DM Business Model Favors Customers

Are there industries whose business model depends on not helping customers – businesses actually designed to be more profitable when not giving customers the best advice, products and service? Some have been suggested to me by various people:

1. Insurance. My late father, an insurance agent for five decades, once said, “Insurance companies want to write fire insurance policies for pig iron at the bottom of the ocean.” They want to collect fat premiums for policies they never will have to pay off, and often make it difficult for policyholders to collect on legitimate claims.

2. HMOs and others in “managed care.” See No. 1.

3. The pharmaceutical industry. It’s much more profitable to create an expensive drug you have to take for the rest of your life rather than cure the illness or eliminate the condition (e.g., high blood pressure). As Chris Rock notes in one of his comedy routines, “There’s no money in curing. The money’s in the medicine.”

4. Psychotherapists. If the psychotherapist cures every patient in a few weeks, the lifetime value of each client diminishes drastically. There’s a financial incentive to drag treatment out over the course of years.

5. Chiropractors. See No. 4.

6. Stockbrokers. Wall Street is rigged against the individual investor. Brokers are told to push shares their firms underwrite, not those stocks that are the best investment.

7. Business consultants. They ask to borrow your watch and then charge you for telling you what time it is. The consultant or coach gets paid whether you get results or not. The consultant who teaches the client to do it on their own often finds himself out of a job.

8. Ad agencies (general, not DR). They have a financial incentive to sell you ad campaigns that are (a) the most elaborate and expensive (increases billings) and (b) win creative awards (which helps win them new business). We see the latter even in direct response ad agencies: The campaigns that win awards are often more splashy, creative, colorful and dimensional mailings. Rarely is the award-winning package a plain, typed sales letter.

9. Higher education. There is a trend of encouraging students to take an extra year to earn a B.S., which sets the student back in his career and financial progress while letting the school collect an extra year’s tuition.

10. Lawyers. “In most lawyers, there is a sense that if the problem is solved, the billable hours will end,” attorney Douglas Sorocco said.

I don’t mean to imply that everyone, or even most practitioners, in these fields are out to cheat customers. I’m just observing that an incentive is inherent in each business model to not always do what is best for the customer (which is canceled out by the benefits of delivering superior customer satisfaction).

People outside our industry often accuse direct marketing of being sleazy or deceptive, but the DM business model is inherently slanted almost totally in the customer’s favor.

The factor dictating that we must treat our customers like gold and deliver more value for their money is the ROI of DM: namely, that the mathematics of direct marketing make it virtually impossible to be profitable on the “front end,” or initial sale, and almost every profitable DM company makes its money on the back-end sales.

To do that, you must deliver consistently superior customer satisfaction to generate the repeat orders that maximize customer lifetime value. How do you deliver superior customer satisfaction to your DM customers? Here are a few suggestions:

· Don’t just give the customer her money’s worth. Give her more for her money than she has any right to expect.

· Honor your guarantee without quibble or hassle. Give prompt, full refunds politely and without any hedging or attempt to weasel out of your guarantee. When in doubt, err on the side of being too generous rather than too strict.

· Make it easy for the customer to communicate with you by whatever means she prefers. If you are an online business, don’t – like Amazon – make it difficult for customers to talk with a live customer service person on the phone, if that’s what they wish. And provide a toll-free number for doing so.

· Offer loyalty programs, bonus points, volume discounts and gifts to your best customers. The more someone spends with you, the more preferential treatment she should get.

· Resolve complaints and problems quickly, giving customers extraordinary resolution. For instance, the CEO of a major catalog marketer not only refunds the customer’s money or offers replacement merchandise. He also writes a personal letter to the customer and sends a gift by way of apology.

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