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Data & Analytics

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Steve Discher, SVP, Robert E. Nolan Company
Steve Discher, SVP, Robert E. Nolan Company
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Not All Customers Are Equal: The Case for Differentiated Service

Insurers can maximize their customer service technology investments by identifying what is valuable to different tiers of customers and matching capabilities to customer profitability, asserts Steve Discher, SVP, Robert E. Nolan Company.

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Companies across several industries have demonstrated the power of differentiated service in attracting and retaining profitable customers. And while some insurers have begun to emulate the successes of airlines and package delivery companies, for example, far too few have developed the capabilities necessary for effective differentiated service.

The rewards of differentiated service flow from first fully understanding where added value can be created and then applying appropriate operational design and technologies to create that value. For most carriers, revenue, profits and associated service requirements vary substantially by customer segment; yet the prevalent strategy remains a one-size-fits-all service model. The result is typically over-servicing unprofitable customers while under-servicing the more-valuable customer segments. As an example, long-term customers who rarely file claims are usually serviced the same as price-shopping customers with lower loyalty, higher service needs and higher service costs.

All customers are important. Still, good fiscal strategy suggests service be differentiated based upon customer segments that generate distinctly different needs and profitability. This makes knowing what creates value from the customer's perspective a foundational prerequisite to focusing resources on the right solutions. The following simple framework can be used to identify customer segments and their optimal servicing strategy:

Service Segmentation Model

Applying analytical rigor to customer segmentation drives more-targeted, near-term technology decisions. It also lays the foundation for a longer-term technology strategy to comprehensively enable the envisioned service model.

At the core of this model is a set of capabilities that are either necessary table stakes or are competitively differentiating. Web services, online payments, e-bill presentment and 24x7 service are often deemed necessary for today's business model. Differentiating capabilities seen as critical to sustaining competitive parity often include a unified customer view, integrated communications that allow seamless hand-offs between the contact center and agents, and multilingual service.

Next is a set of differentiating capabilities that deliver beyond the level of competitors, creating a unique source of competitive advantage. These often include customized services for agents and insureds tiered by profitability and/or tenure -- for example, as is done with platinum frequent flyers or credit card holders, routing inquiries to a team of dedicated and seasoned representatives able to provide the most extensive service in the least amount of time.

Another common example is providing varying levels of access to licensed agents handling comprehensive policy and coverage requests. Other examples include voice analytics that detect potentially dissatisfied customers before they are lost and integrated voice/Web communications that allow a customer direct access to a live service representative at any time during an automated or Web-based service.

Equally important in building the model are the services to avoid. These are often sub-par capabilities erroneously thought to be differentiating that are actually creating a competitive disadvantage. A prime example in this category is the rudimentary online quoting application seen as an attractive step toward online service that, in actuality, is too simple to deliver a completely accurate or comprehensive quote. The result is a policy that does not resemble the quote, creates eventual rework and customer confusion, and costs more. All in all, a bad customer experience caused by good technological intentions.

Getting There

Creating a competitively-advantageous differentiated service model requires that you:

  • Segment your customer base by profitability and service characteristics.
  • Identify value creation and retention opportunities by segment.
  • Categorize those capabilities into difference makers, table stakes and shortfalls.
  • Streamline identified differentiating service processes.
  • Implement technologies enabling an expansion of differentiating services.

Once created, maintaining a vigil on market evolution, customer satisfaction levels and technology advancements are all critical components of maintaining and enhancing the differentiated service model.

Solid products and pricing can attract customers. Identifying, delighting and retaining the profitable ones is much more difficult. Growing the economic potential of these key customers requires differentiated service enabled by next-generation technologies. In these tough times, it is tempting to ask, "Who can afford to invest in service?" For those companies seeking sustainable profitability and growth, the more appropriate question is, "Can you afford not to?"

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