Extended Service Plans As Important As Third Party Reviews, Financial Incentives

One area that was studied was how the availability of an extended service plan influenced buying decisions. Based on the research, availability of an extended service plan is of equal importance as third party reviews and financial incentives to a potential buyer in the categories of digital cameras, external hard drives, major home appliances, residential outdoor power equipment, and power sports vehicles such as ATVs, motorcycles, and motorized watercraft.

While the availability of a extended service plan is not a primary factor in the decision making process, this finding is particularly relevant to the marketing of products in these categories, as shoppers take comfort in knowing the extra protection for their new product is available to them, which will potentially extend their length of ownership and the overall value of the product. Consumers making a purchasing decision about products with similar features and comparable prices may be swayed by the availability of an ESP. Manufacturers and retailers of consumer durables may be able to distinguish themselves from among similar offerings by providing such coverage.

The top purchase decision factors relate to product quality and pricing, as indicated in the chart below.

Graph of purchasing factors

Growing Importance Of Plan Availability

A continuing trend when comparing to our 2011 and 2012 studies is that customers are assigning greater importance to the availability of plans across many categories when making a product purchase decision, and they are purchasing extended service plans in greater proportions as well. During a period of economic uncertainty, it appears that purchasers are increasingly willing to pay a small premium to take advantage of a plan that will protect their investment.

Growing Importance of ESC

Again, while these findings suggest that while offering an extended service option may not be the primary inducement to get a consumer to buy, manufacturers and retailers of consumers may be able to distinguish themselves from among
similar offerings by providing such coverage.

Purchase Patterns

Purchasers of major home appliances are particularly likely to have purchased an extended service contract on their new product, with 67% purchasing such a plan within the first six months of ownership. Purchase intent is fairly high among purchasers of digital cameras and residential outdoor power equipment as well, with 75% either having already purchased or intending to purchase an extended service contract.

Purchase and Purchase Intent

Among those who did, or may, purchase an extended service contract, the greatest penetration is at point of sale, especially among major home appliance buyers. There are segments of customers within each product category that are also interested in buying an extended service plan from a post-sale solicitation soon after their purchase, and also just before the manufacturer’s warranty expires.

Timing of Purchases

Pricing Data

Fulcrum also gauged how much consumers were willing to pay for coverage and what features enhanced the attractiveness of plans. One finding was that having coverage for accidental damage and handling (ADH) was attractive, particularly in residential outdoor power equipment.

However, even with ADH coverage, there is a natural limit to how much people will pay for an ESP. With outdoor power equipment for example, a plan that covers only major repairs could be priced at 20% of the purchase price. This increased to about 40% when ADH is included in the offer.

More information about the study’s findings can be found in 2013 Presentation of Findings

As we’ve developed various software and service solutions over the past few years, we’ve been careful not to fall into the same mindset. While we are keenly interested in reducing costs — after all, we are paid only if we improve the profitability of our clients’ businesses — smart technology can also boost revenue and enhance customer experience.

For example, every element of our marketing programs is designed to make purchasing as simple as possible. Often, we’re marketing fairly complex products that have multiple terms, options, and payment methods. Direct mail pieces are designed to present this information as simply as possible, as are email messages. Every outbound communication, regardless of channel, has a link to a personalized URL that presents the same information and allows the customer to buy with a couple of clicks. And for those customers that still want to call in an order: they’ll speak to an associate that has the very same screen in front of them as the customer.

The same approach is carried through to servicing the customer if they have to file a claim. On the Web, a customer can handle almost everything themselves: diagnose the problem, self-entitle if there is no solution, and even arrange shipping if a return is necessary. Again, for those cases that cannot be resolved online or when the customer prefers a live operator, they will work with an associate with full access to the same information.

One by-product of this integrated approach is that because we get fewer inbound customer service calls, we do not need to set arbitrary targets for call resolution times. Associates are responsible for completing sales and solving problems, not for limiting talk time. We’ve had more than a few customers be pleasantly surprised at getting a resolution call from the same associate they’ve been dealing with. Another effect of these changes: it permits the call “center” to be virtualized and flexible, so that distributed, on-demand services can be deployed.

To give the cable exec a bit of credit, Internet technologies have enabled us to do so much more than twenty years ago. The green-screen applications of that era sometimes required an extraordinary number of keystrokes to access information and complete transactions, and simple changes often required months of design and programming.

But mindset is even more important. Making technology simple enough for everyone to use and using technology to create value for customers are central to successful marketing. The great consumer companies of today — Google, Apple, Amazon — have translated this mindset into enormously successful enterprises. Even those of us that don’t operate on as grand a scale should examine every marketing and customer service program and find was to use technology to make things better for their customers. We’ve found that with orientation, all the things the cable exec wanted — higher profits, customer satisfaction, and loyalty — flow naturally out of the improved customer experience.

First, a quick definition of share of wallet: it’s the measure of a customer’s spending in a category with a particular brand. Sometimes trade areas need to be included as a factor – for example, a bank may operate in Charlotte, NC and in New York City, but will face different market dynamics in each location. The definition of “category” can be subject to debate (is Amtrak a competitor to an airline, for example) and may change over time (Blockbuster before and after the arrival of Netflix). Lastly, the concentration of competition shapes share: car repair is still largely a local business with many small competitors; home improvement retailing is a de facto duopoly in many US markets.

Most larger companies know their overall market share based on sales volumes. But being able to know the share they have among different customer segments, or even for individual customers, is useful for several reasons. First, it can provide a way to prioritize marketing efforts based on which customers have spending that could be won away from a competitor. It can provide a leading indicator of future brand health: a company’s overall market share may be stable, but what if newer customers or younger segments are reducing their share of spending with a brand? Or, more optimistically, are there untapped opportunities to build share, either within a customer segment or by growing a category overall by attracting more customers?

While customer share-of-wallet is a useful metric, arriving at a reliable and useful statistic can be challenging. I’ll run through some of the challenges and cover solutions in a subsequent article.

Challenges

The first challenge one faces at the outset is that a company rarely has good information about its customers’ spending in the overall category. What one usually knows with relative precision is what each customer is spending with one’s own company. My regular grocery store knows that I spent $300 this weekend in their store, but not about the $60 I’m likely to spend at a competitor later in the week.

Another challenge is that share-of-wallet is depends on other factors, some of which are also hidden. Competitive concentration, substitution between categories (a concert versus a movie),  each customer’s total budget within a category, brand preference, customer perceptions, and many other factors combine to produce a customer’s spending patterns. In essence, we not only don’t know a customer’s share-of-wallet, we can’t observe the important factors that shape it.

This is a metric that is also time-dependent. Take, for instance, the home improvement retail segment, which is dominated by two national chains. In many markets their stores are literally within in sight of each other, the assortment of merchandise between stores is comparable, and prices are virtually identical. Some customers shop exclusively at one chain all of the time, but most customers will shop at both at some time. Defining market share in this scenario is analogous to measuring a coin toss: if we have a short observation period (i.e. one toss of the coin), share will appear to be 0% or 100%. As we lengthen the observation period, we are likely to see our perceptions of share move to something between these two bounds.

Let me illustrate this with a hypothetical using an artificial scenario: our customer, Max, shops only once per week at a home improvement store, but sometimes he does not shop at all in a week. Recently, we have seen the following pattern:

Using my coin toss analogy, in weeks 1 through 3, we seem to have 100% share (remember I gamed the scenario by limiting Max’s shopping to once per week). What about week 4? Max either did not shop at all, or he went to a competitor. If he did the latter and spent the same amount, then my market share is now 75% and by week 8, perhaps lower still. The example shows that share-of-wallet is dependent on the time period being measured and that in many situations share-of-wallet is greater than 0 and less than 100.

My advice to anyone looking to start analyzing share-of-wallet or looking to refine their measurement: make sure that you’ve got the time dimension reasonably right, because it can have a pretty large effect on your estimates. If your measurement period is too short, your estimates will be unstable: customers will seem to bounce around. If it is too long, all customers will start to converge toward a narrower range.

Naturally, my example masked a whole set of complications. Is Max truly skipping some weeks, or always shopping at the competitor in off weeks. Is he spending a lot more or a lot less at the competitor? If he does shop the competitor, is it because of: weekly specials, he thinks they’re better in certain categories, he likes to vary his shopping, etc.

Before I end, I want to drill down briefly into product category share. Many companies have an additional and important dimension to customer share-of-wallet: share within multiple multiple categories. Here’s another hypothetical example, using a computer hardware manufacturer and purchases by three of its customers:

These companies appear to be similar in some respects, but does Company A not need laptops, and Company B not need servers? Or are they sourcing these items from other suppliers? By breaking down overall spending into category-level purchases, we gain insights into potential opportunities to grow share-of-wallet in specific areas. Moreover, looking ahead to potential marketing programs, we can build messages that are specific to the opportunities. We don’t need to persuade these companies about the benefits of our technology in general: we need to persuade Company A of the value of our laptops, and Company B of the value of our servers.

One more comment about this example. What’s the likely prioritization of marketing campaigns to these companies by many firms? Probably, Company C would be at the top of the list, because they have generated the most value: they are a “best customer”. But there’s a good case to made for bumping up Company B: if we assume that they have the potential to buy five servers, which are also more profitable. Indeed, Company C’s potential may have been realized, and future purchases may be limited to replacement units at best.

So to summarize: understanding customer share-of-wallet is difficult, because we lack most of the relevant data. Moreover, such data is probably not obtainable. That sounds discouraging, but we’ve seen some glimmers of hope in the customer data we do have. Purchasing patterns over time, as well as variations in spending between product categories, provide some tantalizing clues about understanding share-of-wallet. I’ll expand on these thoughts in the next installment.

In the meantime, share any challenges that you’ve encountered in the comments section below.

We’ve all experienced the frustration of having a company interact with us in ways that seem wholly unconnected: websites that make us navigate through the company’s internal organization to find the support we need; marketing communications that may offer promotions that don’t let us seamlessly buy through the channel we prefer; and many other examples.

Although it is a more specialized area, we’ve seen the same frustrations in the area of how claims for extended service contracts are handled. In our experience, we found many aspects of the claims experience seemingly focused on information system limitations, fraud protection and call center efficiency, rather than on building customer relationships.

For consumers, the process of buying a service contract and later obtaining approval for a claim (entitlement) and satisfying insurance obligations can be stressful. Research shows us that a good claim experience can create a loyal customer, while a bad experience results in attrition and – in this digital age – negative publicity from angry customers.

As we began designing and delivering software solutions in this area, we decided to engineer the process from a customer perspective. For example, for many extended service plans, you still are required to telephone to submit claims. While this channel may be preferred by some, many consumers expect to be able to handle such matters through the Web. Our software not only lets consumers submit and track claims, but if they call for assistance, they get a uniform experience, since call center associates use the same software.

By the way, this has some real benefits for companies as well. One of the reasons call centers can be frustrating for customers is that the cost of an inbound call is high, and companies try reduce talk time with IVRs and other methods to reduce talk time. When a significant portion of routine matters can be handled by the consumer via a digital channel, overall servicing costs fall. This means that call center associates can focus on providing a high level of service to those customers that really need it, rather than trying to minimize the time spent per call. Moreover, since the Web application has been designed for simplicity and efficiency so that end consumers can use it, call center associates can spend time speaking to customers, rather than typing or navigating through screens.

Naturally, there are other aspects to this process that also need to be thought through. For example, we’re currently designing new retail packages that make it easy for a consumer to buy extra protection and to register their coverage. Similarly, our marketing communications, regardless of channel, simplify the steps a customer has to take to buy a product. In many cases, two clicks from an email can get a consumer to check out on one of our e-commerce sites.

One benefit of thinking of how to solve problems from a customer perspective is that often solutions turn out to be so much simpler to design and deliver than ones where IT or company processes dictated design. And the more work we do in this area, the more things we find to improve.

How are you designing marketing and service programs to enhance the customer experience?

Importance In Initial Purchase Decisions

One area that was studied was how the availability of an extended service plan influenced buying decisions.  Based on the research, availability was a second-tier consideration and ranked behind such expected factors as pricing, style, and customer service.

There were observed differences in perceived importance between product categories. For example, nearly 70% of buyers of power sports equipment, such as motorcycles and ATVs, indicated that extended service was important to their buying decision.

Growing importance of plan availability

One interesting finding was that compared to our 2011 study, customers assigned greater importance to the availability of plans across all categories we studied. Power sports saw a 20% increase in perceived importance, but all categories had marked increases.

These findings suggest that while offering an extended service option may not the primary inducement to get a consumer to buy, manufacturers and retailers of consumers may be able to distinguish themselves from among similar offerings by providing such coverage.

Importance in Repurchase Decisions

One area we asked about was whether having purchased an ESP in the past influenced repurchasing from the same manufacturer. A majority of past ESP purchasers reported that they would either “definitely” or “probably” purchase from the same company again. While this result represents an indication that there is a positive benefit to repurchase, there may be some bias in the result, as more loyal customers may also be more likely to have purchased a contract.

Repurchase intent based on claims experience

One striking indicator, however, of extended service can influence repurchase came when we asked customers who had a positive claim experience how it would influence repurchase. Over 75% of customers with a positive experience stated an intention to remain loyal to the manufacturer.

This suggests that merely offering an extended service plan is not enough. However, ensuring that any service experience is positive can provide a definite loyalty effect that can drive future purchases from these customers. This implies that careful monitoring of the service network must be ongoing.

Pricing Data

Fulcrum also gauged how much consumers were willing to pay for coverage and what features enhanced the attractiveness of plans. One finding was that having coverage for accidental damage and handling (ADH) was attractive, particularly in power sports and digital printers.

However, even with ADH coverage, there is a natural limit to how much people will pay for an ESP. With digital printers and copiers, a plan that covers only major repairs could be priced a maximum of 20% of purchase price. This increased to about 30% when ADH was offered.

Other sectors reported lower acceptable prices for all types of coverage.

More information about the studies findings can be found in this presentation.

NEW YORK, May 21, 2012 – A significantly enhanced version of the Fulcrum Claims Manager software application, which provides new tools for consumers to self-administer extended service claims, has been released by Fulcrum.

Fulcrum Claims Manager, previously used in call centers managed by Fulcrum or its clients, is now available to Fulcrum clients on a software as a service (SaaS) web application. It facilitates the registration of products covered under extended service plans and the administration of claims under those plans.

The latest version allows end customers to register products and extended service plan coverage on their own. If they need to initiate a claim under their service plan, consumers can also initiate service and even arrange for return shipping of an item for repair or replacement.

Several of Fulcrum’s clients have already deployed the new version and more are expected to add these self-service capabilities in the coming months.

“Consumers expect to have Web-based tools to manage all sorts of transactions, from buying products to buying extended service plans online. Putting more control in their hands not only offers more convenience, it reduces the cost of servicing a claim,” said Nathan Baldwin, executive vice president, Fulcrum. “We’ve had great success deploying other customer-facing applications; this enhanced Claims Manager app is a natural extension of our technology which should bring great value to our customers and their clients.”

About Fulcrum

Leading businesses turn to Fulcrum to increase and accelerate the profitability of their marketing and advertising investments. Fulcrum offers advanced marketing solutions, from building and managing rich, multi-channel databases, to predictive and segmentation modeling, advanced analytical tools, and design and execution of cross-channel, customer-centric marketing programs.

Fulcrum is headquartered in New York City with its major operational center in Fairfield, Conn. Visit www.fulcrum-mktg.com for more information.

NEW YORK, May 7, 2012 — How does a leading citizen sector organization (CSO) promote the publication of its first book, Rippling, and use that milestone to raise further awareness of its mission and solicit donations at the same time?

That was the marketing challenge posed by Ashoka (www.ashoka.org) to Fulcrum (www.fulcrum-mktg.com), an innovative marketing services, data analytics and technology company.

Rippling is a non-fiction book about Ashoka’s long experience supporting social entrepreneurs who find new solutions to social problems and implement them on a large scale. It includes five proven principles that any leader can implement to bring about change. The book was written by Beverly Schwartz, Ashoka’s vice president of global marketing.

As the April 2012 publication date drew close, Ashoka turned to Fulcrum for support.

Together, the firms developed a personalized email marketing campaign tailored to reach a broad range of Ashoka’s followers. The campaign targeted Ashoka’s Fellows (almost 3,000 social entrepreneurs who work in some 60 countries around the world) as well as donors, friends and attendees at past Ashoka functions, newsletter recipients and others interested in Ashoka’s work. They also developed a word of mouth marketing campaign featuring a social element that allowed recipients to share the launch of the book via Facebook and Twitter.

“The principles conveyed in Rippling, which are based on our experience with social entrepreneurship, can be applied to how companies and organizations operate,” said Ms. Schwartz. “Fulcrum’s support, not only from a marketing perspective, but its genuine interest in the topic of social entrepreneurship and social change, has been invaluable. We were thrilled with the exposure Rippling received, as well as the generous amount of donations the campaign generated.”

About Fulcrum

Leading businesses turn to Fulcrum to increase and accelerate the profitability of their marketing and advertising investments. Fulcrum offers advanced marketing solutions, from building and managing rich, multi-channel databases, to predictive and segmentation modeling, advanced analytical tools, and design and execution of cross-channel, customer-centric marketing programs.

Fulcrum is headquartered in New York City with its major operational center in Fairfield, Conn. Visit www.fulcrum-mktg.com for more information.

About Ashoka

Founded in 1980, Ashoka is the world’s working community of nearly 3000 leading social entrepreneurs. It champions the most important new social change ideas and supports the entrepreneurs behind them by helping them get started, grow, succeed, and collaborate. As Ashoka expands its capability to integrate and connect entrepreneurs around the world, it builds an entrepreneurial infrastructure that is supporting the fast-growing needs of the citizen sector.  Ashoka’s vision is to create change today, for an Everyone A Changemaker™ society to become the reality of tomorrow.  For more information, visit www.ashoka.org.

Chrisie Dorton joins Fulcrum as group director of client services and will be responsible for working with key clients to help them create post-sales programs to build new revenue. Lisa Schizas will serve as director of client services and will be responsible for managing operations within the division.

The Purchase to Purchase division helps manufacturers and retailers of consumer durables build new revenue through post-sales programs including extended service plans, sales of OEM accessories and dealer programs.

Prior to joining Fulcrum, Ms. Dorton was vice president of marketing strategy and operations at Accent Marketing Services where she directed client relationships and served as product lead for the company’s suite of extended service contract solutions during her nine years of service. She has also held positions at Manitowoc Beverage Systems as a key account director; Ironmax as a product and quality manager; and Servend International as new product introduction champion, rising from the position of lead engineering designer.

Ms. Schizas has nearly 20 years of experience in warranty operations. She joins Fulcrum from The Warranty Group where she was vice president of operations for the warranty administration, home warranty and direct marketing divisions and previously managed the finance and insurance division. Previously, Ms. Schizas worked as an operations manager at General Electric, where she started her career in its manufacturing management program.

“Our team has known Chrisie and Lisa for a number of years and have always been impressed by their deep industry knowledge and client service ethic,” said Nathan Baldwin, executive vice president, Fulcrum. “We’re fortunate to have attracted these solid professionals to our team during a time of rapid growth and look forward to their contributions.”

About Fulcrum

Leading businesses turn to Fulcrum to increase and accelerate the profitability of their marketing and advertising investments. Fulcrum offers advanced marketing solutions, from building and managing rich, multi-channel databases, to predictive and segmentation modeling, advanced analytical tools, and design and execution of cross-channel, customer-centric marketing programs.

Fulcrum is headquartered in New York City with its major operational center in Fairfield, Conn. Visit www.fulcrum-mktg.com for more information.

Service Contract marketing is one of the more operationally complex areas of the customer life cycle communication strategy. Service Contracts are an insurance-like product, and thus they come with some inherent controls for risk, a set of complex rules for solicitation, and various legal requirements and conditions.

As marketers, our aim is to simplify a potentially complex buying process for the customer and to instill a level of trust between the manufacturer and the customer. Many in this sector focus heavily on the complex details (think marketing materials where 90% of the real estate is taken up by legal language), forget about presentation, and the customer’s perceptions and needs. In this haze of complexity, we simply forget that the end customer probably does not work for an insurance company, probably did not pass the bar exam, and frankly has been conditioned by years of marketing to be suspicious of corporate solicitations.

One funny anecdote perfectly illustrates this problem. We recently re-engineered a program that had become more legalistic than consumer-oriented. Simply increasing the font size increased response, even more so among older consumers, suggesting that the marketing pieces were borderline illegible.

Another trend that many marketers in this area have missed (despite the fact that we’re now 20 years into it!): an increasing number of consumers of all ages are conditioned to buy via digital channels, such as web sites. While complex language, poor presentation, and having to follow multiple steps to complete a purchase will reduce sales through traditional channels, they are fatal on Web or mobile. Customers will simply click away from your site, if you make it hard for them.

This is why the use of the PURL has become a game changer for selling missed point-of -sale service contracts. Used correctly, the PURL allows the marketer to associate details of a specific offer to a specific product. If a customer owns a touring motorcycle, the PURL allows the marketer to speak directly to the customer about their specific motorcycle and why the service contract is a good investment. If the customer is looking to protect their washing machine, the PURL allows us to talk directly about issues other customers have experienced with that washer and how the service contract will cover such items.

The PURL breaks the model of having one generic message for all customers and creates an opportunity to give the customer more personalized and more useful experiences. Using our knowledge of the customer and the product, the PURL allows us to program personal pages to add personal messages, modify images, look and feel, offers, discounts and point out unique terms and conditions for the customer’s product.

All of these new abilities are increasing response and conversion on their own, but most importantly, it also ties every click, visit, and important metric to that customer and product. As an example, we quickly learn if the customer is more risk-adverse or cost-conscious. This information is fed back into the marketing system for future solicitation marketing or the site will begin to offer different communication on subsequent visits.

The use of the PURL and new marketing strategies is just one of the latest innovations that Fulcrum is working on in the Service Contract space. Leave a comment or let me know about other ways you are using new technologies to change marketing. If you would like to talk about your programs and ways to increase revenue and profit, our team is always available for a conversation.

Related Posts:

Service Contract Marketing Part 1: Modernization

Service Contact Marketing Part 2: Customer Continuity

Service Contract Marketing Part 3: Data and Analytics