Every business makes mistakes with customer service, but the most successful ones are those that know how to turn a customer with a problem into a customer for life, according to John Tschohl, president of the Service Quality Institute and author of 'Loyal for Life'. This article is copyright 2014 The Best Customer Guide.

Tschohl asserts that customer retention is all about creating loyalty and a fan base, so that customers come back more often. Key to his argument is the fact that customers' loyalty tends to be much greater when they have experienced "service recovery".

"Less than 2% of companies use service recovery techniques. That's really bad," said Tschohl. "Many companies and most employees run for cover instead of solving the problem. Many employees will pass the buck or they will lie because they don't want to confront the customer."

And these problems are only getting worse thanks to social media. If customers aren't happy, they'll post the problem on Twitter and Facebook. "Companies spend a fortune on marketing. But they don't spend a dime teaching front-line employees to keep the customer from defecting," said Tschohl. "Wouldn't it be better to spend that money on training employees to handle problems in the first place?"

The most important person is the person who has direct contact with the customer. Unhappy customers won't call the company president. They will talk to whoever is in the store or who answers the phone. Those people, Tschohl suggests, should follow his '5 Golden Rules of Customer Retention':

  1. Apologize and offer a better option
    For example, you might offer expedited delivery at the company's expense.
  2. Act quickly
    You must respond to the complaint within 60 seconds. That's when the magic happens.
  3. Take responsibility
    Most employees shove the problem off and blame everyone else. Customers know when they are being passed along the chain and they don't like it.
  4. Empower employees to make a fast decision
    Each front-line employee should be able to take action quickly. They shouldn't have to ask their managers to get an approval or pass the buck to them. Take action.
  5. Give away something that has high value and low cost
    Customers will be pleasantly surprised and delighted with your company if you not only make things right, but make things better. For example, let's say a customer calls to complain about a new computer that has a hard drive crash in the first month. In addition to solving the problem, you might offer an extended warranty. It costs the company nothing but it has a high, perceived value to the customer.

"While I find it hard to find examples of companies doing this really well, there are two companies that stand out from the pack," concluded Tschohl.

The first is Outback Steakhouse: "If there is any kind of a problem, they immediately take care of it. I once had a dirty knife with water stains. I only wanted a new knife. The waiter apologized and brought me a new knife. The manager also came over to apologize. He also offered me a free dessert that cost about eight dollars. The dessert might have cost him only a dollar but it meant everything to me. Now I tell thousands of people about my positive experience."

The second is Red Box: "I recently ordered a DVD movie but it wouldn't play on my TV. I called them and quickly realised that I ordered the Blue Ray version by mistake. Blue Ray doesn't work on my TV. Even though it was my mistake, they offered me two free rentals. What's the cost two DVD rentals to them? Nothing. They turned me into a customer for life."