(FORTUNE Magazine) – FRED JEROME survived a frequent flier's nightmare. Boarding a 9:30 Pan Am shuttle in New York one morning, he expected to arrive in Boston in plenty of time for a full afternoon of business meetings. However, Logan Airport was blanketed in fog and the pilot circled for two hours before landing in Hartford, Connecticut, to refuel. ''No one will be permitted to leave the plane,'' the pilot announced, frustrating passengers who wished to switch to a rental car or use a telephone. When the pilot said he was returning to LaGuardia, some rose in fury, yelling, ''You can't do that! I've got to get to Boston!'' He relented and finally landed in Boston about 4 P.M. Jerome caught a flight home and arrived in New York at 6:30 P.M. His day was shot and he was steamed. What should a company do for angry customers? According to those who have tackled the issue: just about anything it can. Studies show customers tell twice as many people about bad experiences as good ones, so complainers left unhappy can send a company's image crashing. Simply listening to complaints tremendously boosts brand loyalty -- that is, a customer's tendency to buy again (see chart). ''The key is getting customers to complain to the company,'' says John Goodman, president of Technical Assistance Research Programs, a Washington, D.C., consulting firm that has been studying corporate complainers for the past decade. The firm used buying patterns, profit margins, and dozens of other factors to develop an economic model that calculates the return on company dollars invested in units that handle complaints and inquiries. The average return for makers of consumer durables like washing machines and refrigerators is 100%. In other words, if manufacturers spend $1 million, they get $2 million in benefits. For banks it is as much as 170%. The payoff can be even higher in retailing, where top-quality service is essential for keeping customers. Maryanne Rasmussen, vice president of worldwide quality at American Express, says, ''The formula I use is: Better complaint handling equals higher customer satisfaction equals higher brand loyalty equals higher profitability.'' THE GROWING EVIDENCE that customer happiness shows up on the bottom line is one reason such companies as GE, Coca-Cola, and British Airways are investing millions of dollars to improve complaint handling. Programs include toll-free 800-number telephone systems, intensive staff training, liberal refund policies, and even booths where irate customers can vent their anger -- on videotape. The challenge of these damage-control techniques: to turn a company critic into a loyal supporter. Pan Am's response to Fred Jerome was a case study of how not to handle complaints. At the end of Jerome's nine-hour odyssey, a Pan Am representative advised him to complain to the customer service department at the airline's New York headquarters. Jerome, executive vice president of the Scientists' Institute for Public Information, a nonprofit group that assists journalists, went to the headquarters only to be told that Pan Am's LaGuardia Airport office handles complaints about the shuttle. The first person he tried to contact at the airport didn't return his call. He finally reached a representative who told him in a computer-like tone: ''We are not responsible for delays caused by the weather.'' Jerome, 49, expressed his frustration by writing a column entitled ''Hijacked to Hartford'' for the New York Times. The piece drew some 20 letters and calls from other annoyed air travelers. John M. Siefert, a vice president of the Eastern Air Lines shuttle, sent Jerome a sympathy letter, offering him a free New York-Boston flight. Jerome declined. ''I would have been happy with an apology from Pan Am,'' he says. Pan Am says it wrote to Jerome. He says he still has not heard from the airline and now will fly the Pan Am shuttle only as a last resort. In the airline industry, the correlation between customer contentment and profitability is strong. The U.S. Department of Transportation received 44,845 complaints last year, more than three times the number for 1986 (flight delays and cancellations are No. 1). The grievances that get to Transportation come mostly from travelers who turn to the government because they are dissatisfied with the airlines' responses. Continental, Eastern, and Pan Am, which lost a combined total of $714.4 million in 1987, often rank near the top of the Transportation Department's monthly tallies of airlines that attract the most consumer complaints (see table). Relatively few gripes come from fliers on American, Delta, and Piedmont, which happen to be among the healthiest U.S. airlines. Dan Smith, director of consumer and industry affairs at the International Airline Passengers Association in Dallas, says these carriers satisfy unhappy customers by ''giving a full explanation if they can't comply with a request.'' British Airways is flying high partly because of Chief Executive Sir Colin Marshall's fixation with customer service. Marshall, 54, spent his early career as a steward on a cruise ship. Since taking charge at British Airways four years ago, he has tried to give unhappy passengers royal treatment -- or at least the chance to complain. In London, disgruntled travelers can tape their grievances as soon as they get off the plane in the airline's new Video Point booths. Customer service managers view the videos and respond to complaints. In August, British Airways gave full refunds averaging $3,200 to 63 passengers on a Concorde flight from London, because a technical problem left customers bound for Miami and Washington grounded in New York. After passing out letters of apology, the airline chartered planes to fly the passengers to their destinations. ''We'd rather spend money and keep customers satisfied than initiate five or six complaints,'' says John Lewis, vice president of customer services. That philosophy pays off. In the fiscal year that ended March 31, British Airways posted one of the largest net incomes of all international airlines, $189 million on revenues of $7 billion. Six years ago it was one of the biggest money losers in the skies. Companies that want to win over dissatisfied customers must empathize with them and reward them. ''Turning away a complainer by telling him, 'It's our policy,' enrages him,'' says Richard C. Whiteley, president of Forum Corp., a Boston consulting firm that specializes in customer service. ''That's the corporate equivalent to your parents saying, 'Because I said so.' '' Hechinger Co., a Maryland-based retailer of hardware and home and garden gear, accepts returns of items even when the customer has obviously abused them. The retailer sends particularly perturbed purchasers a dozen roses. Hechinger posted profits of $41.9 million on sales of $742.2 million last year. Earnings have compounded 29% annually since the company went public 16 years ago. Neiman Marcus, the Dallas-based specialty retailer, is gracious with gripers too. ''We're not just looking for today's sale. We want a long-term relationship with our customers,'' says Gwen Baum, director of customer satisfaction for the 22-store chain. ''If that means taking back a piece of Baccarat crystal that isn't from one of our stores, we'll do it.'' For most retailers, dishonest customers who return items that they have already used or bought elsewhere account for fewer than 5% of returns. Says Baum: ''If you let profit protection or security rule the way you treat customers, satisfaction is bound to suffer.'' Customers seem to give companies bonus points if top managers hear them out. Rex McClelland, senior vice president of operations at Delta Air Lines, regularly calls passengers who write to complain. Marriott Chairman J. W. Marriott Jr. reads about 10% of the 8,000 letters and 2% of the 750,000 guest comment cards the company receives each year. When Marriott was president in the late 1960s, some 30,000 hotel guests submitted comment cards each year. He read every one. AT FIDELITY BANK, a 124-branch institution based in Philadelphia, President Rosemarie B. Greco, a former nun, is devoted to complaint handling. Results have been close to miraculous. When Greco, who joined the bank as a secretary 20 years ago, became president in early 1987, letters from customers poured into her office. ''Maybe because I'm a woman they thought I would be more sensitive to their needs,'' she says. Greco phoned one retired customer who had serious problems with his IRA account statement. ''He was beside himself with gratitude,'' she says. ''That taught me an important lesson about letting customers know management is personally involved with their problems.'' Fidelity assigned 25 people to visit American Express, L.L. Bean, and ten other companies known for excellent customer service. ''We didn't look at any banks. Service is service,'' says Greco, 42. Fidelity consolidated its complaint-handling systems -- one for each of 14 different business segments. Customers with problems involving savings accounts, auto loans, and credit cards now call one telephone number. Clients with major problems write to the office of the president. Greco reads all of those letters, as well as summaries of the bank's other complaints and inquiries, which total around 120 monthly. Today 87% of Fidelity's customers say they are satisfied or highly satisfied with service, vs. 57% in 1986. Loyalty is especially important to firms that depend on customers to buy again and again. Many companies find the answer in toll-free 800 numbers. When Whirlpool pioneered the service in 1967, ''Ralph Nader was attacking big business for not listening to customers,'' says Gary L. Lockwood, group director for consumer services. ''We wanted to show that we listen.'' At first, 800 numbers were considered a gimmick, but today over half of all companies with more than $10 million in sales use them to handle complaints, inquiries, and orders, according to the American Management Association. AT&T and its rivals rang up around $4.5 billion in revenues last year from more than eight billion 800-number calls. Coca-Cola installed its 1-800-GET-COKE lines in late 1983 to promote feedback. Roger Nunley, manager of industry and consumer affairs at Coca-Cola USA, says some studies indicated that only one unhappy person in 50 takes time to complain. ''The other 49 switch brands, so it just makes good business sense to seek them out,'' he says. Without the toll-free lines, Coca-Cola might never have understood the depths of its error in trying to replace old Coke with new. Right after the company launched its reformulated New Coke in 1985, calls on the phone system fizzed from an average of 400 a day to more than 12,000. Nine out of ten were from customers who said they preferred the old cola to the new drink. On the day following old Coke's return as Coca-Cola Classic, 18,000 people called, including thousands who had complained earlier. They wanted to say thank you. Nunley says that consumer ''emotion'' -- his term for brand loyalty -- is stronger today for Coke Classic than it was before the episode. And by selling both Cokes and several new colas, the company has increased its U.S. market share to over 40%. Toll-free phone systems deliver additional benefits. A Technical Assistance Research survey for Coca-Cola showed that a complainer who is denied a request over the phone is 30% more likely to remain brand loyal than a buyer who receives the same message in a letter. That's because a phone conversation is more personal and gives the service representative a chance to explain the company's position and woo the customer back. Not only is answering complaints by phone faster, it usually saves money. American Express spends five to ten times as much replying to a letter as it does answering a complaint over its toll-free lines. The company often ends up having to call the letter writer anyway to get more information about the problem. Companies must carefully train, monitor, and motivate the folks who field the 800-number calls. At Procter & Gamble, new customer service representatives spend four to five weeks in classrooms learning to diffuse anger as well as to solve problems. Toyota, which touts customer courtesy in its ads, ranks its telephone representatives daily on productivity. American Express used to track only the number of calls each operator handled. Now it evaluates the way they talk to customers too. To show the importance it puts on telephone reps at its customer support center in Colorado Springs, Digital Equipment places them next to windows, where they can peer at Pike's Peak. Managers sit in windowless offices. The GE answer center in Louisville is the state-of-the-art 800-number operation, according to many customer service experts. Manager N. Powell Taylor developed some of his ideas by visiting Disney University in Florida, which trains employees for Disney World. ''Disney has a great reputation for knowing how to make people happy,'' he says. At Disney, Taylor learned the importance of professional dress (GE male reps wear coats and ties, and women wear dresses and suits), corny motivators (computer screens carry greetings such as ''Put a smile in your voice''), and incentives (GE awards clothing, sporting goods -- and trips to Disney World). Taylor and his staff evaluate the service representatives three times a year. If they earn a score of 80% -- based on productivity, attitude, attendance, and quality of service -- the new goal becomes 85%. Many top reps move to field offices as sales managers. The five-year-old GE answer center handles three million calls a year and costs more than $8 million to operate. A giant database, which stores 750,000 answers concerning 8,500 models in 120 product lines, ''makes every representative an expert,'' says Taylor. Service reps have fielded some bizarre calls: A submarine off the Connecticut coast needed help fixing a motor, a homeowner wanted to convert a black-and-white TV to color, and technicians on a James Bond film couldn't get underwater lights to work. GE says its people can solve 90% of complaints or inquiries on the first call. THIS YEAR the answer center will direct some 700,000 callers to GE dealers, 10,000 of which are logged in the center's computers. Surveys indicate that 95% of callers are satisfied with the answer center's service, and complainers often convert into even more loyal buyers. The center produces at least twice the return GE expected. The company probably spends between $2.50 and $4.50 on a typical call -- 15% are complaints -- and reaps two to three times that in additional sales and warranty savings. Says Taylor: ''Most businesses don't understand that customer service is really selling.'' Good complaint handling at GE, Whirlpool, and other companies has brought the appliance industry a long way. Twenty years ago it was among the worst in responding to complainers. Today, according to the Council of Better Business Bureaus, automakers and auto-services firms leave a lot of customers dissatisfied. But they're working hard to shape up. General Motors operates one of the most sophisticated toll-free systems, and Ford Motor is building an 800-number operation modeled on GE's. Auto dealerships are creating customer relations departments. And compared with five years ago, twice as many car dealers call customers following repairs to find out if everything's okay. CUSTOMER NEEDS dictate what kind of service companies provide. Johnson & Johnson is consolidating seven 800-number systems into a single one, hoping to make its system more efficient. That means turning its 14 information specialists in areas like baby products and sun care into generalists. Over 14 months experts are giving them 300 hours of coaching on Band-Aids (Wound Management I), dressings and tape (Wound Management II), and 90 other products. J&J has raised the amount reps can refund without higher approval from nothing to $50. The best -- and cheapest -- way to keep customers satisfied, of course, is to serve them well from the start. Dinah Nemeroff, director of customer affairs at Citicorp, says: ''Our philosophy is that we never recover.'' Managers there must come up with a ''hierarchy of horrors,'' a list of the five worst things they could do to customers and ways to avoid them. For example, a breakdown of an automatic teller machine is horrible because, as the company's ads once said, ''The Citi never sleeps.'' Advertising hype can create customer expectations that rise faster than service can improve. Consultant Whiteley of Forum Corp. warns companies not to overpromise because consumers rank reliability as the key ingredient of good service. Delta painted itself into a corner when it vowed, ''Delta is ready when you are.'' So did Holiday Inn with its slogan: ''No excuses. Guaranteed.'' These companies were begging for grumblers and eventually switched to less omnipotent slogans. Of course, the company that does live up to its promises can reap some very tangible benefits. With consumers smarter, choosier, and more demanding than ever before, courting the complainers has become an essential part of business. That it can also be good business is a nice bonus.

CHART: NOT AVAILABLE CREDIT: SOURCE: NATIONAL CONSUMER SURVEY CAPTION: UNHAPPY CUSTOMERS WHO BUY AGAIN Just listening to grievances can keep buyers from walking. The figures above are for shoppers who are dissatisfied with products or services worth more than $100.

CHART: NOT AVAILABLE CREDIT: SOURCE: U.S. DEPARTMENT OF TRANSPORTATION CAPTION: THE AIRLINES THEY LOVE TO HATE Passengers on Aloha Airlines, Air Wisconsin, and Southwest Airlines registered the fewest complaints with the federal government in the first half of 1988.