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Walmart’s experiment - increased pay

Denis Pombriant Profile picture for user denis_pombriant October 23, 2016
Walmart's efforts to compete have always been predicated on minimizing cost. It backfired in 2012-13 and the company has had to course correct, paying its employees more as a way of revitalizing customer service.

A provocative story in the New York Times about Walmart’s employment practices may have broader implications on the CRM front. The story by Neil Irwin, How Did Walmart Get Cleaner Stores and Higher Sales? It Paid Its People More, analyzes the retailer’s decision to increase wages for its effect on the bottom line.

This isn’t an article about employee pay or even customer rewards programs exactly, but I wish to call attention to the idea first documented in Frederick Taylor’s time and motion studies more than a century ago, that treating people well—customers and employees—matters.

In Walmart’s case stores were a bit of a mess according to the Times,

Shoppers were fed up. They complained of dirty bathrooms, empty shelves, endless checkout lines and impossible-to-find employees. Only 16 percent of stores were meeting the company’s customer service goals.

Financial results were in the tank, again from the Times:

Sales at stores open at least a year fell for five straight quarters; the company’s revenue fell for the first time in Walmart’s 45-year run as a public company in 2015 (currency fluctuations were a big factor, too.

A new management team brought on in 2014 decided to tackle multiple interlocking problems beginning by improving training and working conditions, which included increasing wages at the nation’s largest private employer with 1.2 million employees in the U.S. and 2.3 million worldwide.

While a comprehensive program has not been completely rolled out to all of Walmart’s stores, the results coming in suggest that the new policies are working. According to the story,

By early 2016, the proportion of stores hitting their targeted customer-service ratings had rebounded to 75 percent. Sales are rising again.

The article is well worth the reading but the evidence that Walmart figured out how to right the ship is strong. What does this have to do with the front office and customers? First, we might take a moment to remark that raising wages seems like a counter-intuitive thing to do, especially at a company that made its bones by keeping labor costs low and squeezing its pennies as part of its growth strategy.

The prevailing logic in the executive suite though was that cost containment had gone too far since 2008 and that the policy of keeping tight reins on labor costs was counter productive. But according to the Times story, economists had seen this situation before. They even have a name for it, according to the story,

Efficiency wages is the term that economists — who excel at giving complex names to obvious ideas — use for the notion that employers who pay workers more than the going rate will get more loyal, harder-working, more productive employees in return.

Interestingly, he didn’t call it such but this idea must have been in Henry Ford’s mind when he raised wages at his plant in 1914 to a five dollars per day. So, problem solved. But what does this have to do with customers? Simply put, the way we treat people matters a lot, just in case you missed that lesson in grade school, and that plays out in spades when we’re dealing with customers too.

Many vendors will say that they already treat their customers well and they often point to their rewards or loyalty programs as proof. But as I have written elsewhere, these programs are inherently backwards looking and research shows that even customers in rewards or loyalty programs would gladly switch vendors for a slightly better offer.

So, effectively, our loyalty programs have become little more than discounting mechanisms. Vendors forego margins to sell another widget but customers have learned to game the system. If every deal, every sale, needs an inducement then list price means nothing and the margins needed to pay workers and keep investors happy, are hard to come by.

What the research also shows is that customers, just like employees, enjoy being treated well, but there’s a rub. Many companies think they know how to treat customers well but they might not in actuality. They assume they know their customers’ needs when they don’t. Surprisingly, an article, Stop Trying to Delight Your Customers, says that very often what customers want is efficiency and not an elaborate “experience.” They’ve got a list of things they need to complete and little time for completing an invented experience. Said the authors, Matthew Dixon, Karen Freeman, and Nicolas Toman,

…loyalty has a lot more to do with how well companies deliver on their basic, even plain-vanilla promises than on how dazzling the service experience might be.

But even with efficiency, there are some rules to consider. A study from McKinsey analysts David C. Edelman and Marc Singer published on says there are four basic attributes to the vendor-customer relationship that we should all take to heart, especially in this era of increased automation.

  1. Automation. Increasingly we need systems that triage customer situations or capture specific data. People seem to prefer dealing with a bot than waiting in a queue. The implication is that robots can take friction out of the equation.
  2. Proactive personalization. Understanding what the customer is likely to want whether in sales, service, or something else and then developing ways of proactively meeting those needs as quickly as possible appears too be what customers really want. An interaction shouldn’t require a long series of steps to front load the interaction, and just in case, there has to be an easy segue to a live person.
  3. Contextual interaction. This is all about staying relevant. If a customer wants to make a return don’t try a cross sell—at least not right away.
  4. Customer journey innovation. The journey and the processes you offer are as much a part of your product as the box it comes in. Understanding the journey and trying new approaches is as useful as R&D.

My take

There is just as strong a case to be made for “efficiency relations” just as there is for efficiency wages. Back when the vendor-customer relationship was something largely carried on face to face, there was scant opportunity for doing anything but treating customers well. The advent of indirect commerce carried on through websites and subscriptions has reduced the human contact and this is having negative results in some companies. One need only look at the abuse customers give vendors on social media or the high churn and attrition rates in business to know this.

According to a report by Accenture, in the global economy switching from one product to another represented a $6.2 trillion annual “switching economy” in 2014. That’s a lot of wasted expense and high reason for taking a closer look at how we can all do better for customers.


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