How to handle customers that ask for compensation

Complaining customer asking for compensation

Customer complaints are an opportunity to enhance your reputation and improve customer loyalty - but only when you deal with them effectively. Emma Allen finds out when to offer customers compensation

"Whether or not you decide to offer compensation to a dissatisfied customer, and what form that compensation takes, depends largely on the nature of the complaint," says Duncan Baker, communications director at the Institute of Customer Service.

"If customers have experienced a late or absent delivery, poor service or have been sold a faulty product, many businesses may feel that on top of rectifying the actual problem, some form of compensation is required," he explains.

"Going beyond the minimum can often be done at no great cost to the business, but it adds a personal touch," points out Baker. "The rewards in terms of customer loyalty and future business can be significant."

Insurance can help protect your business against the financial and reputational damage caused by compensation claims by customers. There are insurance policies that can protect you against different risks such as defective products (product liability insurance) or negligent professional advice (professional indemnity insurance).

Your legal obligation to compensate

In some cases, offering customers compensation is a legal obligation. For example, if your product is faulty, you are legally required to offer a refund, replacement or repair to customers. Consumers have up to six years to claim compensation in this way.

However, aside from the legal minimum, you could additionally offer customers vouchers or free delivery for future purchases. Equally, gift tokens or flowers could be a compensatory gesture of goodwill.

"You need to assess each case individually to determine the need for any recompense," advises Baker. "Firms don't necessarily want a blanket policy on compensation, as it could end up being quite expensive.

"Consider how serious the complaint is, and crucially, the customer's point of view," he says. "For example, did the person end up having to miss an important appointment because they were waiting for a delivery? Or are they just trying it on and weren't actually inconvenienced?"

Handle customer complaints

Whether you choose to offer compensation or not, handling complaints in a consistent manner is essential. Make sure that members of staff are trained to handle customers sensitively and appropriately, and where necessary, can take action to deal promptly with a problem.

Always record information, including details of faulty goods or poor service, and retain receipts and customer correspondence.

If you do decide to offer any recompense, offer it unconditionally and without quibbling. It is also advisable to take any appropriate follow-up action, such as a letter of apology, an email or a phone call to make sure the problem has been fully resolved.

"Remember that people react in different ways," says Baker. "What could be a minor irritant for one person is actually a big problem for somebody else. Good customer service isn't about rigid processes, but treating people individually."

Customers are increasingly likely to make it known publicly if they have had an experience that didn't meet their expectations. That could be via an online review site, social media or on your website. Monitor mentions of your business and products online (there are 'listening' tools that can help you do this) as some customers won't come to you with their grievance. Respond to them in an appropriate manner. Sometimes a simple apology and an offer to put things right can be sufficient. In other cases, a refund or replacement may be required to get an unhappy customer back on board.

Whatever level of compensation you decide to offer, it is important to consider the expectations of your customers. "People are more demanding than ever," warns Baker. "They are more aware of their rights and they are more willing to complain. Businesses need to be aware of that."

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