Having Too Many Options Can Cost You Plenty

Smart companies today measure their lead acquisition cost, their marketing costs and their sales cost.

But what about the overall cost to serve your customer? That often gets overlooked. And yet that's precisely where you can see both the risk and cost associated with what human-behavior experts call the paradox of choice.

Offering too many choices at any stage in the customer lifecycle is a recipe for escalating costs and possibly even buyer frustration. In short: it can slaughter a brand.

Here's a case study that illustrates how dangerous it can be to your bottom line. Recently, Engage launched a powerful new customer-journey mapping program. While implementing it for one of our clients, we uncovered surprising results on how they were processing customer orders. They left it up to the customer to choose from up to five different ways to place an order. Some used the phone. Others used email. Some used online ordering while others had a direct portal or EDI link. And surprisingly some still used fax (at least Telex orders weren't on the list, too). Their customers had three different people they could order from: a distribution sales rep, an in-house account manager, or a general 1-800 customer service line.

While our client thought they were doing the right thing by being responsive to the way they assumed the customer wanted to order, the options just ended up creating frustration and delays. A typical email exchange would look like this:

Customer: "I would like to order four pallets of your product."

Seller: "We offer that in five different formats…which one would you like?"

Customer: "What ever one you shipped last time."

Seller (after trying three times unsuccessfully to call the customer back): "We shipped it to you four times last month, but in four different formats to four different warehouses. So which one are you referring to?"

Customer: "I don't know. Why are you making this so difficult! Just ship me what I ordered last time."

When an exchange like this happens, not only are both the customer and the seller frustrated: delays are inevitable, and mistakes become common. All become factors that drive-up the cost to serve the customer and heighten the risk that the customer will leave.

The problems don't end there. Each of their five ordering systems had their own process with varying levels of reliability, speed, and accuracy in how they handled information—meaning that orders often ended up needing to be re-entered by hand! And all of the choices—other than online ordering—had practically no way to measure results. All these choices meant that order times were wildly inaccurate. The only orders that could be processed immediately were the online ones. The rest could take days to complete—especially if it was placed before a long weekend.

You can see how their cost to serve their customer was really high. So you're likely asking yourself: why did they do this? Because, like any business, they wanted to make it convenient for the customer. They assumed that the customer wanted choices, when what the customer actually wanted was to be able to order quickly and get consistent results.

One ordering system, lower cost, better outcomes.

We helped this client shift to a single-ordering system. No more temperamental ordering templates, emails and faxes. Instead, they gained a single system in which data is consistent and measurable. The result: better outcomes on accurate order processing, faster delivery and fewer mistakes. Now they're meeting customer expectations where it actually matters!

Where you spend your time is where you spend your money.

This case study illustrates how delays, mistakes and duplication put a dent in your limited resources when your overall cost to serve your customer remains high. The sooner you address this, the sooner you can shift those savings and apply it to profits, bonuses, marketing programs and other incentives.

In my case study client's example, their costly five-channel ordering system required an additional 2.5 FTEs (full-time staff positions) to manage all the extra tasks that came with that territory. Conservatively let's call that $100,000 in salaries and benefits. These employees can be now removed completely or reallocated to more profitable areas of the business.

If you were in their shoes, what could you do with that extra 100k?

Maybe you could offer a new incentive program to your clients to move to that online system. You could provide additional bonuses for sellers who train their customers to use the new system. You could hire more sellers. The possibilities are endless. All of them are better than spending one more dime on disparate systems.

What applies to ordering applies elsewhere, too.

The case study I've shared here pertains to ordering systems. But when measuring the total cost of serving your customer, it applies to other parts of your organization, too. That includes invoicing, delivery, collections and account management. Every one of those places involves processes—and assumptions—that are costing you money and lost time. The sooner you go looking for that cost figure, the sooner you're able to improve your profitability and serve your customer better. Remember: addressing the cost of serving your customer isn't just about taking away choices. It's about offering choices in the places that matter to them. And reducing them in the places that don't.