A credit management lesson from 1936

The following article is produced with the permission of HarperCollinsPublishers of 25 Ryde Road, Pymble NSW 2073, Australia. Copyright © Dale Carnegie 1936.

Recently, I purchased Dale Carnegie's famous book, How to Win Friends & Influence People. I am always looking for better ways to market my products and an understanding of the psychology behind marketing is very important. As I delved deeper into this book, I found that it was not just a marketing book but there were valuable lessons in customer service, leadership, staff relations and more.

Dale Carnegie uses several examples from his life experiences and the experiences of his family and business associates. As this book was first published in 1936, the examples were often from the 1920s or even earlier.

Carnegie claimed that people have two reasons for doing things. One reason sounds good but the other is a more noble reason. According to Carnegie, every person will have their own reason for doing things and making decisions. However, these same people are idealists at heart and want to think of a motive that sounds good. As a result, Carnegie believes that in order to persuade people to do what you want them to do, then you should appeal to their nobler motives.

Carnegie also claims that such a notion will still work in business. He cites the case of Cyrus H K Curtis, a poor boy from Maine, who was destined to make millions by owning The Saturday Afternoon Post and the Ladies' Home Journal. But when Curtis first started out, he could not afford to pay the contributors to his magazines a fair market price. Instead, he appealed to their nobler motives. Curtis actually persuaded Louisa May Alcott, the famous author of Little Women, to write for him by offering to send a cheque to Alcott's favourite charity instead of to herself.

The following is a true story told by James L Thomas, a former student of Dale Carnegie. Six customers of an automobile company refused to pay their entire bill. All six customers claimed that at least one charge on the entire bill was wrong. In each case, the customer had signed for the work done so the company knew it was in the right and told their customers this.

The men in the credit department took the following steps to collect these overdue bills.

1. They called on each customer and told them that the bills were long overdue so they had come to collect their bill in full.
   
2. They made it very clear that the company was absolutely and unconditionally right and the customer was absolutely and unconditionally wrong.
   
3. They explained to their customers that the company knew more about automobiles than they could ever hope to know.
   
4. The result was that they argued.

Of course, none of these methods reconciled the customer or settled the account. Before the credit manager could take legal action, the six customers came to the attention of the general manager who discovered that all six customers had a reputation of prompt payment. (By the way, a reputation for paying your accounts promptly is worth having.)

The general manager then called James L Thomas, Dale Carnegie's student. These are the steps that Thomas took.

1. Thomas did not say a word about the bill, even though he knew it to be right. Instead, he explained that he had called to find out what the company had done or failed to do.
   
2. Thomas stated that he had no opinion until he heard the customer's story.
   
3. He also told the customers that he was only interested in their car and he said that as it was their car, they knew, as the owners of the cars, more about their car than anybody else.
   
4. Thomas then let the clients talk and he listened to them.
   
5. Finally, when the customer was in a reasonable mood, he appealed to their nobler motives. Thomas agreed with the customer that the matter had been badly mishandled. He apologised for the inconvenience caused and for the behaviour of the company representatives. He then said that he was impressed by the customer's fairness and patience. Thomas then said to the customer that because he was fair and patient, he was going to ask him to do something for him. He said to all customers that it is their bill and they know it better than anyone else. Thomas gave permission to the customers to adjust their bill just as they would do if they were president of this company. Thomas said he will leave it up to each customer and whatever they said would stand.

OK, by now you may have fallen off your chair. It is a novel way of resolving disputes. Ask the customer to make his decision as to the best way of resolving it. But this is what Thomas proposed. This is what happened.

Firstly, the customers did not take advantage of the situation. Thomas had appealed to their nobler motives. Five of the six paid the disputed charge. The sixth customer did not pay any of the disputed charge. But this is not the end of the story. All six of these customers bought new cars from this company within two years of these disputed bills.

So how can we use this lesson in practice? My take is this. Sure, use legal action if you have to. But more often than not, persuasion is a better way of resolving disputes. Legal action should be used as a last resort, not as a first course of action. Profits are made from repeat business. The role of the credit department in generating repeat business should not be underestimated. In the case of the six disputed bills with the automobile company, in the end the issue was not about the disputed bills. Instead, getting those future sales for new motor vehicles was more important.

Reference: Pages 212-217, How to Win Friends & Influence People by Dale Carnegie. Published by HarperCollinsPublishers of 25 Ryde Road, Pymble NSW 2073, Australia. Copyright © Dale Carnegie 1936.

Source: SmallBIZTips Volume 3 Issue 18 August 2010