Run a business long enough and eventually you’ll make a mistake. Make enough mistakes and—eventually—a consumer will complain.
…Unless you’re really, really lucky, right? Not quite. Perhaps it’s time to shift the way we think about consumer complaints and start considering how an organization might actually be fortunate to receive one. While a complaint can foreshadow a regulatory action, it can also alert management to an issue in need of correction, and lead to lasting change that ultimately benefits the organization.
But your company doesn’t even need to wait that long to use negative consumer feedback for financial gain. In fact a recent study of hotel reviews left by consumers online demonstrates that the simple act of responding to a complaint can quantifiably improve a brand’s reputation. The study found not only that “improved ratings can be directly linked to management responses” to such reviews, but “that when managers respond to positive reviews, it has the same benefits as when they respond to negative reviews.”
Here’s more from the study’s authors, via Harvard Business Review:
In the age of consumer reviews and digital word-of-mouth, how can a firm participate in shaping its online reputation? There are standard service recovery strategies, such as offering perks and discounts to disappointed customers. Many managers have also started publicly responding to consumer reviews as a way to apologize and outline steps the firm has taken to avoid future service failures. Review platforms claim that responding to reviews is good practice, and even provide guidelines for responding (here are TripAdvisor’s, for example). But does it improve a firm’s online reputation?
To answer this question, we examined tens of thousands of hotel reviews and responses from TripAdvisor, which uses a review scale from 1 (terrible) to 5 (excellent). On TripAdvisor, management responses are common: Roughly one-third of reviews receive a response, and nearly half of all hotels respond to reviews. By analyzing these responses, we found that when hotels start responding, they receive 12% more reviews and their ratings increase, on average, by 0.12 stars. While these gains may seem modest, TripAdvisor rounds average ratings to the nearest half star: A hotel with a rating of 4.26 stars will be rounded up to a 4.5, while a hotel with 4.24 stars will be rounded down to a 4. Therefore, even small changes can have a significant impact on consumers’ perceptions. Approximately one-third of the hotels we studied increased their rounded ratings by half a star or more within six months of their first management response.
Although the study focuses on hotels, it’s not difficult to see how its insights apply to financial institutions and other members of the consumer lending industry. Thanks to the Consumer Financial Protection Bureau’s Consumer Complaint Database, lenders can now proactively act on complaints—their organizations’ and others—and become more competitive. Indeed, the much-maligned has become “an integral part of most companies’ internal compliance function,” as attorneys Andrew Bigart, Meredith L. Boylan, and Alexandra Megaris recently wrote in insideARM: “Today, well-run compliance departments monitor the database closely, respond to consumers in a timely manner, and use any lessons learned as part of a larger feedback loop used to identify and remediate compliance deficiencies.”
Want to learn how to use complaints to gain a competitive advantage? Join us next week for our Consumer Complaints: Your Company’s Broken Windows webinar. Our panel of industry experts will show how consumer complaints can be good for business, and walk through best practices for processing and acting on negative consumer feedback. Click here to sign up.