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Jul 10, 2016

Two Percent of Our Customers Really Hate Us

Two percent of our customers really hate us. This is a fact I needed to accept when I first arrived at JustFab Inc. three months ago, serving in my new role as Corporate Marketing Officer. Two percent of JustFab customers were extreme detractors: people who are so unhappy they will go out of their way to speak negatively about the company. This is according to third party data used to calculate our Net Promoter Score (JustFab Inc.’s aggregate NPS is 45).

The Net Promoter Score is based on responses to a single question: From 1–10, How likely is it that you would recommend our company to a friend or colleague?

On the other hand, the research showed that 65% of our customers love us: they are considered promoters. If this was an election, it wouldn’t be close.

2 percent2 percent

So that’s good news right?

Well, sort of. Unfortunately, 2% turns out to be a pretty big number. With more than 6 million customers over the past three years, extreme detractors add up to 120, 000 people. That’s a lot of angry people. And as we all know, people who are angry on the Internet tend to be loud. Very loud.

Obviously that isn’t good. It bothers me, it bothers everyone at the company.

I learned all of this 12 weeks ago when JustFab Inc. Co-CEO Adam Goldenberg, asked if I was interested in the job as Corporate Marketing Officer.

I Googled JustFab Inc. and it’s brands: ShoeDazzle, FabKids, JustFab and Fabletics. What I found was a little disheartening: on page one of the results, some news reports were focusing on the 2%, highlighting over 1000 customer complaints to the Better Business Bureau. The company had settled a 2013 investigation with the county of Santa Clara, California for $1.8 million, and several stories insinuated that JustFab’s customers were being tricked into becoming members. The implication was that the company was, to put it bluntly, sleazy and dishonest.

It looked pretty bad.

I’ll be honest. If anyone else had called me, I might have nicely told them “Thanks, but no thanks.” I already had a job that I loved, working at Wattpad, one of the fastest scaling mobile content sites in history. I wasn’t looking to leave.

But the call didn’t come from just anyone. It came from Adam, who I’ve known for years. I like him. I respect him. He’s a very clever guy with a low ego. That’s a rare combination.

We first worked together back in the 1990s. He’d started a gaming company with his Bar Mitzvah money and sold it for $1 million to Intermix Media (the parent company that eventually morphed into MySpace) in 1999 when he was just 17. We had to get his mom to sign the sale papers. His mom, by the way, is a lovely person.

So I took a deeper look.

I went to JustFab’s El Segundo Calif. headquarters and spent many hours grilling Adam and Co-CEO Don Ressler about the company. They also gave me unfettered access to all 2, 000 employees, and I had some pretty earnest conversations with many of them.

Obviously, everyone was concerned about the bad press. The strange thing was that most people I talked to saw themselves as advocates for the consumer, working for a fashion company that was using data, personalization and forward thinking design to challenge the status quo.

It was the complete opposite of what I had been reading.

People inside JustFab Inc. painted a picture of a company that was innovating the fashion world through its membership program; where employees were thrilled to come to work; where customers loved the fashion; and where they were making real money.

JustFab is expected to make more than $650 million in revenue in 2016 — just six-and-a-half years into the business.

How could they possibly do this by tricking people? And if they were tricking people, I thought, this was going to be an even more interesting story.

A START-UP CULTURE

I’ve been around long enough to know this: people like working for companies they believe in. And they liked working for JustFab Inc. Many loved it. They believed in the mission and exuded the kind of enthusiasm you often find at cutting-edge startups.

I heard stories about how they are reimagining the fashion business by using data and customer feedback to reinvent how clothes are designed. They told me how they are changing the way customer service people are treated inside a company, in turn, changing the way customers are treated. And I heard about how groups within the company collaborate unlike any fashion company ever has or could.

Adam explained that as a start-up producing real physical products in nine different countries and scaling from $0 to $650 million in less than seven years, JustFab often had to make difficult choices about what to focus on. For instance, back in 2011 there were several weeks when 40% of the orders went out wrong due to problems in the warehouse. And he also said that until recently, customers had to talk to someone by phone to return sale items because our software could not correctly account for it. The list goes on.

Like so many start-ups, JustFab felt to me like a company that was working on a very big premise and figuring out the details along the way.

SHOW ME THE DATA

Despite being impressed, I needed more than a positive initial reaction to make a decision. I’ve made a career out of working with and taking risks, but my risks are calculated.

Outsiders (some, anyhow) had one opinion. Almost everyone I spoke with inside the company had another.

The obvious question was, who was right? And more importantly, what does the data say?

“If we have data, let’s look at data. If all we have are opinions, let’s go with mine.” — Jim Barksdale, as CEO of Netscape.

I needed numbers. Fortunately, Adam is a data guy. Everything he does is driven by conversion and retention numbers. So here are some numbers:

• JustFab has had more than 9.46 million members in the last six years.

• It has more than 4 million active members today.

• 1, 276 Better Business Bureau complaints over three years represented 1/100 of a percent (.01%) of JustFab’s customers.

• Some 80% of JustFab’s shoppers are return customers. Think about that for a second: unhappy people don’t come back and buy more.

• More than 1.66 million (17.5%) of JustFab’s customers were referred by friends. People don’t refer their friends to crappy, dishonest companies.

  • While 2% of JustFab’s customers are extreme detractors, as I said before, more than 65% of customers love the company.
  • On 3rd party review sites, JustFab has an 8.1/10 on TrustPilot and 8.3/10 on ResellerRatings.

DELIVERING HAPPINESS

Tony Hseih could not have been more right when he positioned Zappos around “Delivering Happiness.” That is True North for any fashion eCommerce brand.

Simply put, I needed to be sure Adam was committed to creating a customer–first company. Adam said he was in it for the long-haul and all the data shows that happy customers deliver long term value. Unhappy customers — people who feel tricked — not only don’t buy, they inhibit other people from buying and cost the company time and money. He was clear. The Company would have to be insane to do what it has been accused of.

“Putting the customer first is the only winning strategy, ” he said. “The only way you can build a billion-dollar company is by making people happy. Just look at Amazon and Zappos, which have built mega businesses based largely on solid customer service.”

While only a tiny fraction of customers were detractors, JustFab is committed to addressing their concerns, he said. Adam’s perspective and the information that both CEO’s shared made me feel better. They seemed thoughtful and human.

Still, I wasn’t entirely convinced. Did those small minority of haters have a point? Was JustFab actually tricking people into becoming members? I had to be sure the answer was a simple and resolute no.

MEMBERSHIP HAS ITS PRIVILEGES

As part of my research, I signed up for every site JustFab Inc. owns and went through the UI/UX. If they were trying to trick people, they were doing a lousy job of it.

Not only did they have solid disclosures on the site, but they were testing improvements on those disclosures. They were going out of their way to inform people about the membership proposition — because they didn’t think of membership as a hidden negative. Quite the opposite.

Membership was their greatest strength. They didn’t want to hide it. They wanted to highlight it.

How membership works for ShoeDazzle, FabKids, JustFab andFabletics: Each month, members are sent a selection of personalized fashion choices. Members commit to visiting a site each month. They have five days. If they want to buy, great. They get items they love at deeply discounted prices. If they don’t want to buy, they skip the month and there’s no charge. If they don’t visit at all, they get charged and are issued a credit toward merchandise. $29-$49 depending on the brand.

Membership is actually JustFab’s not-so-secret sauce, they explained.

In the Fashion business, the biggest costs to a company are advertising to reacquire customers and waste when creating clothing that people don’t want.

Membership solves both problems. First, it lets JustFab know their customers’ preferences — from the styles and colors they like to their sizes — in advance. JustFab then designs apparel specifically for those preferences, reducing waste.

Secondly, the membership agreement saves JustFab a lot of money on advertising and customer acquisition because customers agree to visit JustFab monthly. They actually visit an average of 1.7 times per month.

That commitment between JustFab Inc. and its members reduces costs by 30 to 50%, which the company passes on in the form of steep discounts for on-trend fashion.

The whole proposition allows the company to offer personalized style at exceptional quality and value.

The value proposition made sense. Furthermore, I could not find a single business case where it actually made sense to trick people.

So did the news stories just get it wrong?

Yes and no. Some people did not pay attention to rules of membership — and JustFab dropped the ball in some areas of customer service.

But I liked how seriously they were taking the concerns and how badly they felt about their mistakes. They were spending significant resources to fix what they had done wrong while growing the company at internet speed.

TALK TO THE LAWYER

My next stop was talking to Matt Fojut, JustFab’s General Counsel. If you really want to understand a company’s issues, talk to the lawyers.

I repeated the complaints that I’d read: People felt duped when they saw credit card charges showing up on their bills. What was the deal?

Matt, obviously was very familiar with all the issues. He explained that JustFab wasn’t just charging customers’ cards for nothing: the charges became credits toward 50% off purchases. Also, he told me, if customers felt wrongly charged, they could call and get a refund. (JustFab always gives refunds to unhappy customers.)

Then he shook his head in frustration.

“Let me give you a number, ” he said. “Fourteen.” I looked at him a little perplexed.

“Fourteen. That’s how many times we describe to new customers the membership requirements throughout the enrollment process. Fourteen. And at purchase, every new VIP member must affirmatively check a box to say they understand the terms of membership — which are also listed right next to the check box. The last thing in the world that we want is to trick people. We don’t make a profit on any customer that signs up and then calls and cancels.

“Most of our customers understand the relationship and are quite pleased with how much money they save.” He said, “People have accused us of not being transparent about that relationship, but we go out of our way to tell them about it — including each month after they join the VIP program. VIP members receive at least three monthly reminders relating to the VIP membership requirements.”

I then asked about another issue that had been troubling me. Why did JustFab agree to pay the County of Santa Clara, $1.8 million for allegedly misleading customers?

“Anytime you try to change an industry, you’re likely going to be the target of lawsuits and investigations, ” he told me. “Look at Google, Uber, Birchbox, Honest Company — you name it. We are being highly scrutinized because in our business category, we’re changing the game.”

Though it all sounded a little lawyer-y, I thought about it, and I realized he was probably right. It seemed like the cost of doing business when disrupting a business category.

And then he added that, actually, the 2013 Santa Clara investigation helped the company. It forced JustFab to be better.

“Sometimes you need an outside perspective to challenge your practices. They helped us to focus on consumer notifications even more and brought up some points we had not considered. With the help of regulating groups like Santa Clara, we are trying to set standards and practices for an emerging industry.”

THE VOCAL MINORITY

Like I said before, there will always be haters. But most of the people who complained were simply frustrated. Understandably so. Maybe they didn’t see the notifications. Maybe they couldn’t easily get through to customer service.

What I saw was a start-up company that had made some mistakes that it was willing to correct. I saw a company committed to shaking up an industry — and that is never easy.

I took the job.

And in the past few months, JustFab has made significant changes to address issues shared by the unhappy vocal minority.

• We’re adding video notifications because we know some people don’t like to read.

• We added 24/7 customer service, available by phone or online.

• We built the software and implemented online returns for all orders.

• In the next few weeks, customers will be able to cancel online.

Every day JustFab is trying to come up with better ways to support our customers. We‘ve built a thousand-person customer service organization to support them and keep them happy. They come to us for on-trend-fashion at a great value, but we know they remember the service a lot longer than they remember the price.

The company is now at the size and scale where creating happy customers is easier than it’s ever been, but the truth is, there will always be problems to solve and there will always be detractors. It is important to listen to your detractors, acknowledge them and learn from them, but remember to let your happy customers run the business.

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