 9 a.m. on the dot, the doorbell rings. Not only do they have the package, but there’s a UPS guy with flowers and chocolates and another with treats and toys for Ridley. They even offered to assemble the unit and listened to my suggestions for improv-ing service. I now go out of my way to use UPS—and I bought shoes the next day at Zappos.

a sOcial netwOrKer’s stOrY: the zaPPOs ceO anD uPs steP in

To see a video and a slide show on top cus-tomer service contenders, as well as readers’

experiences, go to businessweek.com/go/customer

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Cheap Tech to Create Sticky Sites In “the Economic Necessity of Customer Service: Five Recession-Busting Strategies to Cut Service Costs and Increase Sales,” Forrester Research analyst Natalie Petouhoff suggests “proactive chat” software that engages online shoppers to prevent them from leaving the site. She also likes Web communities where customers can help each other solve problems and “co-browsing” tools that let call center agents navigate the site alongside the customer.

to download Petouhoff’s report, go to http://bx.businessweek.com/customer-service/reference/ the download is free but requires registration.

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For our third annual list of Customer Service Champs, we started with existing data from J.D. Power & Associates , which, like BusinessWeek, is owned by The McGraw-Hill Companies . J.D. Power surveys consumers every year about customer satisfaction. We looked at two of the several measures they assess: the perceived quality of a company’s staff, and what customers think of its processes, such as return policies or reservation procedures.

We aggregated the scores within an industry for each in-dividual brand. Because some businesses work across mul-tiple industries, such as banking and insurance, we included the brand only in the industry in which it scored highest. Our results may differ from J.D. Power’s satisfaction rankings, which also consider quality, presentation, and price.

As in past years, we also surveyed 5,000 people using the BusinessWeek Market Advisory Board, a panel of readers we tap for feedback on a range of issues. We asked them to nominate three companies they felt were best at customer service and three they felt were the worst. More than 1,000 readers responded. J.D. Power took those top choices and surveyed consumers nationwide. That allowed us to expand the rankings beyond J.D. Power’s existing database, which includes only a limited number of retailers, for example.

J.D. Power then ranked all of the brands using scores from its database and the additional surveys. To account for differences between sectors—buying a Lexus , for example, is nothing like buying a cell phone—we gave bonus points for those companies that lead their industries and subtracted points for those that fell below third place. We also gave 25 bonus points to brands that did best in our readers’ poll.

One outlier: Starbucks , which got many votes from readers. Because none of its peers did well in the readers’ survey or appeared in J.D. Power’s 2008 database, we left it off the list. As a result, we can only give the coffee chain a venti honorable mention. For a more complete description of our methodology, go to www.businessweek.com/go/09/method. –Jena McGregor

BeHiND tHe ListWe started by delving into J.d. power’s database and asking readers to weigh in. more than 1,000 responded

Customer serviCe CHAmPs the winners in our third annual ranking are looking for ways to cut costs without slashing service. the total score is based on results from the fi rst two columns, with bonus points for being an industry leader or scoring high on our readers’ poll.

RAnK BRAnd/indUStRyqUAlity of StAff

efficiency of SeRvice

totAlScoRe ideAS fRom the BeSt

001 AMAZON.COMOnline/Catalog Retail A+ A 1035.12 Some 30% of sales come from outside retailers who sell goods on Amazon. To enhance quality control, CEO Jeff Bezos has been rolling out new services for those

retailers, such as aid setting up shop or managing order fulfi llment. Customers get more choice, which keeps them coming back: Sales surged 18% in the fourth quarter.

002 USAAInsurance A+ A+ 1029.36 This fi nancial services fi rm for military families handled 150,000 catastrophe claims in 2008, double its average, as events such as Hurricane Ike destroyed customers’ homes

and autos. Still, USAA retained 96% of customers. In 2008, USAA expanded eligibility to other military groups that weren’t previously covered, helping to build market share.

003 JAGUARAuto A+ A+ 1022.34 In 2008, Jaguar faced a terrible market for luxury cars in the U.S., as well as the shock of changing owners from Ford to Indian conglomerate Tata. But Jaguar’s fi eld teams

for customer service were recently ranked best in the auto industry by the National Automobile Dealers Assn.

004 LEXUSAuto A+ A+ 992.09 Toyota is cutting back as sales fall. But its top-shelf Lexus division is spending more. It awards cash each year—as much as $50,000—to dealers who have the best new

service ideas. Summits held with other companies, such as Apple, prompted some Lexus dealers to add special help desks for high-tech auto gadgets.

005 THE RITZ-CARLTONHotel A A 976.78 COO Simon F. Cooper is cutting costs by closing some fi ne-dining restaurants for lunch and running laundry at night, when electricity costs are lower. To lure corporate

event planners worried about high-end confabs amid the recession, Ritz will now donate 10% of corporate meeting fees to charity.

006 PUBLIX SUPER MARKETS Supermarket A- A 969.75 To ensure customers always fi nd what they come looking for, upscale Florida-based grocer Publix adopted an “automated replenishment” system in 2008 for fresh items.

Scanners indicate when inventory levels are low, and software automatically orders replacements. For oenophiles, the chain started a wine program that offers discounts.

007 ZAPPOS.COM Online/Catalog Retail A+ A 969.65 With no monitoring of call times and no scripts, call center reps have so much power it’s critical to make sure they’re a cultural fi t. To do that, CEO Tony Hsieh offers new

customer service agents $2,000 to leave the company after an initial training period if the new hires don’t think they mesh with Zappos’ zany culture.

008 HEWLETT-PACKARDConsumer Electronics A A- 959.17 In 2008, Hewlett-Packard opened eight new customer service centers worldwide, including two in the U.S. The PC and printer maker also gave all of its experienced

agents access to Instant Care, the company’s tool that lets tech support reps remotely control a customer’s desktop.

009 T. ROWE PRICEBrokerage A B 946.92 As the economic crisis reverberated through the fi nancial markets last fall, customers fl ooded T. Rowe Price’s phone lines, Web site, and walk-in centers, driving traffi c to

10% to 20% above expected volumes. Throughout the fall, the company tapped 300 employees who formerly worked the phones to help meet call demand.

010 ACE HARDWAREHome Improvement/Electronics Retail A- A- 940.11 Last year, Ace Hardware rolled out new technology that analyzes past shopping patterns to tell store managers what time of day is quietest for tasks like shelving prod-

ucts or cleaning rest rooms. By consolidating its call centers, the home improvement chain saved enough cash to expand evening and weekend call center hours.

011 KEYBANKBanking A- B+ 934.86 Consumers like the Cleveland-based bank’s service, but Key is doing more for small-business owners, too. In the past year the bank unveiled new online tools that give

entrepreneurs many of the cash-management services long reserved for large companies, as well as more protections against check fraud.

012 FOUR SEASONS HOTELS & RESORTSHotel A A 919.18 As even luxury customers cut back, the hotelier is working to save costs without cutting service. The Four Seasons, which has had layoffs and a hiring freeze over the past

year, is outsourcing laundry to third parties at some properties and combining some hotel management roles to help save labor costs.

013 NORDSTROMDepartment Store B- B 917.23 Nordstrom’s famous return policy lets customers return any item at any store, which means locations in Phoenix can end up with snow boots bought in New Jersey.

New technology coming in 2009 will let stores ship that merchandise to online shoppers rather than back to a fulfi llment center, which will save shipping costs.

014 CADILLACAuto A+ A+ 915.73 Despite General Motors’ cash crunch, Cadillac has not scaled back on guaranteeing loaner cars to customers while their cars are in the shop. With even high-end car

owners holding on to vehicles longer, the brand is urging dealers to use their massive databases of customers to sell more oil changes and repair services.

015 AMICAInsurance A A 912.06 The Providence-based insurer has a strong balance sheet and is investing in both new technology to speed claims processing and advertising to woo customers from

struggling rivals. But CEO Bob DiMuccio says what sets the company apart is decades of investment in the staff, which has a turnover rate of less than 7%.

016 ENTERPRISE RENT-A-CARRental Car B B 906.75 At Enterprise, management pay and promotion are directly related to a store’s service performance. The privately owned rental car giant, which had the fi rst mass layoff in

its history in 2008, four months ago began using mystery shoppers it calls “brand integrity assessors” who show up unannounced at Enterprise’s airport booths.

017 AMERICAN EXPRESSCredit Card B B+ 905.76 The credit card giant got a black eye for reducing credit lines for some spending habits, a practice it says it has stopped. But despite corporate layoffs, American Express

has restructured compensation and scheduling for call-center agents. The changes offer them incentives tied to satisfaction scores and the fl exibility to trade shifts.

018 TRADER JOE’SSupermarket A- B+ 904.31 Trader Joe’s runs a lean operation: Some 99% of employees work in the stores, and even CEO Dan Bane doesn’t have an assistant. That has helped prevent layoffs during its

40-year-plus history. Trader Joe’s has long urged shoppers to bring their own bags to promote recycling—and save costs.

019 JETBLUE AIRWAYSAirline B B 897.24 Pilloried just a few years ago for stranding passengers on the tarmac for hours, JetBlue created the industry’s fi rst Customer Bill of Rights—which includes providing

compensation for passengers affected by problems caused by the carrier. It recently introduced free e-mail and instant messaging on some fl ights.

020 APPLEConsumer Electronics B- A 886.11 Apple sold more than 13 million iPhones in 2008, vaulting it to No. 2 in the smartphone market. But that rapid growth didn’t cause service to slide. Last year the company

also posted the largest one-year increase ever in the University of Michigan’s closely watched American Customer Satisfaction Index.

021 CHARLES SCHWAB Brokerage A B 882.73 A new direct-dial feature lets clients call back a Schwab rep directly to resolve an issue rather than have to navigate the automated phone line a second time. A push to

reduce the number of steps it takes to open new accounts has helped to shorten some call times, freeing up reps to answer calls faster.

022 BMWAuto A+ A+ 879.88 Luxury car sales were down 20% in 2008, but BMW gained market share. In the past, BMW tied dealers’ compensation to satisfaction scores above a certain level. But

with few complaints, most dealers scored high every year. Now, BMW ties rewards to how well dealers look after dissatisfi ed customers.

023 TRUE VALUEHome Improvement/Electronics Retail B+ B+ 875.67 As customers turn to modest repair projects amid the housing downturn, CEO Lyle Heidemann says small hardware stores are holding up well. The company is testing a

new customer feedback program in 2009 that would survey many more customers in a shorter time frame with expanded online surveys.

024 L.L. BEAN Online/Catalog Retail B A 865.88 With slower sales this holiday season, L.L. Bean pulled back on seasonal hiring. But it made few mandatory cuts in labor hours through its fl exible network of call center

reps, who voluntarily gave up shifts when call volumes were low. A simplifi ed software system for entering orders has greatly reduced the training time for new hires.

025 JW MARRIOTTHotel A A 864.98 As business travel slows dramatically, JW Marriott has cut back on customer niceties such as newspapers in some hotels. But it has tried to improve service by cross-training

employees such as administrative assistants, who have been taught to serve food at hotel banquets. That keeps service levels high without having to hire more staff.

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One outlier: Starbucks , which got many votes from

BUSineSSWeeK I MARCH 2, 2009

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MARCH 2, 2009 I BUSineSSWeeK

Customer serviCe CHAmPs the winners in our third annual ranking are looking for ways to cut costs without slashing service. the total score is based on results from the first two columns, with bonus points for being an industry leader or scoring high on our readers’ poll.

RAnK BRAnd/indUStRyqUAlity of StAff

efficiency of SeRvice

totAl ScoRe ideAS fRom the BeSt

001 AMAZON.COMOnline/Catalog Retail A+ A 1035.12 Some 30% of sales come from outside retailers who sell goods on Amazon. To enhance quality control, CEO Jeff Bezos has been rolling out new services for those

retailers, such as aid setting up shop or managing order fulfillment. Customers get more choice, which keeps them coming back: Sales surged 18% in the fourth quarter.

002 USAAInsurance A+ A+ 1029.36 This financial services firm for military families handled 150,000 catastrophe claims in 2008, double its average, as events such as Hurricane Ike destroyed customers’ homes

and autos. Still, USAA retained 96% of customers. In 2008, USAA expanded eligibility to other military groups that weren’t previously covered, helping to build market share.

003 JAGUARAuto A+ A+ 1022.34 In 2008, Jaguar faced a terrible market for luxury cars in the U.S., as well as the shock of changing owners from Ford to Indian conglomerate Tata. But Jaguar’s field teams

for customer service were recently ranked best in the auto industry by the National Automobile Dealers Assn.

004 LEXUSAuto A+ A+ 992.09 Toyota is cutting back as sales fall. But its top-shelf Lexus division is spending more. It awards cash each year—as much as $50,000—to dealers who have the best new

service ideas. Summits held with other companies, such as Apple, prompted some Lexus dealers to add special help desks for high-tech auto gadgets.

005 THE RITZ-CARLTONHotel A A 976.78 COO Simon F. Cooper is cutting costs by closing some fine-dining restaurants for lunch and running laundry at night, when electricity costs are lower. To lure corporate

event planners worried about high-end confabs amid the recession, Ritz will now donate 10% of corporate meeting fees to charity.

006 PUBLIX SUPER MARKETS Supermarket A- A 969.75 To ensure customers always find what they come looking for, upscale Florida-based grocer Publix adopted an “automated replenishment” system in 2008 for fresh items.

Scanners indicate when inventory levels are low, and software automatically orders replacements. For oenophiles, the chain started a wine program that offers discounts.

007 ZAPPOS.COM Online/Catalog Retail A+ A 969.65 With no monitoring of call times and no scripts, call center reps have so much power it’s critical to make sure they’re a cultural fit. To do that, CEO Tony Hsieh offers new

customer service agents $2,000 to leave the company after an initial training period if the new hires don’t think they mesh with Zappos’ zany culture.

008 HEWLETT-PACKARDConsumer Electronics A A- 959.17 In 2008, Hewlett-Packard opened eight new customer service centers worldwide, including two in the U.S. The PC and printer maker also gave all of its experienced

agents access to Instant Care, the company’s tool that lets tech support reps remotely control a customer’s desktop.

009 T. ROWE PRICEBrokerage A B 946.92 As the economic crisis reverberated through the financial markets last fall, customers flooded T. Rowe Price’s phone lines, Web site, and walk-in centers, driving traffic to

10% to 20% above expected volumes. Throughout the fall, the company tapped 300 employees who formerly worked the phones to help meet call demand.

010 ACE HARDWAREHome Improvement/Electronics Retail A- A- 940.11 Last year, Ace Hardware rolled out new technology that analyzes past shopping patterns to tell store managers what time of day is quietest for tasks like shelving prod-

ucts or cleaning rest rooms. By consolidating its call centers, the home improvement chain saved enough cash to expand evening and weekend call center hours.

011 KEYBANKBanking A- B+ 934.86 Consumers like the Cleveland-based bank’s service, but Key is doing more for small-business owners, too. In the past year the bank unveiled new online tools that give

entrepreneurs many of the cash-management services long reserved for large companies, as well as more protections against check fraud.

012 FOUR SEASONS HOTELS & RESORTSHotel A A 919.18 As even luxury customers cut back, the hotelier is working to save costs without cutting service. The Four Seasons, which has had layoffs and a hiring freeze over the past

year, is outsourcing laundry to third parties at some properties and combining some hotel management roles to help save labor costs.

013 NORDSTROMDepartment Store B- B 917.23 Nordstrom’s famous return policy lets customers return any item at any store, which means locations in Phoenix can end up with snow boots bought in New Jersey.

New technology coming in 2009 will let stores ship that merchandise to online shoppers rather than back to a fulfillment center, which will save shipping costs.

014 CADILLACAuto A+ A+ 915.73 Despite General Motors’ cash crunch, Cadillac has not scaled back on guaranteeing loaner cars to customers while their cars are in the shop. With even high-end car

owners holding on to vehicles longer, the brand is urging dealers to use their massive databases of customers to sell more oil changes and repair services.

015 AMICAInsurance A A 912.06 The Providence-based insurer has a strong balance sheet and is investing in both new technology to speed claims processing and advertising to woo customers from

struggling rivals. But CEO Bob DiMuccio says what sets the company apart is decades of investment in the staff, which has a turnover rate of less than 7%.

016 ENTERPRISE RENT-A-CARRental Car B B 906.75 At Enterprise, management pay and promotion are directly related to a store’s service performance. The privately owned rental car giant, which had the first mass layoff in

its history in 2008, four months ago began using mystery shoppers it calls “brand integrity assessors” who show up unannounced at Enterprise’s airport booths.

017 AMERICAN EXPRESSCredit Card B B+ 905.76 The credit card giant got a black eye for reducing credit lines for some spending habits, a practice it says it has stopped. But despite corporate layoffs, American Express

has restructured compensation and scheduling for call-center agents. The changes offer them incentives tied to satisfaction scores and the flexibility to trade shifts.

018 TRADER JOE’SSupermarket A- B+ 904.31 Trader Joe’s runs a lean operation: Some 99% of employees work in the stores, and even CEO Dan Bane doesn’t have an assistant. That has helped prevent layoffs during its

40-year-plus history. Trader Joe’s has long urged shoppers to bring their own bags to promote recycling—and save costs.

019 JETBLUE AIRWAYSAirline B B 897.24 Pilloried just a few years ago for stranding passengers on the tarmac for hours, JetBlue created the industry’s first Customer Bill of Rights—which includes providing

compensation for passengers affected by problems caused by the carrier. It recently introduced free e-mail and instant messaging on some flights.

020 APPLEConsumer Electronics B- A 886.11 Apple sold more than 13 million iPhones in 2008, vaulting it to No. 2 in the smartphone market. But that rapid growth didn’t cause service to slide. Last year the company

also posted the largest one-year increase ever in the University of Michigan’s closely watched American Customer Satisfaction Index.

021 CHARLES SCHWAB Brokerage A B 882.73 A new direct-dial feature lets clients call back a Schwab rep directly to resolve an issue rather than have to navigate the automated phone line a second time. A push to

reduce the number of steps it takes to open new accounts has helped to shorten some call times, freeing up reps to answer calls faster.

022 BMWAuto A+ A+ 879.88 Luxury car sales were down 20% in 2008, but BMW gained market share. In the past, BMW tied dealers’ compensation to satisfaction scores above a certain level. But

with few complaints, most dealers scored high every year. Now, BMW ties rewards to how well dealers look after dissatisfied customers.

023 TRUE VALUEHome Improvement/Electronics Retail B+ B+ 875.67 As customers turn to modest repair projects amid the housing downturn, CEO Lyle Heidemann says small hardware stores are holding up well. The company is testing a

new customer feedback program in 2009 that would survey many more customers in a shorter time frame with expanded online surveys.

024 L.L. BEAN Online/Catalog Retail B A 865.88 With slower sales this holiday season, L.L. Bean pulled back on seasonal hiring. But it made few mandatory cuts in labor hours through its flexible network of call center

reps, who voluntarily gave up shifts when call volumes were low. A simplified software system for entering orders has greatly reduced the training time for new hires.

025 JW MARRIOTTHotel A A 864.98 As business travel slows dramatically, JW Marriott has cut back on customer niceties such as newspapers in some hotels. But it has tried to improve service by cross-training

employees such as administrative assistants, who have been taught to serve food at hotel banquets. That keeps service levels high without having to hire more staff.

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Last summer, Lisa Dias was poking around the Amazon.com Web site for books that could help her start a home business. The 45-year-old found a used workbook for

would-be entrepreneurs that sounded promising and was described as “like new.” The seller wasn’t Amazon itself, but one of the merchants that market through its Web site. Still, Dias went ahead and dished out $24.95 for the paperback.

When the book arrived at her New Jersey home, though, it wasn’t anywhere close to new. The worksheets were already filled in with someone else’s scrawlings. She felt burned but didn’t do anything about it until November. She first tried the merchant and didn’t get any response. Then Dias called Ama-zon. The company immediately gave her a refund, without her having to return the book. She’s still a bit baffled that Amazon paid her money the company never received in the first place. “I felt like they stood up for me,” says Dias.

For the most part, Amazon has earned a reputation for strong service by letting customers get what they want without ever talking to an employee. Sales clerks are nonexistent. Orders ship with a few mouse clicks. Packages arrive on doorsteps quickly. It all happens with monotonous regularity even as the number of customers has doubled in the past five years to 88 million. But when things go wrong at Amazon—and they occa-sionally do—the company’s employees get involved. That may be where Amazon stands out most markedly from other com-panies, and helps explain how the company earned the No. 1 spot on BusinessWeek’s customer service ranking this year.

One recent February day in Manhattan, Jeff Bezos, Ama-zon’s excitable 45-year-old founder and chief executive, sat still long enough to explain the ideas behind his company’s

approach. He talked about the distinctions Amazon makes between customer experi-ence and customer service. The latter is only when customers deal with Amazon employees—and Bezos wants that to be the exception rather than the rule. “Inter-nally, customer service is a component of customer experience,” he says. “Customer experience includes having the lowest price, having the fastest delivery, having it reliable enough so that you don’t need to contact [anyone]. Then you save customer service for those truly unusual situations.

BW 50

A warehouse worker assembles orders in Lexington, Ky.

It even covers for the customer service shortcomings of partners who sell on its site

how amazonaims to keepyou clickingBy Heather Green

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Bezos wants to bring the quality of Amazon’s outside merchants’ service in line with its own Jo

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by Amazon. Merchants simply send boxes of their products to Amazon’s warehouses, and Amazon does the rest. It takes the orders online, packs the box, answers questions, and processes returns. Last quarter, Amazon shipped 3 million units

for Fulfillment by Amazon partners, up from 500,000 a year earlier.

Though Amazon charges the merchants, Bezos says that’s not why it launched the service. “It’s important be-cause it improves the consumer experience so much,” he says. “It doesn’t make us more money; it’s heavy lifting. If you think long-term, I think it’s very important for us.” It might seem counterintuitive to help small merchants, including ones that undercut you, be more competitive. But for Amazon, the ultimate goal is to gain more control over the shopping experience, making it more consistent and reliable. The idea is that more people will use the on-line retailer and spend more.

Michael DuGally runs NorAm International Partners, a used book, DVD, and video game reseller in Hudson, Mass. He signed up for the program a few months ago. “I can’t deliver the kind of customer experience that Ama-zon can,” says DuGally. For instance, Amazon’s customer service people are trained to provide consistent answers, while NorAm’s four service employees often provide different responses, DuGally says. Amazon’s people are drilled in what steps to follow when they get everyday questions, like “Where’s my package?” as well as fielding more unusual requests. Amazon’s people tend to be more

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Amazon serves twice as many customers, 88 million, as it did five years ago

the ‘milk run’ helps keep hot items in stock.

instead of waiting for suppliers to deliver,

amazon sends its own trucks for pickup

You know, I got my book and it’s missing pages 47 through 58,” he says, breaking into a booming laugh.

Fixing customers’ problems builds loyalty with people like Dias, says Bezos. But it’s also a good way to spot re-curring issues that need to be addressed more systemati-cally. Outside merchants, like the one Dias dealt with, are a prime example. For years, Amazon has allowed other retailers to sell through its Web site to broaden the se-lection of products it offers. But these companies can be an Achilles’ heel. At eBay, which also lets merchants sell through its site, there have been complaints about poor service and fraud.

quality controlsSo Bezos is trying something that no other retailer has been able to pull off: He wants to bring the quality of ser-vice from Amazon’s outside merchants up to the same level as its own. The company has long let customers rate their experience with merchants, as they can on eBay. But Amazon also has instituted many internal safeguards to track the behavior of merchants. For instance, retailers have to use an e-mail service on the Amazon site to com-municate with customers so Amazon can monitor con-versations. The company also uses metrics such as how frequently customers complain about a merchant and how often a merchant cancels an order because the prod-uct isn’t in stock. Partners who have problems with more than 1% of their orders can get booted off the site.

To refine the experience with outside merchants, Am-azon in 2006 launched an initiative called Fulfillment

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prepared than most, because they try to answer customer questions through e-mail or a service where customers enter their phone numbers and wait for a call back after Amazon’s reps have gathered data on them. (There is an 800 number to call Amazon, but it’s not easy to find on the Web site.) To make sure that everyone at Amazon understands how customer ser-vice works, each employee, even Bezos, spends two days on the service desk every two years. “It’s both fun and useful,” says Bezos. “One call I took many years ago was from a customer who had bought 11 things from 11 sellers—and typed in the wrong shipping address.”

DuGally says that Fulfillment by Amazon produces results. He says that sales are up 40% on the items he sells through the program, and return rates are down 70%. He also expects to save between $550,000 and $700,000 this year, primarily because Amazon can negotiate lower shipping rates.

taking the wheelAmazon has gotten many ideas from trying to address cus-tomer complaints. One gripe from years past was that popular items—think Tickle Me Elmo or Crocs Mammoth clog shoes—were at times out of stock. The last thing Amazon wants is for a frustrated shopper to then head to another site or the mall.

During the past two years, Amazon developed new programs to keep hot items in stock and ready for quick delivery. One initiative is something Amazon calls the Milk Run. Instead of waiting for suppliers to deliver to Amazon’s warehouses, Ama-zon sends its own trucks out to pick up top-selling goods. That reduces the number of late or incomplete orders the company receives. The program is “very forward-thinking,” says Simon Fleming-Wood, vice-president for marketing at Pure Digi-tal Technologies, whose Flip camcorder has been included in weekly Milk Runs.

Read, save, and add content on BW’s new Web 2.0 topic network

ExchangeBusiness

Given its mail volume, Amazon can negotiate reduced shipping rates

the Kindle’s prospectsone of the more unusual ventures for amazon.com is the Kindle, the e-book reader for digital books, magazines, and newspapers. amazon created the Kindle from scratch, though the company had no hardware development expertise. still, some industry experts believe the device will be a hit with readers. before the recent debut of an updated version, Citigroup analyst Mark Mahaney projected that Kindle sales could hit $1.2 billion by 2010.

For more on Mahaney’s report, go to http://bx.business-week.com/amazoncom/reference/

One of the drawbacks to shopping online, of course, is that people don’t feel the instant gratification of getting their pur-chases right when they buy them. Albert Ko, an online mar-keter in Irvine, Calif., always wants his packages as fast as possible. “I’m always pushing them,” he says. That’s one rea-son Bezos is expanding Amazon Prime, the program for which customers pay $79 a year to get free two-day shipping on many in-stock products. During the past two years, Bezos has taken it international and increased the number of products that qualify for Prime. “Our vision is to have every item made anywhere in the world in stock and available for free two-day delivery,” he says.

Still, as carefully as Amazon plots and plans, sometimes things go wrong. Last November, 23-year-old Lindsey Smo-lan splurged on an iPod and a pink case from Amazon. The iPod arrived, but the case didn’t. Two weeks later, Smolan e-mailed Amazon and asked for a refund. After a little thought, she e-mailed again, asking for a free cover. “I didn’t use my iPod be-cause I was waiting for my case, and I’m a valuable customer,” she says. Amazon agreed. She got the iPod case gratis. ̂

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