Empathy: The Brand Equity of Retail

Below is an article from Harvard Business School Working Knowledge Forum . To summarize “retailers can offer great product selection and value, but those who lack empathy for their customers are at risk of losing them, says professor.”

Empathy: The Brand Equity of Retail

via HBS Working Knowledge on 5/19/11

There’s a famous line from the movie The Godfather, which is often repeated in corporate settings: “This is business, not personal.” Ironically, though, that statement is actually bad business advice.

During the Consortium for Operational Excellence in Retailing (COER) conference held May 10-11 at Harvard Business School, professor Ananth Raman discussed the importance of empathy in customer-facing business.

“As we’re talking about things like retail efficiency and profitability, this is a topic that I think needs more attention,”Raman told an audience of retail executives.

To kick off the conversation, Raman relayed what happened when Cleveland Clinic CEO Delos “Toby” Cosgrove visited a class at HBS a few years ago to discuss a case study on the renowned hospital. Dr. Cosgrove was intending to highlight the clinic’s record of operational excellence, when a student, Kara Medoff Barnett (MBA ’07), threw him a curveball of a question: “What is the hospital doing to teach its doctors about empathy?”

It turned out that Barnett’s father, also a doctor, had undergone a mitral valve replacement in 2000. Although the Cleveland Clinic had been consistently ranked No. 1 by US News & World Report for heart surgery survival rates, her father opted to go to the No. 2 ranked Mayo Clinic. The reason for his choice: doctors at the Cleveland Clinic had a reputation for communicating badly before and after surgery.

In other words, the Cleveland Clinic had lost business solely due to a lack of empathy. “It was like the prettiest girl in class not getting a date,” Raman said. For Cosgrove, Barnett’s story was a transformative experience that led the hospital to establish the Office of Patient Experience in 2009.

Ramanalso told the story of patient advocate Jackie Gruzenski, who faced an all-too-common experience when her husband was hospitalized for a cerebral bleed in 2009. Gruzenski was only allowed to see her husband during very strict visiting hours for the intensive care unit—four times a day in 30-minute increments. The hospital would not bend the rules, in spite of the patient’s repeated plea: “She’s not a visitor, she’s my wife.” The patient spent 8 of his last 16 days alive in the ICU, denied important time with his wife because of systematic rules.

Raman asked the executives to consider the story and apply it to their own work.

“It’s a core question for all of you: Are you in the business of rationality or emotionality?” he said. “If empathy is lacking in a nonprofit such as a hospital, what hope is there in retail?”

To that end, one COER attendee noted that an empathetic salesperson can make the difference between a customer’s decision to shop in a store rather than online. This is a key issue at a time when many potential customers will walk into a store, use their smartphone to snap a photo of a product they like, then return home to search online for a cheaper price.

Another attendee agreed, sharing the story of a woman whose luggage was lost on the eve of her husband’s funeral. Staff at a local Nordstrom store responded by staying open so she could purchase a few outfits, and her family has been loyal to the retailer ever since.

“Empathy can be the brand equity of retail,”Raman said.

Raman also talked about empathy in dealing with difficult customers who hurt business by disturbing other customers or by complaining publicly about the service. He cited the example of a hospital patient who consistently refused to follow medical orders, gave all the doctors bad reviews in customer surveys regardless of quality of care, and eventually threatened to strip naked in the hospital lobby and threw a tantrum. At that point the hospital faced an ethical dilemma. Should it refuse to treat the patient further because he was bad for business, even though his life depended on future treatment? (The hospital’s legal team advised refusing treatment; the doctor, who was often the recipient of the patient’s anger, disagreed noting his oath to always be there for the patient.)

Some COER attendees pointed out that in most of the retail sector, ceasing service is not a matter of life-and-death. “Sometimes you have to fire the customer,” said one executive. Another related a mentor’s advice that one of the smartest moves he could make in business was to allow difficult customers to defect to competitors.

“One of the challenges we face in retail service operations is that the customer is part of the operating process,”Raman said.

Toward the end of the session, Raman reminded attendees to consider the role of the customer’s empathy, too. He shared the story of a daycare center with operating hours from 7:30 a.m. to 4:30 p.m. The teachers were frustrated because several parents were consistently late in picking up their children, so the daycare instituted a new policy: a $3 fine for every late pickup. But rather than discourage tardy parents, late pickups increased dramatically. Now that they could pay for showing up late, the parents stopped feeling guilty and made it a habit.

“If you put a money value on the incentive, you often take away the pressure to conform to norms,”Raman said. “It’s a challenge…there are always big opportunities for us to do very dumb things. And it’s always tempting to say, ‘Can we just tweak the incentives and hope the problem goes away?’ But that can come back and bite us very badly.”

The Consortium for Operational Excellence in Retailing is focused on advancing retail operations from a combined academic and business perspective. The annual conference is used to present the latest academic research for participants to exchange ideas, thoughts, and challenges.

About the author

Carmen Nobel is the senior editor of HBS Working Knowledge.

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