Power Lunch

Monday - Friday, 2:00 - 3:00 PM ET
Power Lunch

Improving Customer Service: Bad For Investors?

ECCO 2010 Golf Street Premier Moonless Black Chili Shoe.
Source: ECCO

Improving customer service can be hard work for a company -- and very expensive. And while it's good news for consumers, it may not be good news for investors, reported CNBC's Hampton Pearson.

Industry experts say cutting customer service can improve a company's bottom line in the short term but with long-term consequences, particularly if the company's core business model sells "service" or an emphasis on customer experience.

"It's not about customer satisfaction; you give me a choice about making a customer happy or making money, I want to make money," said Chris Denove, who heads up the customer satisfaction unit at JD Power and Associates.

Good Service Bad for Investors

"The reality is customer satisfaction leads to behaviors that drive profitability but companies have to be very careful of how they spend their customer satisfaction dollars."

The jury is still out on what the long-term fallout from the JetBluenightmare of two weeks ago will be. There are no signs of a full-scale migration of travelers from the low cost airline, Pearson said. JetBlue on Monday cancelled another 70 flights due to more bad weather.

Starbucks CEO Howard Schultz recently sent a memo to top executives, saying that the company's rapid expansion to 13,000 stores in the last decade has diluted its brand.

"We have had to make a series of decisions that, in retrospect, have led to the watering-down of the Starbucks experience, and, what some might call the commoditization of our brand," Schultz said. "While the current state of affairs for the most part is self-induced, this must be eradicated."

JD Power's Denove said the main point for corporations is to look at investing in customer service the same way they look at any other capital investment.

"What's your return on that investment going to be? Do that, [and] you'll grow the bottom line guaranteed," said Denove.