From the Phoenix Business Journal
April 10, 2000 (Click
here for original article)
Superior customer service dilutes WestGroup profit
John Riley"Oh, by the way, a couple other things came up. Can you slip them in for me?" asks the customer with a smile.
With a straight face, you think about how you had to trim your price to get the order and then agree to a rush delivery date. Now you wonder how you can make the changes with the process in midstream. Do you charge the customer for the last-minute changes? Most don't, in the name of building good customer relationships. It's no wonder profit margins are being squeezed.
West Group Research knows the feeling. The market research firm in Phoenix reviewed its bottom line recently and saw that profits were sagging. The bill for failing to charge for customer changes or additions had just come due.
"We quote a job based on client specs," says president Ted Apostol, "but clients' needs grow and after a project is under way we're often asked to `slip this in or tack that on.' We normally try to accommodate the customer because we don't want to nickel-and-dime them. But, we can't let all the profit go out of a job, either. It's not always an easy decision."
One reason is competition is never far behind. And customers won't let you forget they expect more value than before if you want a chance to quote prices.
"Our biggest source of competition is from out of state," says vice president Glenn DeWata. "When we lose a job, it's usually to an out-of-state firm. We only see one or two local competitors bidding against us on a regular basis."
Apostol says competition also comes from clients who decide not to do a project.
West Group business strategies are based on hiring good people, providing outstanding customer service, building core accounts and providing a single point of contact for the client. But none of those address the issue of how far to go in providing added value.
These days, you need a hard-nosed policy that says the company will make a profit on every account each year. That provides flexibility to lose money on one order and make money on the next three. But at year's end, the account must be profitable.
When concessions are made, they should flow primarily to the core accounts on which future growth is based. Making concessions to a large potential account can be a winning strategy initially, but more often there is no reward beyond the present order unless those concessions are repeated.
Things have changed since West Group Research started business 41 years ago. It has grown to an administrative staff of 15 and a data collections group of 65, according to principal Ed Bergo. Among its bag of tools are discussion rooms where focus panels are conducted and a 50-bank phone set up in its building for data collection work.
"We have a business plan that is dynamic," says vice president Kathryn DeBoer. "We meet three times each year to revisit the plan and update it. We develop goals, evaluate progress and then set direction for the next few months."
"Our biggest hurdle is we have to execute our plan right," says Apostol. "We're loaded with work, so we have to divide it up internally without upsetting the clients who are used to working with a director."
The biggest cost factors in research are the design and analysis of the survey and the data collection activity. Design and analysis is a fixed cost. Data collection is a variable and often represents the larger cost of the two.
According to Bergo, the problem more and more is in the process of putting together study results that are actionable. Clients need and want this kind of direction, so there is increased demand on the company to become strategic partners.
"Clients want to know, `What does this mean? How do we go from the numbers to an integrated plan?'" Bergo says. "That calls for an understanding of industry dynamics, which is why each director has specialty areas."
The interest in research continues to grow. Clients want to have a better understanding of buyer attitudes and what competitors are doing. After all, research costs are easy to justify when the alternative is doing no research and overlooking market changes or having a new product fail.
This need for market information helps account for why the American Marketing Association shows an approximate 8 percent growth rate for research work.
The market is there, and West Group has shown itself to be competitive with in-state and out-of-state companies. Now it must come to grips with handling the customer relationship without compromising its profitability.
Maybe it could research how other service companies handle that problem.
