While companies may be forced to reduce spending in customer-centric areas during difficult times, there are ways to cut costs without reducing customer service levels, asserts an article in The McKinsey Quarterly. In many cases, the cuts can be made in areas of "over-investing," in which the incremental payoff to consumers is negligible.
For example, authors, Adam Braff and John DeVine, noted that "average time-to-answer" is a common metric used in call centers, and measuring "breakpoints" is one way companies are saving money without degrading customer service levels.
For instance, a wireless telecommunications services provider found that its customers had two breakpoints at X and Y seconds on a call; answering the phone immediately (less than X seconds) produced delight, while leaving customers on hold for longer (more than Y seconds) produced strong dissatisfaction. At the same time, customers were fairly indifferent to service levels between X and Y. While the company considered raising service levels to the "delight breakpoint," customer-lifetime-value economics pointed to reducing them to just above the "patience threshold."
"The drop in customer satisfaction was negligible, but the savings in staffing were significant, and the company ended up saving more than $7 million annually -- much of which was reinvested in improvements to its problem-resolution process," the authors wrote.
The same principles can be applied to setting up a new account, scheduling an appointment, answering a non-urgent e-mail, or having customers wait in line.
"In our experience, most companies that analyze their service levels carefully find that some wait times have become more important to customers than others and that overstaffing to hit service targets that customers don't care about is costing them money," the authors wrote.
Other areas of "overinvestment" include technology applications. For instance, a bank considered investing in a costly ATM overhaul to add barriers to enhance user privacy. Instead, it found that increasing the net number of ATMs provided significantly greater customer satisfaction.
Other places to look for potential overinvestment include marketing campaigns that offer to move a customer to a cheaper rate plan regardless of whether the customer says cost is a problem as well as excessive use of bill credits and adjustments.
The authors said the business case for these "customer delight treatments" often include unrealistic assumptions about their ROI on customer referrals and retention.
The authors concluded, "Finding these savings requires rigor in customer experience analytics: the collection of customer-level data, matching survey responses to actual behavior, and statistical analysis that differentiates to the extent possible between correlation and causation. It also requires a willingness to question long-held internal beliefs reinforced through repetition by upper management."
Discussion Questions: Do you find brands and retailers guilty of "over-investing" in some areas of customer service? How can cost savings be found in customer-centric areas without impairing overall customer service levels?