by Tony Vidler
Fundamentally they were all selling the same basic commodity, at about the same price, to anyone who drove up. That included the regulars who lived in the area and who had high lifetime value and the out-of-towners cruising through who just needed the go-go-juice commodity for their vehicle so they could keep cruising through.
All selling the same basic stuff to anyone who turned up on the radar screen, but mostly focussing on trying to get “the locals” to re-engage and come back time after time. And what happened next?
Labour became too expensive to continue providing tyre-pumping and window-washing services as consumers became more mobile, less brand-loyal, and more cost-focussed. Commoditization took over and the petrol station business became primarily about price competition on core product, with convenience second from the consumers perspective, and it became all about scale and volume for the retailers of these services. But price and convenience have been the primary value-drivers determining who consumers chose.
The same arguments swirl about in financial services currently, don’t they? And largely for the same reasons…commoditization of product and service….convenience selling….cost of labour….lower brand-loyalty levels of consumers….and “price” driving much of the industry behaviour and offerings, with convenience secondary.
These drivers of behaviour are all valid and real game-changers for professional services. They require service providers to adapt, and the professionals know that. They know that the old ways will not present a viable business model in the long term, especially when the self-service or DIY mentality is becoming then norm for the majority of consumers. But what to do about it and HOW to adapt is the challenge.
There is a high level of consumer acceptance in most western societies now of the benefit of a strong self-service element. They are adept at finding consumables or services rapidly, filtered frequently and ranked by price and convenience, and then providing a significant part of the “labour content” themselves in the transaction. DIY is here to stay as consumers are increasingly empowered with information and the ability to engage swiftly in secure transactions for commoditized products and solutions. However, with increasing affluence levels and scarcity of leisure time it is apparent that convenience is beginning to trump price as the primary value driver.
So what did the petrol stations do to adapt? 2 big things:
They moved themselves out of the petrol business as retailers really. Sure, the go-go-juice is a driver of customer engagement – it gets people pulling into the station. However, probably just as many stations now have great (and far more profitable) customer engagement from selling great coffee, or having food outlets that deliver consistent experiences, or by being the local “convenience store” (like a mini-supermarket). Retailing these things is where they make their real money these days.
Overlaying this re-positioning as retailers they brought a relatively low-cost level of customer relationship management and “personal service” back into the mix.
Forecourt attendants are back at a number of the big chains….but not 24 hours a day. And they don’t check your oil and radiator level unless you specifically ask them to…nor do they wash your windows most of the time. But they will pump the petrol, and will do those other things if you ask nicely. The key thing in reality is there is a perceived higher level of service, rather than an actual one.
I don’t mean that in the absolutely literal sense (although who knows, it might be a good idea?). Observing what has happened in other industries does give us the opportunity to consider transferrable lessons to adapt to the same shifts in value drivers though.
Creating higher perceived levels of service is achievable with our increased ability to outsource labour components at lower cost than retaining full-time staff members, while still presenting them as part of our practices service, or customer resources. Virtual assistants, paraplanners, research houses, technology solutions providers, marketing & client support functions, shared meeting facilities….the list goes on in terms of the way we can find relatively affordable solutions to creating a sense of higher levels of service without necessarily increasing costs to unaffordable levels.
It is about creating the perception of higher value as much as it is about creating profitable leverage of resources within the firm.
Back to the coffee question though: should we be retailing?
I know, I know….professional advisers are supposed to be serious technicians who remain focussed solely upon the delivery of life-changing strategies to any consumer in need, regardless of the professionals’ own needs. “Retailing products” doesn’t quite fit with that perception for many. However, what the professionals think their role and function is (and even what the rule-makers think it is) doesn’t matter if the consumers hold a different view. So the correct question perhaps should be:
Do our clients and prospects want us retailing? Is there something else they want us to be selling or providing?
I’d suggest that the answer is an unequivocal “yes”. Robo-offerings, index funds, online comprehensive insurance products, simple needs-based insurance products, bank accounts, credit cards, personal loans….all are examples where there are multiple offerings provided very profitably to volumes of consumers. So clearly consumers do want to just buy some stuff cheap, fast and conveniently even though we in the industry might consider it more prudent to wrap some advice around that stuff.
Comprehensive advice is not the be-all and end-all for all consumers all of the time. They are telling us that with their buying behaviour constantly.
And Amazon is showing us that if you can establish yourself as a trusted brand in the consumers minds that presents real value in price and convenience, then they are more than receptive to expanding the commercial relationship beyond the initial core offering. Amazon is selling a lot more than books these days isn’t it?
So why couldn’t a professional services firm be selling books too? Or educational courses? Or secure data storage facilities? Or coffee for that matter?
The point of course is that we need to challenge some of our own existing beliefs about how the business does, or must, operate. We have some core services and products (e.g. “retirement planning” or “superannuation/pension funds”) which are like petrol for our industry: they are necessary enough that they can be used to have many consumers driving themselves to the forecourt to fill up. They are engagement services, and there will be some money in them – but many of these core products or services are highly competitive and becoming highly commoditized. They will be difficult to operate in profitably without serious scale and volume.
The real business value for us and the real consumer value will lie in all the other things we could or should be doing for them once they engage with our firm. The likelihood of them continuing to engage and become clients with higher lifetime value will be reinforced by how well we create service levels which are perceived to be far more valuable for the consumer than they actually cost us.