Better Service Without Higher Costs

Managers today are fighting for a smaller share of smaller wallets. Many are in a defensive crouch, focused on retention and looking for ways to deliver greater value to their customers. Some companies see possibility in the inevitable churn this economy will create, but everyone is getting stuck on the same challenge:  to improve customers’ experience, they have to spend more money they don’t have.  Better service means higher costs.

While this sounds like a given, it is not necessarily true. It is a particularly good time for managers to go through the following exercise. First, identify your largest, most persistent buckets of cost.  Then explore ways to simultaneously reduce these costs while adding services your customers will value.

Sound crazy?  Consider Progressive Insurance. Progressive offers customers an optional concierge level of claims service in which it will arrange for the customers’ cars to be repaired after an accident. This removes a great deal of hassle for the customers who choose to use the service, who would typically have to  find a repair shop, navigate the reimbursement policy, and hope they get good service.  Progressive handles all these steps for the customer, saving them time, hassle and anxiety.  And it does it all without charging extra.

How is it possible?  Progressive addressed one of its largest and most unwieldy cost categories, reimbursements to independent auto repair shops.   These shops delivered uneven quality for a wide range of prices, and insurers felt helpless in maintaining control over them.  Progressive designed a mechanism to reduce these costs — by coordinating the activities among a much smaller group of repair shops where experience and scale could be leveraged – and improved the customer experience along the way.

Can it work for your business? I have yet to find an organization that has tried and failed with this approach, but execution matters. Changes in your value proposition must be truly valued by your customers. As obvious as that sounds, it trips up a lot of managers. The exercise also works best if you start with costs and then work your way over to delivering additional customer value.  Starting with improvements to the customer experience and then trying to reverse engineer cost savings, while possible, turns out to be much less reliable.

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