July 15, 2008

Why You Need A Weak Link To Give Excellent Service

"Service excellence can be defined as what a business chooses not to do well."
--- Frances X Frei

Contrarian ideas intrigue. In the Harvard Business Review, Frances X Frei makes interesting observations. We know we can't be everything to everyone. So we specialize to succeed (see Thoughts on The Dip by Seth Godin). How much thought do we give to the side effects: things we've chosen to do poorly, perhaps unconsciously? Frei finds that most successful companies "perform badly at some things in order to excel at others". We'll look at lessons from three companies in the worlds of banking, car insurance and software.

Commerce Bank
"The world did not need another 'me-too' bank. I had no capital, no brand name, and I had to search for a way to differentiate from the other players."
--- Vernon Hill, founder of Commerce Bank
Since 1973, Commerce Bank has grown "its retail customer base dramatically even though its rates are among the worst". A portion of the market prefers convenience (longer opening hours) and personal attention in exchange for higher prices and fewer products
  • benefit: longer opening hours and personal attention
  • cost: higher prices and fewer products
The bank probably doesn't advertise that they are less competitive. Progressive Insurance does.

Progressive Casualty Insurance
"People are pathologically price sensitive about car insurance and almost never select anything but the rock-bottom quote."
Progressive includes competitors' prices in their car insurance quotes even though they get beaten half the time. Why? Their actuaries feel they have accurately estimated the probability of a claim. If another company gets the client, Progressive wins in two ways
  1. avoids an unprofitable client
  2. saddles the competitor with an unprofitable client
In essence, they fire expensive customers.

DIRST: Do It Right The Second Time
--- Scott Cook, founder of Intuit
Software companies rarely provide free customer support due to the cost. Why does Intuit? They see customer calls as an important input for product development --- an investment rather than an expense. Intuit wants to know "what users are trying to accomplish and how they are being frustrated". Paradoxically, producing better software reduces the calls. And makes calls more important.


1 comment:

  1. The issue of improved service quality is critical for our industry because it has evolved by not presenting transparency in the cost of services. It is one thing to provide or offer the best service possible but the consumer has to be made aware of the cost of this additional service.

    The other point is that we have created an industry were quantity of service is everything where maybe we would be more successful if we narrowed our focus on the planning side of the business.