Retailers usually rely on sales numbers to indicate success: if sales are rising, business must be going well. However, you may be reducing your profits by spending up to four times as much as necessary on marketing and customer acquisition. A wiser approach than just pushing sales is to harness word of mouth and improve customer experience. This lowers customer attrition and can lead to "customers for life."

There are five myths that almost all retailers believe which are costing them sales and employee turnover as well as sapping the impact of marketing dollars.

Myth 1: Complaints and returns are going down so we are doing really well.
Fact: No news is not good news. There is dissatisfaction even if you are not hearing about it.

What looks like the good news may be the bad news - your customers may have stopped complaining because they have given up on you. TARP has found that complaint rates, in general, are down, and that more than half of customers who don't complain cite that "it won't do any good" as the primary reason. For instance, employees not making eye contact suppress complaints by 30 percent. For small ticket items, more customers throw the item away than return it, but their loyalty to the store is damaged - often by as much as 40 percent.

Action: Vigorously track and research complaint rates. If complaints go down, check to see if accessibility has been reduced. Aggressively solicit complaints in stores (via signs), because every complaint is information you need.

Myth 2: Price is the name of the game to expand share and profitability.
Fact: Great service enables you to deliver extra value, charge a higher price, and raise profits.

Price is the primary driver for product selection for only one-third of customers. The rest (that would be two-thirds) will pay a premium for higher quality and service. Surveys of more than 6,000 customers of three major retailers found that sensitivity to price is a function of the number of recent problems. Even one problem can double sensitivity to price. Excellent service changes your competitive position and can enhance your margin. Customers will pay a premium when they encounter few problems and observe that any problems are quickly resolved.

Action: Prevent problems and unpleasant surprises for customers.

Myth 3: The key to great service is getting the frontline to follow and enforce our policies.
Reality: Policy and process problems related to products are costing you two to four times as much revenue as staff sales behavior and policy adherence.

This myth is really way, way off base. Usually only 20-30 percent of dissatisfaction comes from frontline staff failures. The four top causes of dissatisfaction are out of stocks, obtaining help in finding or selecting items, returns, and long waits at checkout. None of these is primarily caused by the failure of frontline staff to do their jobs. Customer waits to get service or at checkout are often exacerbated because customers take additional time to complain about the wait when they do obtain help. These issues then contribute to staff turnover because the staff have to take flack for policies that they have no control over. They are put in the position of either saying, that is our policy which appears to be unresponsive or worse they overtly acknowledge that management doesn't care about the customer's needs. Much turnover is due to employees saying to themselves, "I'm not getting paid enough to take all this flack." You can either pay them more or reduce the flack.

Action: Ask your frontline reps what issues they regularly encounter but cannot fix. Modify the policy and process issues in light of the revenue damage. Finally, provide the frontline with flexibility to solve problems, illustrating this by stories as well as clear, believable explanations and responses. This is a problem that must be solved by senior management, not supervisors.

Myth 4: Many customers are crooks and you need a rigorous return policy, like getting receipts.
Fact: 98 percent of customers are honest and, by running them through the gauntlet to catch the 2 percent, you are doing serious damage.

In interviews with operations executives at a dozen retailers, TARP has received general agreement that almost all customers making returns or using coupons are honest. When onerous requirements are placed on a transaction, the customer often views it a playing a game of "gotcha" to avoid fulfilling the customer's needs. Again the employees are caught between the policy and their desire to satisfy the customer, especially when told that "the customer is king and always right."

Action: Encourage the employee to say yes as often as possible and to view each transaction as an opportunity to either drive the customer away or to retain the customer. If the customer seems honest or just confused or admits to having lost the receipt, and they have not made the same request recently, the employee should be encouraged to "break the rules" and give the customer the refund.

Myth 5: Out of stocks and discontinued items are ok - customers understand and expect this.
Fact: Customers do not understand or accept disappointment.

Customers are deeply bothered when advertised items are out of stock - they feel that the store executed a bait and switch. Likewise, they lose part of their reason for coming into the store when items they have been using for a long time are discontinued.  TARP finds that customers in these situations are 15 percent less likely to return or recommend your company. Smart retailers calculate the cost of inventory against not only a lost sale but lost future revenue due to disappointment. Also, savvy retailers have given customers an opportunity to buy discontinued items in case lots - which they did with great enthusiasm and thanks.

Action: Avoid disappointing customers and rethink the long-term revenue implications of any policy that is creating disappointment.

The problems that tend to do the most damage to loyalty, word of mouth and retention are policy and process issues. Neither customers nor employees tend to complain loudly because they assume policies are unchangeable. You need to encourage feedback from both groups and listen hard. Improving your customer service, will improve your bottom line.

John Goodman is Vice Chairman of TARP Worldwide and author of Strategic Customer Service: Managing the Customer Experience to Increase Positive Word of Mouth, Build Loyalty, and Maximize Profits (AMACOM 2009). He can be reached at jgoodman@tarp.com.