Collin MacGibson, President of On-Time Technology Products, recently returned from a Manufacturing Technology Conference in downtown Chicago. As a result of talking with leaders of other companies, he is now considering establishing a tiered service system, an idea he shared with Mary Graff.
Proposed Tiered Service Plan
Mr. MacGibson's basic thought is to reward their B2B customers who give On -Time Technology Products $100,000 worth of business an end-of-year "thank you payment" that reflects a 5% discount on all yearly purchases.
In addition, those customers would receive a commitment to next-day turnaround time on the resolution of all customer service problems. Moreover, the customers who purchase $500,000 or more annually would receive a 10% discount and free delivery. The average B2B sale is $25,000.
As a CSR, what is your initial reaction to this new-tiered service plan by Mr. MacGibson, and what would be some advantages/ disadvantages of going to a tiered service approach at On -Time Technology Products? Would there be a risk of losing some of your smaller clients by using this approach?
Current Service Plan at OTTP
Provide all customers, regardless on the amount of their purchase, frequency of purchase or dollar amount spent per year the same special attention.
Our theory at OTTP is that a customer who makes a small purchase today might make a large purchase tomorrow. All of our customers receive the same price, convenience, and service.
In today’s competitive world, the customer’s expectations have grown by leaps and bounds, in order to add new customers and retain existing customers, companies are offering low cost and high quality products moreover the competitive market is making them give additional offers to the customer which may be in the form of an additional service, a gift or a discount etc..
It is also important for the customer, on the other hand to evaluate and find out if the glossy offer given to him really makes any business sense or is just a business stunt. In this paper we will see based on the case study that how with Mr. Macgibson’s new scheme impact the customers in terms of sales and loyalty.
A new-tiered service plan by Mr. MacGibson: The reaction
The introduction of a tiered service plan will be a new introduction for all the existing customers and therefore they will evaluate this feature from their point of view i.e. keeping in mind the kind of business they give On-Time Technology Products hence the initial reaction may have a mixed response, where few will welcome this policy their might be others who may not appreciate the same, considering that the scheme is not independent of the revenue generated and the discount provided is directly proportional to the business given (Dollars per-annum).
It will be reasonable to speculate the possibility of business gains as the procurement department will definitely find this valuable for any enterprise and there for there is a chance that just in case there are multiple service providers serving the company, they might just want to reallocate all their business to On-Time Technology Products considering the new package which is being offered however their might be other flip sides to the same.
Advantages and Disadvantages of going to a tiered service approach at On -Time Technology Products
The evaluation of any new scheme, product or service is done taken in mind the customer’s perspective and with multiple customers being service, there is always a mixed reaction from them, hence it is good to think about the advantages and disadvantages of any new introduction. Before we talk about the advantages and disadvantages we must observe the fact that the discount of 5% and 10% are available to the customer giving an annual business of above $1,00,000 and $5,00,000 respectively, but the average customers are at $25,000 as of now.
If we talk about the advantages there might be a few customer spread across different service providers who will decide to switch to OTTP in order to reach the total amount that makes them eligible for a discount, similarly the customers eligible of 5% discount might just raise the business in order to be eligible for the tier 2 discount. Secondly, this may also help to add new customers who are looking for a better and cheaper service and a word of mouth or corporate referral can help them to learn about the tier based system and that will help to produce further attraction. Moving on to the disadvantages, at first if we look at the average sales we will realize that the most of the customers will not get any benefit out of this new tiered system and therefore they might be a sudden disappointment due to this in few customers which may lead to customer attrition as there is a chance that the scale of those customers is not that big that they can generate the desired business for OTTP, secondly this will go against both the service4 plan and Theory of OTTP, as the treatment will now be based on the basis of dollar impact and can be considered as biased by the customers generating lesser revenue.
Risk of losing some of your smaller clients by using this approach: Analyze
As talked in the other sections above, there is a definite risk of some small clients, taking a step back as they might now thing that the services are being provided in a biased manner and that the theory of giving similar cost and service to all the clients is no more valued and therefore either they may decide to switch immediately or slowly detach themselves taking the business elsewhere. There fore we cannot deny from the possibility of loosing a few customers in case if we apply this approach.