Cost-to-Serve(CTS) Vs Cost-to-do-business(CTB) - Looking at it from customer's eyes!

I often hear a lot of businesses and managers talking about a metric Cost-to-Serve(CTS) - reducing cost-to-serve a customer. They continuously talk about moving customers to lower cost channels and hence reducing the cost-to-serve & improving profitability. I find this ridiculous as an independent metric measured by businesses.



Let me explain you why:

What does Cost-to-Serve(CTS) mean?

Currently, if a business is using high cost channels, resources to service customers and hence it eats into the  profit margin of the business. Hence, the managers & leaders in the company are mandated to move customers to lower cost channels so that it is a self-serve channel for the customer and minimizes resources from the business's end.

Let me now look at it from a customer's point of view - What is Cost-to-do-business(CTB)?

I reached out to my service provider thro' the phone( a relatively lower cost channel) and spent about half hour explaining my problem to the associate on the other side of the phone. I was told that the problem will be resolved in 24 hrs and that they were transferring it to another technical team who will address it. I waited and nothing happened - no response or no resolution was in sight. I called my service provider on the phone again and this time to my horror, I had to repeat the problem all over again for another half hour. Here's one hour of a customer's time that has been wasted by the company -that's pretty precious, in my view which businesses give a damn, as it does not cost them anything.

I also emailed the problem I was facing, to put things in writing to customer service - which took me another 15 mins and then there was a spate of automated mails that were generated promising resolution within further 2 working days! Now, I had lost close to 72 hours in addition to an hour over the phone. Now, the web channel again was a low cost channel to business but it was a high cost-to-do-business for me, as a customer, as nothing was resolved. Neither, the channels were integrated to treat my problem on priority given my prior poor experience. The Cost-to-do-business with the company was too high for me, as it was eating into my time and effort - that close to 73 hrs and 15 mins( 72 hours of lost opportunity and 1 hour and 15 mins of interacting with them over different channels). How does business pay for these costs and factor for these?

Many of the financial services companies who I do business with, have asked me to move to e-statements, mobile app, online banking etc. Now, I am increasing my storage space on cloud to factor for these and storing them as if I ask for an e-statement beyond a year or so, then they charge me for it. However, none of these businesses have optimized the charges they debit to me - as earlier they were sending me all of these and providing services. Now, all my online fund transfers are charged, my POS transactions on debit card has increased but my debit card annual fees is not reduced, it is the same as I had paid couple of years back! Since, the time I moved to online & mobile banking, am not visiting their branches which saves them a lot of money as they have reduced their cost-to-serve me. The cost of doing business- CTB- with my bank has in fact increased for me - If I factor my time and transactions charges that I pay to them.

I believe there is a balancing metric that companies need to look at -which is Cost-to-do-Business(CTB) for the customer while they look at cost-to-serve metric. For my bank, if my branch visits have come down, if my ATM transactions have reduced & POS transactions have increased or my problems with my utility service provider is not resolved over phone, web channel etc. the cost-to-business in fact has increased and they must pass on the benefit.

It's time for business to think from a customer's point of view and then factor for these as customer migrate to newer channels & touch points. The cost-to-do-business(CTB), then it is to be tracked as a metric and differential value of benefits passed on to customers too.


How will customers change their shopping habits with mobile?

With mobile device in the hands of customers and quick adoption of smartphones, will it redefine the shopping habits of customers? I believe it will. 

Mobile will increasingly act as research and shopping tool in their hands. Right now, I don't think it is widely used but with increasing app downloads & penetration, mobile internet adoption etc. this is certainly going to change shopping experiences - right from the way they search for products/brands/services and helping them choose & buy them too.

I believe it will  be a " check, learn, ask & walk "(CLAW) shopping model on the mobile. It will be a mix of ' text & mortar' shopping. Mobile will overtake internet shopping in my opinion and adoption of mobile in certain categories will be significant.

Which categories need to get ready for this change?  An nice study by emarketer can used as a benchmark by marketers to ensure they get ready for this shopping  habit transition. In countries like India, China & Japan where the mobile penetration & growth is high - the impact will be felt the maximum.




This mobile shopping habit will have to encompass a mix of mobile apps, call-in advisors, chats, mobile alerts, location based services, mobile coupon downloads & redemption@ the store. Marketers will have to plan for an Integrated Mobile Shopping Experience (IMSE). 




Have you measured the ripple effect in your company?

I read an interesting post by Fred Reichheld's on the influencing effect of good customer experience in a way that happy customers and employees collaborating with each other and how this behaviour seems to extend between customers too. Reichheld writes:

"It didn’t take long to figure out that the caliber of customers who frequent a business - and the way they treat employees and one another- often play a vital role. In air travel, consider the difference between a flight where you’re sitting next to a noisy jerk on his cell phone and one where your neighbor sits quietly and maybe offers to share his newspaper. At a baseball game, a beer-swilling loudmouth can ruin the experience, while an avuncular neighbor who explains the nuances of infielder positioning to your kids can enhance it. In a hotel, you might have a thoughtful neighbor who keeps his TV volume low or an idiot who slams the door at midnight. In fact, other customers create a big part of our experience in retail stores, fast food, hospitals... most businesses, in fact."

I agree with him completely and this indeed has a huge ripple effect.It is true across some of my experiences too. One of them is Jet Airways. Every time I travel with Jet Airways in India, the consistency of the quality of customers who travel along with me and employee service is quite evident across cities. In fact, I would say that this also resets expectations of service within the company and helps them break their own benchmarks on this service. Also, the positive word-of-mouth is also a contributing factor. For example, I have seen many customers talk to me positively about their experience during flights and it has a lasting impact on the service levels of the employees.

This can be true of small companies too. Here's a small restaurant that has created a ripple effect and  influenced my customer experience in Mumbai( India) called Rajdhani. What I really appreciate about this place is that they have a counter in front of the restaurant that has a count of number of "dinners or lunches" served till date! It runs into several hundreds of thousands of servings.This has a ripple effect on the pride of the employees serving you on the table. They are agile, involved, empathetic and quick to proactively respond to what you need. They have interesting signs through which they communicate with each other to ensure you are served without you asking for it! The customers in the restaurant too have a great experience which in turn converts into repeat customers and positive word-of-mouth.

Measuring or observing the ripple effect on your customers, between your customers, amongst employees and even with your channel( retailers) partners is a good metric of the quality of customer experience your brand is delivering in the market place.