Case Study: How Santa Claus Succeeded Despite Providing Worst-In-Class Customer Service – and Why He Will Fail in the Next Five Years

Everything Done Wrong, Yet Everything Gone Right!

 

Santa Claus – the man, the myth, the legend – is an old-money mogul who carved out a business empire by manufacturing and distributing toys to children around the world – free of charge – one night each year. He is revered around the world – whether as Father Christmas, Saint Nicholas, Sinterklaas, Papa Noel, Peré Noel, Christkindl, or Kriss Kringle. Santa made his billions using a once-revolutionary business blueprint: 1) provide an invaluable, innovative product/service, 2) give it away for free, 3) market your brand like hell, 4) make a fortune through advertising, endorsements, product placements, cross-promotion, and guest appearance fees. It’s a business model that few others, with the notable exception of perhaps Google, have ever attempted or mastered.

 

Yet, despite his great successes in the past, many analysts question whether he will be able to adapt and thrive in today’s new business reality. Santa seems oddly out of place in the 21st century. For example, in today’s health and fitness-conscious world of no-fat and low-carb, here is a man who doesn’t exercise or diet; in fact, he is openly and jovially obese. And while the rest of the world slowly shifts toward smoking bans to protect public health and reduce sky-rocketing health insurance costs, Santa clings to his pipe and rings of smoke encircling his head like a wreath. Not only is Santa out of touch with current health trends, but he seems decades (if not centuries) behind the fashion trends as well. While today’s young fashionistas wear plaid prints like the characters in the popular Twilight film saga, Santa skulks around in his old red bishops robes from the 1800’s. And, most importantly, while other businesses and organizations have rushed into Web 2.0 technologies and Social CRM capabilities to enhance their customer service offerings, Santa still lumbers along with slow, antiquated communication channels like the postal letter. Forget about Web chat, co-browsing, email response management, or social networking – Santa still hasn’t even implemented Fax or Electronic Data Interchange (EDI).

 

 
image from www.flickr.com/photos/efphoto/4155954766/

 

In fact, Santa seems to ignore all guidelines about how to run a modern business. While the rest of the world is enacting new legislation to encourage local manufacturing and to protect worker’s right, Santa outsources his manufacturing activities to a remote third-world location outside the jurisdiction of any government or human-rights agencies. He skirts potential child-labor laws by claiming his small, youthful laborers are not children, but magical creatures from middle earth. And he avoids paying healthcare costs, 401K, and government taxes by quite cleverly classifying his workers as “contractors” rather than “employees.” I wouldn’t be surprised if he is also involved in stock-option backdating or insider trading. Perhaps the only area where he shines is his use of an environmentally friendly “green” reindeer-powered sleigh rather than a coal-powered alternative he prototyped, but never implemented, back in the early 1900’s.

 

Will Atrocious Customer Service Bring Down Father Christmas?

 

Let’s be honest. There are a lot of companies who have been taken to task by customers for delivering  poor customer service (think AOL, DirecTV, Qwest, Comcast, Sprint, Capital One, HSBC, Abercrombie & Fitch – all of whom appear on the 2009 MSN Money "Customer Service Hall of Shame"). Yet Santa Claus is probably the worst offender of all. To begin with – let’s face it – he rarely fulfills an order correctly. In the ten years that I wrote to him as a child, the deliveries were routinely laden with errors and omissions. Every year he got multiple things wrong, including the items and quantities. Some years he even failed to bring anything I asked for. Even when I placed my order directly with him in person at the mall, the deliveries were similarly botched. And to make it all worse, he doesn’t allow customer returns. That’s right – he sends you the wrong items and quantities, and you can’t exchange or return it. That’s worse than Abercrombie and Fitch’s restrictive return practices.

 

Not only does Santa manage to screw up the most basic orders (come on, how hard is it to remember “Atari 2600”), and  refuse to accept any returns or exchanges (what exactly was I supposed to do with a “Pet Rock”), but he doesn’t publish the telephone number of his customer service center anywhere. I’m starting to doubt if he even has a customer service center. I did an Internet search and found a dozen different Web sites claiming to be affiliated with Santa Claus, as well as several different mailing addresses for the North Pole including addresses in Canada, Alaska, Finland, Denmark, and Sweden. You would think Santa would at least offer some kind of annoying, poorly designed IVR phone tree that forces callers into an endless loop of confusing menu options, while repeating ad naseum that users should visit the Web self-service site for faster service. Alas, no such IVR or Web self-service site exists. If you want to do business with Santa your only option is to pen a letter, put a stamp on it, and send it off to the Northern abyss – hoping that it one day ends up on the doorstep of Father Christmas.

 

With such a laisezz-faire approach to customer service, it is not surprising to learn that Santa’s customer satisfaction ratings and Net Promoter score have dropped significantly in past years. Customers – even the toddler variety – are becoming increasingly sophisticated and empowered. Four-year-olds are tweeting with one another on their iPhones and posting scathing (though often infantile) customer reviews on sites like Epinions, Yelp, my3cents, theSqueakyWheel, and measuredUp. According to my own research, there is a 43% likelihood that Santa will lose significant market share to rivals who embrace Web 2.0 and Social CRM strategies in the next five years. Potential up-and-coming challengers to keep an eye on include:

The Easter Bunny – Most of his business and revenue currently comes in the month of March and he is looking to diversify into other seasonal holidays like Halloween and Christmas to provide a more predictable annual revenue stream.

The Tooth Fairy – She is currently bleeding money and will likely burn through another $100 million in 2010. She desperately needs a more profitable business model. Her experience at sneaking into homes late at night and leaving behind cash without being detected should translate well into Christmas toy deliveries. However, questions remain about whether her flitty image will resonate with the much coveted male-toddler demographic.

Amazon.com – They have the money, the online infrastructure, and the physical distribution network in place to give Santa a run for his money. But there are concerns about whether the Net retailer can eat into Santa’s extremely loyal customer base. Watch for a potential partnership or acquisition.

Private Equity – Private investors could potentially make a fortune buying Santa’s operations on the cheap and then dismantling and selling off his various assets such as intellectual property, North Pole production facilities, and magical sleigh – not to mention his invaluable customer database containing a wealth of detailed, personal information on nearly every consumer in the world.

Conclusion

Santa Claus – like many established, blue-blood companies – has a long history of business success, but a strategy that hasn’t fundamentally changed since he built his first wooden sleigh hundreds of years ago. In the meantime, modern technologies and communication channels have evolved to include tools like Web self service, email response management, Web chat, SMS text messaging, and social networking. Santa, along with all the rest of us who have perhaps been a bit slow in keeping up with technologies and communication channels demanded by our customers, risks losing customers to up-start competitors who may suddenly come out of nowhere. The risk is that while we kick off our boots by the fire with some fresh-baked cookies and eggnog after a hard night’s work, the Easter Bunny and Tooth Fairy are out there working on a business plan. A business plan that most assuredly doesn’t involve a team of caribou pulling a hand-made wooden sled.

 

Update Dec 15, 2009 -- Santa Responds: The following statement from Santa Claus was released by William "Bill" Pritchett, Secretary of Press for the North Pole:

I read with interest John Burton's recent blog entitled, "Case Study: How Santa Clause Succeeded Despite Providing Worst-In Class Customer Service -- and Why He Will Fail in the Next Five Years." Although it is peak season and all of us at the North Pole are busily preparing for our biggest night of the year, I find it necessary to take the time to respond personally to Burton's points, given the negative tone in his comments about my business model and the seriousness his allegations against me.

 

I, Santa Claus, have a provided a consistent, high-quality customer experience to children around the world for centuries.  Over the years, my operations have grown organically, and the power of my brand in global markets underscores my world-wide reach.  Whether you're an American who visits Santa Claus at the local mall, a British child who believes in Father Christmas, or a child in France, Brazil, Sweden, or the Netherlands who knows me as Pere Noel, Papa Noel, Jultomten, or Kerstman respectively, you understand that I symbolize peace, hope, love, and of course, toys, delivered just-in-time, right through your chimney.

 

Burton criticized me for being "oddly out of place in the 21st century," mostly because I had not embraced the healthy lifestyle that he and so many others have adopted.  Although I do still occasionally smoke my pipe, and I have broad face and a little round belly that shakes when I laugh, like a bowlful of jelly, I do promote health and fitness through many of the toys that I give.  Who do you think brought Michael Jordan his first basketball on a Christmas Eve long ago?  And who made sure Lance Armstrong found his first bicycle under the Christmas tree?  Burton himself has benefited from my generous health and fit gift giving over the years.  The Garmin watch he uses today on all of his long runs was a gift from me, not to mention all the other sporting goods he has received over the years.  My long record of giving children around the world roller blades, jump ropes, bicycles, sleds, and ice skates speaks volumes about my commitment to healthy, active living. 

 

I was also criticized in the blog for being behind in technology.  The piece pointed out that other business had rushed into Web 2.0 technologies, Social CRM, Web chat, co-browsing, email response management, and social networking, and that I had not even implemented Fax or EDI.  This may be true, but Burton failed to point out the best-in-class Santa Analytics Platform (SAP) currently in use at the North Pole.  After all, I see you when you're sleeping, I know when you're awake, and I know if you've been bad or good.  Behind this capability lies the most advanced business intelligence solution ever implemented.  Not even Wal-Mart can begin to touch the level of customer tracking that is capable with SAP.  In addition, our North Pole data process center houses our advanced billing system, allowing me to invoice parents based on their ability to pay.  This is the key behind one of my key brand attributes: "He doesn't care if you're rich or poor, he loves you just the same."  Finally, no competitor in the toy delivery sector has the information systems in place to handle global packaging, labeling, and delivery like this jolly old elf.  For example, neither the Easter Bunny nor the Tooth Fairy has the ability to print double-byte labels for the Japanese market or Nota Fiscals for deliveries bound for Brazil.  Just because the Tooth Fairy can sneak into a home and replace a tooth with money of multiple currencies does not mean that she understands global taxes and can meet Inco Term requirements for global toy delivery.  Even if she had the systems capability, she would not be able to delivery toys on time, as I consistently have, especially if she were to encounter a foggy Christmas Eve. (Such conditions require special navigation equipment.)  While I am constantly monitoring the IT field to see which technologies might enhance my business processes, I tend to take a wait-and-see approach so that I don't get burned by vendor instability.  For example, I attempted to implement Child Relationship Management (CRM) software several years ago so that children could submit their gift requests via the web, but after the vendor was acquired by Oracle, the result was just confusion. 

 

I especially take issue with Burton's comments on my "atrocious" customer service.  He seems to believe that his personal experience with "botched" deliveries is indicative of the typical child's Christmas morning experience.  Believe me, I knew John wanted that Atari 2600 for Christmas back in '84, but I also know that he lied to his mom about who broke her favorite lamp in early December of that year.  John was always a good student, and his mom always believed his story over his brother Erik's.  However, I found it particularly reprehensible that John made his brother take the heat for something that was clearly his own fault.  I hope John gave this some thought while he played with his "Pet Rock" that Christmas morning, while other children across the country fired up their Atari 2600s to play Frogger and Centipede.  Trust me, Santa's strongest brand attribute is accuracy in order delivery.  If there are issues with incomplete or missing deliveries, the issue can always be traced back to the behavior of the recipient.   With this kind of accuracy in shipping, there is no need for Santa to open a customer call center and implement flexible return policies.

 

Finally, I must respond to the accusation that I skirt child-labor laws by employing elves within my manufacturing operations.  In my workshop we follow all labor laws very carefully to avoid lawsuits.  I'm still trying to settle out of court with a family who claims one of my reindeer ran over their grandma several years ago -- the last thing I need is a legal battle with elf labor over salaries or benefits.  Let me go on the record as stating that I have always supported worker's rights, and my facilities have the best working conditions and safety records in the wooden toy manufacturing sector.  In fact, the elves are among my most valued employees and have been a key to my business success for these past several centuries.  Many of them have been promoted over the years to oversee partnerships with Nintendo, Sony, Nike, Mattel, and others.  To suggest that I would exploit these workers because of their small stature is enough to get your named moved to the "naughty" list.  I haven't taken that step just yet, but after I've stopped at the Burton home this year, there may be one less lump of coal in my bag!

-- Santa Claus

 

Note that this blog thread was also cross-posted at TheSocialCustomer @ http://www.thesocialcustomer.com/Home/14407.

Comments

[Belstaff Jackets]

I love your blog very much, more more info, I will concern it again!

[beco butterfly]

But he is a man who the children still wait for during Christmas season.

[Will McCormick]

Allow me to retort:

1. Great word of mouth - When was the last time you recommended Santa to one of your friends?

2. Unmatched Delivery - I get fantastic delivery from many companies, that deliver BEFORE I place an order. Columbia House used to send me tons of CDs that I didn't order. Unfortunately, as is the case with Santa, getting products you didn't ask for or didn't want, no matter how timely the delivery, equals bad customer service.

3. Worker loyaly - Do workers in Asian sweat shops ever go on strike? Are there any documented testimonies from the workers about their job satisfaction, or are all details based on testimony from "The Man"? From what I can tell, this smacks of indentured servitude similar to the coal mines of the 19th century.

4. Great Benefits - how does the CEO getting great fringe benefits translate to value for the customers or his employees? I have seen no reports of profit sharing for employees, or rebates for customers. You have just illustrated a critical flaw in Santa's model that is similar to public spectacles like AIG. How long before we have to use tax dollars to bail out Santa???

5. A personal touch - while this is a valid point, I think it also might be the reason why Santa has such a hard time with correct order fulfillment. Santa's model was designed to cater to a much smaller customer base. He has done nothing in centuries to scale his business as the number of users of his free service have expanded 10 fold. I can only expect service to deteriorate more as customers are added.

I also want to add that Santa has terrible retention. I don't know a single person over the age of 7 that uses his services. Johnson and Johnson makes a full line of baby products, and also offers products for every age group thereafter - literally from cradle to grave.

[www.facebook.com/profile.php?id=570120833]

I can think of a hundred things wrong with your trite, verbose, myopic and anti-social analysis, but as a defense of the jolly old elf, and to be concise, I will just list five things that Santa does (and does well) that more businesses could and should emulate:

1. Great Word of Mouth - Every kid loves Santa, and talks about him and what they'll get from him to their friends.
2. Unmatched Delivery - Every Christmas the presents are there, like clockwork, due to a magically-enhanced reindeer-chimney system; kids don't have to worry about presents being there or not. This is _real_ customer service...
3. Worker loyalty - Elves don't go on strike; Elves love Santa and share his fervor for getting the toys out to kids (it probably helps that they get much of the rest of the year off).
4. Great Benefits - You may think cookies and milk are kid stuff, but everyone loves them (even the lactose intolerant).
5. A Personal Touch - Every gift delivered by the old man himself, so you can be sure it's genuine.

These so-called 'traditional' business aspects may be considered out of touch and folksy by today's standards, but if today's up-and-coming businesses can learn anything from past experience, they could learn a lot from Santa's model.