How Delivering an Excellent Customer Experience Led UPS Stock to Crash

The 2013 holiday season sported some nasty surprises for package delivery and logistics leader UPS. Summarized neatly in a Forbes article by contributor David Shaywitz and posted Christmas Day 2013, the headline says it all: “Overpromising And Underdelivering, UPS Fails Logistics — And Communications.” And Mr. Shaywitz wasn’t alone. As he noted, the “… small percentage of shipments” affected created problems for thousands of customers who didn’t see their gifts arrive as expected. Whoops.mcorpcx-blog_012615_ups.gif

So, UPS did what any well-led company should do: they identified the gaps in systems and processes which led to the failure, and made the changes needed to ensure that customer expectations would be both set, and met. Among other things, they invested heavily to deliver an excellent customer experience in 2014, staffing up with 95,000 seasonal workers to handle the expected shipping deluge.

As it turned out, they invested too heavily – and almost certainly in the wrong areas.

UPS does the right thing for customers – and gets a $10 billion spanking by the market.

The good news? UPS did provide excellent, high-quality customer service during those peak times when delivery volumes more than doubled. The bad news is that this peak volume only occurred on a couple of days – and UPS had staffed up for the entire holiday season, ready to deliver the ideal customer experience to all its customers, at all times.

Though UPS customers did get their packages on time this year, CEO David Abney summed up the results: “UPS invested heavily to ensure we would provide excellent service during peak when deliveries more than double. Though customers enjoyed high quality service, it came at a cost to UPS.”

And that cost was a doozy, with UPS stock tumbling about 10 percent when the company warned that Q4 2014 results will fall short as a result, driving their market cap down to about $93 billion, almost 2 weeks ahead of their scheduled February 3 posting of fourth-quarter results.

The lesson: No company can afford to (nor should) deliver the “perfect customer experience” for all its customers, all the time.

We all recognize that customer expectations are changing. They have higher expectations of experience. Greater demands for personalization and customization. Lower tolerance for mistakes. They bring their expectations of the best customer experiences across all companies and industries to their interactions with any company.

But no company can afford to or needs to deliver a perfect experience to each individual customer. The fact is, different customers have different needs at different times. And some customers are simply worth more than others. By staffing up with thousands of workers ready to handle peak demand at any time of the day or night, UPS brought a very blunt and frankly outdated solution to table.

In other words, they tried to solve today’s problem with yesterday’s tools – just throw people and resources at the problem, rather than using what they have that no one else does. This unique asset is the data that surrounds every UPS customer, combined with the company’s proven ability to analyze digital breadcrumbs and big data.

How UPS can use the data that surrounds their customers to better meet their needs – and boost P&L.

Taken together, their customer data and analytical skills means that UPS has the ability to better understand and meet – or even wildly exceed – their customer’s expectations.

Yes, it takes a great deal of intelligence for companies to figure out what the “right” experiences are for any given group of customers. But UPS certainly has this skill. What they didn’t exhibit was the willingness or ability to adjust their offerings to the needs of individual customers based on an understanding of what those individual customers actually want, need and expect – and are willing to pay for.

It sounds like UPS is taking a conceptual page out of Uber’s pricing playbook to do just this. With their surge pricing models, Uber uses data from multiple sources to increase rates during the busiest times, getting more cars on the road when they’re needed the most. They notify customers right up front, so there are no surprises. If UPS can set customer expectations appropriately, customers won’t order a package December 23rd and expect it the morning of the 24th without paying extra for the privilege.

The more effectively UPS (or any company) uses customer information, the easier it will be for them to provide benefits uniquely suited to their customers. By using customer data and an outside-in view of their journey, UPS can design customer experiences that accurately model demand, expectations and willingness to pay. The result? Not only can UPS do better than their competition when it comes to delivering an excellent customer experience, they can drive previously unimagined revenue from new sources while they’re at it.

And that, of course, will allow UPS to meet or exceed the expectations of another audience that they’re surely thinking a lot about right now – their investors.