In this excerpt from their new book, Satisfaction: How Every Great Company Listens to the Voice of the Customer, Chris Denove and James D. Power IV, son of the founder of J.D. Power and Associates, detail how Lexus established itself as a leader in customer satisfaction among car buyers.
How a recall earned Lexus a top reputation
The year was 1987 and the domestic automakers had finally resigned themselves to the fact that the Japanese were here to stay. What began as a trend in California and was perceived as consumers' knee-jerk response to the gasoline shortages of the '70s had taken root across the country. To the domestic automakers' dismay, even after gas prices stabilized, cars such as the Honda Civic and Toyota Corolla continued to gain share not only on the West Coast, but also in small Midwestern towns that traditionally bought American.
Although the loss of share was daunting, the domestic automakers believed their problem was self-limiting. "Okay," they thought, "Americans may have fallen in love with small economy cars from Japan, but the Japanese will never be able to sell a large car in this country." And this was a comforting thought, because small cars were a loss leader for domestic automakers. Their real profits came from the larger, option-laden vehicles, which they felt were immune from Japanese attack. And so the executives from the Big Three went to bed at night content that although they may be losing the battle for small cars, they would still win the war for corporate profits and market dominance in the end.
Halfway across the globe, executives at the European automakers were even less concerned about America's growing acceptance of Japanese vehicles. After all, with the exception of Volkswagen, the Europeans didn't even sell small cars in America. They didn't even sell large cars, for that matter. They sold luxury vehicles. And a luxury vehicle isn't just defined by its size; it exists because of its brand cachet -- something that no Japanese automaker could deliver, or so they thought.
So you can only imagine the reaction on both sides of the pond when, on August 24, 1987, Toyota announced the unthinkable. It would create Lexus, an entirely new division dedicated to building and selling what they said would be the best luxury vehicles in the world. You could almost hear the laughter filtering down from corporate towers in Detroit and Stuttgart, "An office worker may pay $10,000 for a Toyota to get back and forth to work, but there is no way a doctor or a lawyer is going to plunk down $40,000 for a Toyota, even if you give it a fancy name like Lexus."
Toyota was undaunted. It set out to redefine luxury beyond the traditional attributes of leather trim and a powerful engine. To Lexus, luxury would be defined by the total ownership experience, including a defect-free vehicle coupled with great dealer service.
Development progressed quickly, and in September 1989 Lexus delivered its first vehicles into the waiting hands of customers. Its flagship vehicle, the LS 400, carried a list price of just under $40,000. By comparison, a fully loaded Mercedes S-Type sold for nearly twice that amount. That's okay, Mercedes thought; Lexus needs that price advantage to make up for the stigma of driving a glorified Toyota.
The cars sold well initially, but a few months into the program the one thing happened that Lexus feared most, and that executives at competing car companies secretly dreamed: the cars began to experience a problem. We're not talking about a stuck-on-the-freeway type of problem, but just a little crack in the armor that Lexus knew could snowball into a deluge of bad press for a company trying to establish itself under the eye of a microscope. It seems that two customers in different parts of the country complained about a glitch in their cruise control.
Lexus faced a decision. After all, it was only two cars, and thankfully this particular cruise control glitch didn't pose a safety issue. It could quietly fix those two cars and wait to see whether others surfaced with similar problems. Or it could issue a recall and let the world know that Lexus engineers were human after all. To those we interviewed for this book, the decision was simple. Since Lexus was counting on its dealers to deliver a level of service head and shoulders above that of any other automotive brand, Lexus needed to take the high road and set an example, one that is still talked about among automotive insiders today.
So, just a few months out of the gate, Lexus recalled every LS 400 it had sold. They made this decision knowing full well that competitors like Mercedes, BMW, and GM were just waiting for the company to stumble, ready to pounce on every miscue. They could almost hear the cheering from Stuttgart and Detroit at the misfortune of this early recall. They knew competitors would use the recall to proclaim that Japanese automakers need to learn their place, stick to selling small economy cars, and let the more established manufacturers cater to the world's automotive elite.
But remember, Lexus set out from the beginning to redefine the meaning of luxury. They realized that this recall provided them with an opportunity to really show the world that they were dealing with an entirely new kind of car company, a company that didn't just talk customer satisfaction, it lived it. So, when Lexus owners received their recall notices, they were in for a surprise. The notices not only included a detailed apology letter, but owners were advised that their dealer would come to their homes, pick up the car, and leave them a loaner car free of charge while the repair was made. Every car was returned to the owner washed, detailed, and with a full tank of gas.
There was even a gift sitting on the driver's seat as thanks for their patience.
And when a customer lived beyond the normal range of a Lexus dealership, the company's field personnel took it upon themselves to drive to the home, break out their tools, and fix the problem right there in the customer's own garage. In at least one case this meant getting on a plane and flying a technician to Alaska to fix a customer's car, because Lexus didn't yet have any dealers outside the continental United States.
For all practical purposes, we believe this recall marked the day that Lexus was truly born, and not the day it sold its first car. This is because the recall was the day that Lexus showed the world what it really meant to be customer-focused.
Lexus's story is important because it provides one of those rare examples in which a company eschews an inexpensive short-term solution to a problem in favor of a more costly but permanent fix. When Lexus recalled every LS 400 it had sold, it told the world it wasn't just saying it planned to be the best; it lived it, and backed up the claim from the top all the way down to the technicians who drove out to customers' homes. Remember, Lexus was in no way legally, or even morally, obligated to issue this recall. They did it simply because they felt it was in the best interest of their customers.
Let's face it. Every company says that customer satisfaction is a paramount goal. Countless CEOs begin their speeches or their annual report letters by declaring: "We've built our company around the philosophy that we will do absolutely everything possible to satisfy our customers." If you feel as if you've heard all of this before, you have. Corporate America has embraced the verbiage as a mantra over the past decade.
In truth, talk is cheap, particularly when it comes to customer satisfaction, a concept that companies and their advertising agencies increasingly believe is on sale to the highest bidder. Claims of love affairs with customers have become such common chatter in business that most employees, managers, and customers themselves don't even hear it anymore. We intend to be more than a bit exclusionary in our discussion. We want to talk about the companies that really mean it!
Reprinted from Satisfaction by Chris Denove and James D. Power IV by arrangement with Portfolio, a member of Penguin Group (USA) Inc., Copyright &Copy; J.D. Power and Associates, 2006.
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