Oct 6, 2020
The 5 Rules for Driving Down Costs Without Affecting Customers
A lot of Behavioral Science can feel intimidating. However, it doesn’t have to be. The Five Rules Podcast Series is our attempt at giving you an easy entry point into the complex and messy world of Behavioral Science.
If you are like most businesses in 2020, you are facing a very different year for your bottom-line performance, and in many cases, it’s not a good kind of different. Naturally, many organizations have responded to a tumultuous and tentative market for growth by balancing the business scales with cost-cutting measures. However, if you cut the wrong things in the wrong areas, you can end up making the situation worse.
Don’t get me wrong; cutting costs is essential in business, even when there isn’t a global pandemic. The critical thing to remember is what to cut, when, and how so that you don’t wonder later why everything went sideways.
This episode of The Intuitive Customer covers my 5 Rules for Driving down costs without affecting customers. They might help you navigate the remaining weeks of 2020 with less turmoil than cutting costs without them.
What Are The Five Rules?
The 5 Rules for Driving Down Costs Without Affecting Customers
- Do not think there is one "silver bullet."
- Do not over-emphasize the easily-measured costs.
- Strive for balance.
- Look at the lifetime value of the customer.
- Select the areas that drive the least value for you.
What Should You Do With Them?
- Do not think there is one "silver bullet." The first step is to avoid thinking that one big cut will make the business all balance out. A proper approach to cost-cutting is to cut a little in many areas, which, when added together, get you the cost savings you need. Perhaps even more importantly, small five percent cuts across several areas will be less traumatic for the organization than one massive one.
- Do not over-emphasize the easily-measured costs. Some cuts are easy to measure because the direct costs are in black and white. However, there are indirect costs associated with these items too. I would advise companies to consider all the costs for any item on the ledger before making any cuts. It could mean that you get to your goal faster with fewer cuts when you integrate all the costs associated with any item you eliminate.
- Strive for balance. First off, let me tell you that I have never been involved in a customer experience improvement program that has not resulted in cost savings. That's because poor experiences cost you money, too, in actual amounts and opportunities missed. Moreover, unintended consequences can result from any action, and especially when cutting expenses. Instead, I would ask that you look for ways to reduce costs that don't involve stopping something. It could be that adding budget to specific areas can prevent expenses from piling up in another place and improve the process simultaneously.
- Look at the lifetime value of the customers. Often, organizations only consider the annual value of a customer. However, depending on your customer lifecycle, that could only be a small percentage of their overall worth. When you consider the customer's real lifetime value, the expenses associated with providing a solution that costs more is less significant. Sure, you are out the expense in the short-term, but the long-term gains far outweigh them.
- Select the areas that drive the least value for you. Some parts of the experience might be more valuable than you think at first glance. It is essential to consider what customers use and appreciate most when making cuts. What you don't want to do is unwittingly cut the most important part of your experience in the interest of cost savings, and end up taking away what your most valuable customers loved the most.
To discuss this further contact us at www.BeyondPhilosophy.com
About Beyond Philosophy:
Beyond Philosophy help organizations unlock growth by discovering customers' hidden, unmet needs that drive value ($). We then capitalize on this by improving your customer experience to meet these needs thereby retaining and acquiring new customers across the market.
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