81-Reducing the Customer’s Hassle Factor??

What started as a relatively straightforward customer service a generation ago has evolved into three separate businesses. Each business prospers today by focusing on what each of them does uniquely. We use the Customer Buying Hierarchy components to analyze the strengths of each unique business.

Posted 2/19/09

I’ve done it. I’m sure you have as well. In fact, virtually everyone has done it at one time or another. What is the “it”? You call for customer assistance or information and you get…India or the Philippines. Both India and the Philippines are fine countries. They both have much to admire. But their ability to speak English clearly to an American listener is, by most accounts, limited. They do speak English, though, and they ask for little in compensation in return. So, many companies have shifted their customer service, especially consumer customer service, offshore to these countries.

All has not gone swimmingly, though. Dell Computer, for one, had to bring back its business (that is, the larger customers in the market) customer service to the U.S. because of many complaints. The consumer service remains offshore. I wonder if there is a connection with Dell’s weakness in the consumer market?

Perhaps the tide is turning. Recently, United Airlines announced that it was dropping an Indian customer call center that handled customer observations or complaints. Instead, phone reservation agents in Chicago and Honolulu will be cross-trained to respond to written customer feedback. Yes, I’m sure you caught that. The customer now has to write. (See the Perspective, “Failure Shifts More Share than Success” on StrategyStreet.com.)

United Airlines has stopped publishing its customer relations phone number. That is the number that used to go to India. Instead, customers now have to send an email or a letter to complain. Of course, the United Reservation Center in Detroit, which covers United’s largest customers, will continue to take phone calls of complaining customers. (See the Symptom and Implication, “Competitors are emphasizing reliability in product quality” on StrategyStreet.com.)

Maybe the tide has not turned after all.

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Update 2022:

Each of United Airlines and Dell Computers now offers a number of ways for a consumer to contact the company with complaints or problems, including telephone and web support. Unfortunately, neither Dell nor United are anything better than middle of the pack in customer service in 2022.

A 2022 evaluation of the quality of customer service in airlines had the following ratings for each of the major airlines, with a possible score of 100: Delta 75.77, Southwest 67.0, American Airlines 52.59, and United Airlines 49.65.  These composite scores considered 4 measures of customer service: on time arrival, percentage of canceled flights, mishandled baggage and customer complaints.  Looking only at monthly customer complaints per 10,000 passengers revealed the following numbers for the 4 major airlines: United .42, American .21, Delta .11 and Southwest .06.

J. D. Power’s 2021 rating of airlines ranked the top 4 airlines as follows: number 1, Delta; number 2, Southwest Airlines; number 5, United and number 6, American.

Dell has call centers in 13 countries (Brazil, Bulgaria, China, Costa Rica, Finland, Holland, India, Malaysia, Morocco, Panama, Philippines, Romania and Slovakia), which is how most of their call lines are open 24/7.

A 2020 analysis of laptop computer customer support, considering both web support and phone support with a total of 100 points available ranked Dell number 8 with 68 points.  It was ahead of HP with 61 points but behind Lenovo with 70 points, Microsoft scored 74 points and Apple 85 points.

Philippines and India remain by far the largest locations for foreign call centers serving US corporations.  In 2021, the Philippines overtook India as the largest call center country.  Its growth rate, at 30% per year, is also 2 times that of India, which falls in the 10 to 15% per year range.  Driving this growth is the economic fact that US call center workers make much more than their Filipino counterparts earn.  One US based call center employee might cost a business an average of $20 an hour.  One in India would cost $12 an hour.  In Philippines, about $5 an hour.

Some of these outsourced call center jobs are slowly returning to the US with the advent of new technology.  With the proliferation of chatbots and natural language interactive voice response (IVR) systems, computers can handle routine customer calls as opposed to foreign workers, allowing human representatives to handle more complex or personal requests on behalf of consumers.

There always seems to be a trade-off between value for the customer and cost to the company. The trade-offs between the two determined the company’s market share and return on investment. See HERE for more on this idea.

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Update 3/26

What was once a straightforward call center business has evolved into three separate businesses: contact centers as a service, contact center outsourcing, and in-house operations. Most large firms use all three of these businesses simultaneously. Each business distinguishes itself in one or more components of the Customer Buying Hierarchy.

The Reliability Option. The safest option for a company is an in-house customer contact organization. This is the Base Case for comparison against the other two businesses and their benefit options. In this option, the customer itself owns the people, the process, the technology and the customer experience. It serves to protect the brand relationship with the customer. It handles complex issues and high-value interactions including, claims, loyalty programs and issue escalations. In regulated businesses, such as financial services, healthcare, banking, and insurance, a company must offer in-house customer contact options in order to protect regulated data. These in-house organizations have workflows tied deeply into internal company operating and control systems. This option is by far the largest of the three businesses with labor and overhead costs of $150 billion or so a year. This option grows at a low to mid single-digit growth every year but the spending is shifting strongly toward cloud and AI expenses. Its returns on investment are hidden because they depend on the lifetime value of customers rather than on direct profits.

The Price and Convenience Option. These are Business Process Outsourcing competitors who provide labor, facilities and operational expertise in their customer contact centers. They run their operations at scale with optimized labor costs, especially with high labor utilization. With this operational focus, they are able to offer cost savings versus in-house operations on the order of 30%. They also offer Convenience because they can create a multi-agent customer contact team very quickly, scaling as fast as any customer grows.  The industry is highly fragmented though it is undergoing consolidation. Key competitors include Teleperformance and Concentrix. Over the years, the best competitors invested in digital and analytics to become digital customer experience partners providing omnichannel (chat, SMS, email and social) services. Industry revenues in 2026 are approaching $40 billion. The industry is growing at 7 to 8% a year. The returns for mature competitors in the industry are good because they are able to keep utilization rates high for their labor forces.

The Function and Convenience Option: customer contact center as a service. These companies build the platform that every call center, whether in-house or outsourced, runs on. These competitors provide the technology that runs the entire customer interaction service. They are the software and AI providers (Function benefits) to the customer. Key competitors include NICE, Genesys, AWS and several others. They offer unique Function benefits with AI and digital channel capabilities that the integrate well with CRM customer experience products. Their Convenience advantage comes from their ability to scale quickly as customer needs expand. The industry generates nearly $50 billion in revenues and is growing in the midteens annually. Returns on investment are very high for the industry leaders.

Consider how the broader market of customer contact centers has evolved. The new entrants are the CCaaS companies. Their key advantage is their Functional benefits. Their industry is in the early stages of developing and consolidating. The Business Process Outsourcers compete in a much more mature market. Functional and Convenience differences among competitors may exist but their primary value-added for their customer is cost savings and a low Price. Reliability is the hallmark of the in-house option. It is by far the largest part of the broader customer contact market. It is certainly more expensive than is the BPO alternatives. Despite this, it remains the preferred option in 2026.

We think it is valuable to understand both the Customer Buying Hierarchy and how the four components of that hierarchy evolve as industries develop and mature. HERE and HERE are two strategystreet perspectives to help you.

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