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 companies need to respond to rewired customers' brain.

I was reading this very interesting article by Peter Sena on how some of the new age companies like Uber and the like are rewiring customers' brains.

I think the perspective he was bringing-in was that  every company across the world needs to put customer experience at the centre of what they do. Also, the fact that the way customers purchase different categories are undergoing a fundamental shift but in a incredible manner never seen before.

What the new technologies and platforms are doing is that customers are now fusing "impulse" & "convenience"  in the digital world. Imagine many decades ago, fragmented markets were brought under one location thro' convenience stores, hypermarkets etc. Customers had to walk-in to these convenience stores to buy and impulse at the store played a huge role in brands getting into the shopping bag. How brands were placed in shopping aisles, shopping display, shopper promotions played an important role. Location played a huge role in that era.

I believe this is however undergoing a different shift in the digital world.

  • 'Search' is being replaced by customers 'Seeking' information. In the offline world, customers would "arrive", "search", "compare" and "buy". In the digital world, customers will increasingly "seek" and "buy".
  • 'Content, Context & Customer Intelligence' is replacing the 'Location' lever in the digital world for brands & companies. Imagine you were reading an article on health & fitness online, the next thing you do is to find where you can buy your "Fitbit" band. Or some information that you are looking for your dry skin, some regular tips and then you want to know how you can buy a brand NOW.
  • Supply chains need to undergo a fundamental transformation. It is no more important for companies to optimize their own supply chain but they need to learn how they can help optimize their distribution channel's supply chain. Imagine you are an auto brand, then you will have to reimagine you current dealerships as digital dealerships and products can be made available in a central hub for delivery!
  • The customer side demand also will need to be optimized by companies and this is something they have never been used to. They cannot simply sell and forget. The need to offer services that they have never done before. They need to look at investments customers have made in their products and add value to them. Emerging markets like India will drive these innovations with frugal engineering and adoption on Mobile. Take for example trucksumo a commercial vehicle service of TATA Ace in India - where they connect unused capacity of customers to latent demand for goods movement!  Or the Amazon Dash button - where you can order Tide when it runs out!

So, I think companies need to reimagine, restructure, reengineer their thinking & plans to the demands of the rewired customers' brains! It is not just the companies and their processes but the people who drive these businesses whose minds & brains need to be rewired too!

Companies will therefore need to focus on people, process and technology to deliver new kinds of customer experiences.



Return-on-Analytics in companies - No more just data-starved but more behaviour-starved!

I read a fairly provocative article by MIT's  Michael Schrage on Why your Analytics are failing you in the HBR Blog.

I totally agree with Scharage's perspective in the article. Today, there is a hyper-sensitivity & hyper-activity in enterprises about analytics and putting it to use quickly for competitive advantage. Jargons like Big data, predictive models, propensity scores and customer life time value are used loosely. My prognosis is that, this is leading to a kind of an "Analytics Bubble" just like the " Internet Bubble" of the early 2000s.

What's is critical in companies is the need to spend time on how to align structure, behaviour, incentives and right measurements to ensure analytics is made to count for business impact. What I find most difficult in companies is aligning behaviour and management of systems & processes to make this happen. No amount of more sophisticated tools and more data can help here.

What is needed is "mindfulness" amongst employees on the importance of making it happen. A lot time needs to be spent on conversation amongst departments, collaboration between teams, recognising individuals within teams who are early adopters of the analytics value on the ground, simplifying the execution blue print to make customer value and experience count every day amongst marketing, sales, customer service and operation teams.

Also, what CXOs need to understand is that behaviour from people is the most diffiuclt to change and transform. That's where patience & resolve is needed. There is a need to allocate budgets and time for the same.

We need to remember analytics begins with a few diagonstics and provides some prescriptions. The larger business impact will happen, only if the prescriptions is followed by the patients regularly - day-in and day-out.

The need to get the organization culture right is as important as the resources, tools and techniques!