Business Model Innovation Isn’t Always Easy

Business model innovation is easier for some industries than others.  In particular, technology business models tend to be easier to innovate because of the nature of technology itself.  Staying ahead of the technology adoption curve is a necessary component of a technology business’ R&D.  How does a service company such as a plumber or a convenience store innovate their business model?   The answer is “cleverly.”

Business model innovation is half proven tactics and half creativity.  For instance, Global Response, an outsourced call center has cleverly applied proven tactics to create a solid business model.  Over fifty years ago, Global was simply a phone answering service. Global adeptly rode the trend to outsource phone operations.  Global also expanded into email and chat support as those areas grew.

However, Global Response needed some real business model innovation to compete with Indian and Philippine call centers paying agents one-tenth the wages.  Rather than enter the Race for the Bottom, Global re-engineered its business model.

Global asked the tough questions:

  • Customers originally bought from us to lower their costs.  However, now we are not the low cost provider.  What higher value items can we offer the customer at a lower cost than insourcing?
  • How can we leverage Business Model Secret #77: Correctly defining the business you are in?
  • Can we craft a profitable business model without moving offshore?

The answer was innovative and gutsy.  Global Response would opt-out of the Race to the Bottom and instead win the Race to the Top.  What is The Race to the Top? It is becoming the clear leader in the premium price yet high volume category.  Many super-successful companies have accomplished this move:

Winning the Race to the Top requires a keen insight into the market and the psyche of the customer.  Many of these upmarket companies created new market segments for products that consumers did not even know they wanted or needed.  No one was asking for $5 lattes or $11 turkey sandwiches.  However, Starbucks and Panera Bread created highly profitable, large markets using their intuition.

Global has done the same in the call center business.  Global serves customers who view customer service as sales activity rather than a cost of doing business.

Large corporations spend tons of money courting customers only to destroy the customer experience via an offshore customer service center.  Saving a few bucks on offshore agents looks great at first, especially to the accountants.  How well the customer gets treated during the customer service interaction varies widely by company.  Everyone has experienced customer service hell from the cable company or any other monopoly.  These companies know that you have no recourse but to tolerate whatever service they are kind enough to give you, so they do just that……. give it to you.

However, if your customers have a variety of purchasing alternatives and few barriers to exit, a poor customer service experience could cost tens of thousands of lifetime sales dollars.  As you can see from the chart below, customer service standards vary by lifetime value of the customer and ease of exit.  The higher the lifetime value of the customer, the more attention should be given to the customer service experience.  The same holds true for ease of exit.  If a customer can switch brands easily, annoying them with a weak customer service experience could be costly

Value of Customer vs. Barriers to Exit

Global has created a business model to provide higher cost, higher value call center services to companies where the cost of a lost customer is high.  Many U.S.-based businesses competiting with China can learn from Global’s experience.  Carve out the highest value segment of the market and let the Chinese competitors fight over the nickel items.

Do you agree with Global Response’s business model strategy?

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