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Thursday, September 8, 2016

Customers as Shareholders

Here’s an idea for improving customer service.

The goal of American, and other, companies is to keep their stockholders happy. Paying executives large bonuses, automating as many aspects of their work as possible, and outsourcing functions are all attempts to increase the revenue that stockholders receive. Customer service is simply one of these functions. As long as the customers come, it does not matter how poor customer service is. When customers cease to come, then the company will try to improve its customer service.

This is particularly pernicious when few vendors supply a needed service. Consider air travel. Currently, three airlines — American, Delta, and United — dominate the U.S. airline market All treat the customers as revenue generators, not human beings. The width of seats has shrunk to the point where some people cannot fly coach for medical reasons; the pricing structure of tickets is incomprehensible; and the customer bears the brunt of any problems. Witness United’s and Delta’s recent computer breakdowns. The result: customers could rebook without charge (the airlines emphasized the latter). Now, if a customer misses a meeting because the flight is delayed, the airline does not provide any compensation. Rather one-sided — and the customer can rarely move his business to another airline, because all of the airlines operate the same way. The customer produces money. Complaints? Doesn’t affect their shareholders, so they won’t do anything.

Improving customer service requires an incentive. The bottom line is keeping stockholders happy, and this usually (but not always) involves profits. If profits fall, the money stockholders make falls, and they will become discontent — and possibly change company management, or dump their stock, causing the price of the stock to drop, thereby hurting the company’s financial position. If profits fall, companies will try to find the cause and correct it. So, tie customer service to stockholder satisfaction. The belief that improving customer service improves revenue, and therefore stockholder satisfaction, simply is not working, especially when the company is a monopoly or near-monopoly. This suggests making the tie more direct.

Here’s the idea: make the customer a shareholder. For example, when I fly on (say) Delta, I receive a share of Delta’s voting stock. If I fly often, I get more stock; indeed, this could be handled like a “frequent flier” (loyalty) program. Now, I have a direct voice in the overall management of the company because I can vote my stock at a shareholder’s meeting. Further, I can band together with others of like mind to make our stock be a larger block and hence increase the strength of our voices.

Now as a shareholder, the company will want to keep me happy; and it can do so not just by revenue, but also by making my flights more comfortable. And to do so it will have to reverse the trend of poor customer service.