Reduce or Accommodate | Customers, Etc.
When faced with customer variability, we often think our choice is binary.
This post is the second in a series based on the HBR article Breaking the Trade-Off Between Efficiency and Service. The first post in the series was about co-production.
Ah, the joys of being able to design a business around selling software:
If you ever find yourself implementing a feature simply because it has been promised to one customer, RED DANGER LIGHTS should be going off in your head. If you’re doing things for one customer, you’ve either got a loose cannon sales person, or you’re slipping dangerously down the slope towards consultingware. And there’s nothing wrong with consultingware; it’s a very comfortable slope to slip down, but it’s just not as profitable as shrinkwrap software.
I’ve quoted Joel Spolsky’s blog a gajillion times in this newsletter. The quote above is from an article that will be old enough to vote next year. When designing software, you have to be ruthless in deciding which features you’re going to accommodate. If you start saying “yes” to every customer requerst, you won’t ship the most important features that help bring in new customers and retain existing customers. Also the user experience is probably going to suck.
But not all businesses are software businesses, and even software businesses often have a “services” component delivered by actual humans. Are you supposed to just say no to every customer request?
The paper Breaking the Trade-Off Between Efficiency and Service references a scene in the movie Five Easy Pieces where Jack Nicholson plays a character who asks for a side of toast at a diner and gets increasingly frustrated when the waitress insists that they don’t do substitutions. Just watch:
It’s funny because we’ve all been there as a customer. You want something that’s not exactly on the menu, like half-sweet-half-unsweet tea. But if you’ve ever tried to run a service operation, you get where the restaurant is coming from. You can’t do everything for everybody. This is especially true when you’re a startup.
At a startup, you’re still trying to figure out where you fit in the market. You have some innovative idea, you pour your blood, sweat, and tears into making it a reality, and then you’re blown away when people actually want to pay you money for the thing you made.
Early on, you’re happy to accommodate pretty much any request. After all, these are your customers. They know what they want and you have the means to deliver it to them, so deliver you must.
But at some point, you have enough customers and your customers have enough requests that you can’t possibly give everyone what they want. Your instinct is to do one of two things: reduce or accommodate.
Reduce or accommodate
Reduction is exactly what the restaurant did in the movie clip above. You recognize moments that cause significant operational pain and you intentionally limit the services you offer. Stick to the menu. No substitutions. What-you-see-is-what-you-get. Software as a service. For decision-makers operating within these environments, the tendency to reduce often arrises from moments where the team is burned out trying to accommodate a single customer, you’re clearly losing money, and you say out loud, “if we operated this way for every customer, we would run ourselves out of business.”
The alternative to reduction is accommodation. Usually this means raising prices. “If we’re going to be the kind of business that handles these kinds of customer requests, we need to charge more to cover our costs.” Totally valid business model! Fancy hotels, expensive consulting firms, and Disney cruises all use this model.
(As an aside, raising prices can be a way to reduce the stress on your operations team without actually reducing what you’re able to accommodate. An oddity in service operations is that the customers paying the lowest prices often cost the most to support. The customers paying more money end up being more sophisticated and have fewer support needs. While the temptation might be to reduce the services provided to reduce operational overhead, you might find that just by raising the price, you retain the most profitable customers while reducing the cost of support operations.)
Although reduction and accommodation are the top-of-mind solutions, they aren’t the only options available. Next week we’ll dive into the creative alternatives: low-cost accommodation or uncompromised reduction. (You can get ahead of the class by reading the paper for yourself).