by Gary North
You have dealt with Stonewall Sullivan. He may not have called himself that, but you have dealt with him. Stonewall is everywhere. He establishes the rules of how we spend large chunks of our lives: on hold, listening to Muzak, or worse.
Stonewall Sullivan sets the pace for the government-regulated American economy. He also sets the place. The pace is slow, and the place is the phone tree.
Capitalism is a vast money machine, producing great wealth. But it suffers from sand. Stonewall Sullivan and his peers provide the sand.
I will describe a recent experience of mine. Then I will offer suggestions as to how you can protect yourself and maybe even make a few bucks.
This is the story of a money machine, and how one corporation's management has created a system that steadily injects sand into the gears.
IDENTIFYING A MONEY MACHINE
Contrary to business opportunity magazines, there are not many automatic money machines in this world. When you find one, buy it outright if you can. If not, invest in it. But before you put your money on the line, ask four key questions.
What is the main barrier to entry for potential competitors?
Is the U.S. government deeply involved?
Are you stuck longer in the phone tree to get to customer service than to a salesman?
Does the money flow in by automatic monthly billing of customers' credit cards?
I will illustrate these points by a consideration of a potential money machine, DirecPC.
INTERNET SERVICE IN THE BOONDOCKS
I live in what may be the largest small town in America. Technically, I'm in Winslow, Arkansas. I have been in the town of Winslow maybe twice in the last five years. The town was barely functioning even before they put in the interstate that bypassed it by 10 miles in 1999. Then the local market burned down. But to drive from my place to beautiful downtown Winslow takes at least 20 minutes. The geographical extension of the town is huge.
We have phone service here, in a manner of speaking. I can connect to the Internet at 44k once in a while, 28.8k most of the time, and 14k sometimes. DSL? Up here, that stands for Darned Slow Lines, or words to that effect. How about cable? Only behind tractors. Surfing the Net is more like wading.
Four years ago, I subscribed to DirecPC, which allowed fast downloading from the Web, but it required uplinking by modem. It was pretty good, but when I moved my office, I did not sign up again. I had to pay for satellite TV, which I rarely watched. The installation costs were high, and the phone lines were not getting better.
Recently, I heard about two-way satellite access. You can uplink faster than standard modem, though not at extreme speeds, and download faster than DSL. The price is within reason: $60/month.
I went for it. I bought the required satellite dish and software for about $120. But I waited a few months to install it. Stupid me. The Federal government then got into the act. Federal law now requires licensed installers.
In Arkansas, you are lucky to find licensed drivers in some counties.
So, I went on-line to DirecPC to see if I could get my dish installed. There was nothing on its Web site about this. The site offers you various options for paying for an entire package: equipment and installation.
The site's home page tells you to contact called DirecWay, which, like DirecPC, is a subsidiary of Hughes. Because DirecPC instructs the visitor to contact DirecWay, I will refer to the people I dealt with as employees of DirecPC.
The site offered a way to apply for printed information. After filling out every box on the form, I read the instructions: "Click SUBMIT." The form was so long that the SUBMIT button was below the bottom of my screen. So much for getting any information mailed to me. (Lesson: "Read the instructions before filling out any form.")
I then called a toll-free number. The salesman had no idea of how to handle my order: installation without paying for equipment. He passed me off to customer service.
Unfortunately, I had not prepared myself in advance by getting "War and Peace" off my bookshelf. When I finally reached a live person at customer service, I was directed to another toll-free number. When I got through to that number — where was "War and Peace" when I needed it? — I spoke with a charming lady with a lilting Indian accent. After some time, she directed me to a third number. There, amazingly, I did get the phone numbers of three installers in my area. By "area," they apparently meant "time zone." One was in Branson, Missouri. One was outside of Neosho, Missouri. And one — a miracle — was 10 miles away.
What I did not know was that installer was in fact a local dairy farmer who had gone into the dish-installation business last spring. He still has over a hundred head of milk cows, he told me.
He turned out to be a real expert in milking.
He demanded payment by check in advance: $300. I paid. He then took along parts of my dish. He never told me his name. He had promised to arrive the following Monday. It was Friday. He cashed the check that day, but he never came back.
He had said that on the day he installed it, I would have the service at $60/month. Days later, I saw the light: he made his money only from the installation. DirecPC makes its money on the monthly fees. If he never signed me up, DirecPC would lose the money, but would never know about it. He, however, got his $300. No muss, no fuss. "Later, gator."
I then knew where I would be spending my days: in phone trees.
THE MILK COW BLUES
I called the toll-free sales number again. I spoke with a salesman. I explained my situation. "Well, what can I do about it?" he eventually replied. A good question, indeed. Then he had an answer. "I'll transfer you to customer service." It was Tolstoi time again.
I did reach a lady who looked up the name of the installer, located in Prairie Grove. She gave me a phone number. I asked for his address. She gave me that, too.
I hung up. I dialed the phone number. Out of service. A week before it had been live. I got in my car and drove to Prairie Grove. There was a building. A small building. A small, locked, empty building. "For Rent."
One word flashed through my mind: "Moo!"
I called the number on the "For Rent" sign. No answer. I called hours later. A lady then gave me the man's name and two phone numbers. He had departed some time ago. I called the toll-free number. It did not work. I called the other number. I got an answering machine, but with someone else's name. I asked that the man call me back. So far, no call.
I decided to go back to customer service at DirecPC. There, I got through to Stonewall Sullivan.
THERE SITS SULLIVAN, LIKE A STONE WALL!
He told me his name was Sullivan. I could barely understand what he had said. He repeated his name for me.
He wanted to be helpful. But he was sorry. Really sorry. Since I had not bought anything from DirecPC, I was on my own. He would give me the number of another company that was in charge of the installers nationally.
All I wanted was the number of the dairyman-installer. He could not give that to me. OK, then could I have the mailing address of DirecPC? I wanted to explain my situation. He repeated that he would give me the phone number of the installers' recruiting company. I asked: "Are you saying that you will not give me the address of the company?" He said, "It's in the toll-free phone book. Call it." I asked again. And again. Finally, he said, "I'll give you what you want." He put me on hold. I held. And held. Finally, he came back. "Here's the number of the company that hires installers." In short, he absolutely refused to give me the address of DirecPC.
If he did this on his own, he ought to be fired. But I don't believe he did it on his own. He put me on hold, as if to consult with someone. Then he came back on and still refused to give me the mailing address.
In my opinion, middle management at DirecPC has deliberately set up a system to see to it that complaints don't get to their desks. Sullivan & Co. have a task: to keep middle management's desks free of complaint letters.
I suggest that DirecPC senior managers consider this: the flow of funds into a service company like theirs is potentially gigantic, but it is not automatic. Unless there is a barrier to entry, rival technologists will come up with an alternative that is cheaper. This is the genius of capitalism: open entry, price competition, and consumer sovereignty.
Any company that allows middle managers to achieve their goal of keeping their desks free of customer complaints has not understood the nature of the money machine: signing up clients who never go away. So, middle managers hire Sullivan to keep their desks free of clutter. They create barriers to entry — not barriers to innovative competitors, but barriers to dissatisfied customers. The archetype of such a company is AOL. Don't take my word for it. Ask Ted Turner.
Nobody at DirecPC designed the complaint system with this principle in mind:
"If we don't sign them up, we can't get at their credit cards."
Middle managers need a constant representative sample of complaints in order to design effective measures to solve them. The goal is to keep reducing the complaints that are causing buyers to quit or shoppers to go elsewhere.
I conclude that the primary goal of DirecPC is to sign up buyers of packages, not to keep customers happy. In my estimation, the waiting time on the two branches of its phone tree — sales vs. service — reflects the primary goal. The focus is on sales. For a company that makes its money on the back end, this focus is loss-generating. Management should use Gillette as the model: give away the razor; get rich on the blades. Instead, management seems to have imitated AOL.
Sullivan's job is to stonewall complainers. In the corporate division of labor, this is his specialty. The problem with America's Sullivans is that management has not provided ombudsmen — facilitators who take over when Sullivan & Co. get beyond page 3 of their 3-page solutions manual.
Pareto's rule says that 80% of the problems will come from 20% of the customers. A profit-seeking company should hire and train people to deal with these 20% with extreme competence, and hand off the other 80% to supervisors who have the authority to make decisions. These supervisors should be paid well because they must deal with so many different kinds of odd-ball issues. They must be creative problem-solvers.
Very few companies understand this. They turn over everything to Sullivan & Co., and when these people reach their limits, they don't know what to do, so they stonewall.
There are many problems with this strategy, but the main one is this: people will take their credit cards and go away. Sullivans, in frustration at having been pushed beyond their limits, react by cutting off the heads of geese that lay the golden eggs. They think: "You aren't going to get a mailing address from me, you slime-ball! Nobody upstairs is going to put the finger on me." So, the caller gets the finger.
BUT WHAT IF IT'S "60 MINUTES" CALLING?
The law of averages being what it is, eventually the stonewaller stonewalls someone who can get through to middle managers and even senior managers, though initially indirectly. This is the "60 Minutes" scenario.
Pretty soon, the CEO of the company is chatting in front of the cameras with Mike Wallace. Mike asks: "Do you understand the rules laid down by the Federal Trade Commission that say that your company is responsible for what your agents say and do in your name?" "Why of course, Mike." "Would you say that when someone at your company recommends an installer, and that installer signs up a customer who will pay your firm $60 a month, that he is an agent for your company?" "Well, 'agent' may be too strong a word, Mike." "What would you call him, 'an unindicted co-conspirator'?" And so on . . . for 10 of 60 minutes.
Large corporations should structure their entire management system on this assumption: "60 Minutes" will call. Make it so they won't call back.
When you are told by any agent of a Web-based company that you aren't allowed to pay by credit card, walk away from the deal. He is either trying to evade responsibility, or else he is too poor a credit risk for a bank to allow him access to credit card services. I made that mistake with the dairyman-installer.
When the guy gives you no receipt with an address on it, beware.
If it's a big-ticket order, take five steps before ordering anything:
Call the sales number. Time how long it takes to connect to a salesperson. Then ask questions. Ask for a physical address. Do not place an order yet.
If the phone tree initially gives a customer support number, call back and press that number. Time how long it takes to get to a live person.
If it takes more than three times as long to get through, repeat the procedure one hour later: call sales, then call service.
If it still takes over three times as long, start thinking carefully about the company's ability to provide service. What if you get locked in with a defective unit?
If you get through in less than three times the time, ask the person about the repair and return policy. Also ask for a physical address.
Any company that puts you in the phone tree for long stretches in your quest for access to customer support is a high-risk company. It is compromising its ability to generate a constant stream of back-end income. Any company that is blind regarding the back end is either poorly managed or is selling a one-time-only product, in which case, you had better be sure that customer service is top-flight. Think "aluminum siding."
THE FREE MARKET
The ideal company is price competitive in a market that has open entry. However, it must sacrifice some price for improved service. If it doesn't sacrifice price for service, then it had better imitate Wal-Mart: money back, no matter what.
In a rich country, service is more important than price because time is more valuable than money. A man who makes $500 an hour wants no unexpected set-backs that require him to deviate from his schedule. A man who makes $6 per hour is more worried about price.
In the early stages of capitalism, innovators compete in terms of price. They lower prices as a way to gain access to a huge, poor, and untapped market. Firms grow through increased volume. Capitalism always has such companies. Wal-Mart gets the most attention, but Dollar General and the other Dollar-type stores are growing very fast.
But, as capitalism makes large numbers of people richer than ever believed possible, these newly affluent people start looking for reliability, fast repairs, and personal attention. A company that caters to the affluent as its primary market had better not imitate Wal-Mart. It had better allocate a lot of its budget to customer service.
Buy shares of companies that are known either for service or product quality that doesn't require much service.
A company can be price competitive, as Wal-Mart is, but then its model had better be "satisfaction guaranteed, or your money back, no questions asked."
Have you noticed how many defect recall campaigns have been initiated, on threat of government action, by Japanese car companies compared to American car companies? Not many. Have you ever gone to "Consumer Reports" and looked at the repair evaluations for used cars? American car makers have surrendered market share to Japanese car companies for a generation? Why? Low levels of quality control.
As Americans have grown richer, they have bought quality. Detroit, hampered by government-protected compulsory trade unions, whose members did not have a fierce dedication to quality work, did not perceive what the future would bring as Americans grew richer. Companies did not see that government-enforced trade unionism would not protect them from competition that originated outside the jurisdiction of the National Labor Relations Board. When Japanese auto companies finally set up shop here because of cheap land and lower transportation costs, they did so far from Detroit and the rust belt, where trade union arrogance had made workers fat and strike-oriented. The Japanese built in Tennessee and Kentucky: the greenbelt, not the rust belt.
Invest in quality. Invest in companies that put service at the top of the list, and then prove it by answering their customer service lines as fast as they answer their sales lines.
I understand DirecPC's problem. The US government gummed up the works by requiring licensed installers. This requirement has cut the supply of installers. The company farms out hiring to a third party, which is reduced to hiring a dairy farmer to service the fastest growing region in the United States, Northwest Arkansas, where Californians are streaming in, home sale profits in hand, ready to spend money.
Once again, we see that government intervention hurts the consumer in the name of the consumer.
Who knows, maybe DirecPC will find out where that missing installer is. Or maybe I will. Maybe I'll eventually be on-line by satellite. Until then, I leave you with this thought:
September 9, 2003
Copyright © 2003 LewRockwell.com