Wednesday, 21 January 2009

Increasing profits - honestly

I was in Serbia this week and although I knew things had moved on I couldn't help but wonder if there would be any issues –I wasn't overly concerned but I still went on to the UK Foreign Office website to check its status and advice and even registered my travel plans with them just in case. Having now been there I can say quite honestly that it was a lovely place – friendly people, efficient and just like any other European city. However my concern or more precisely my lack of trust meant that I made an extra effort and spent more time planning my journey.

My reason for recounting this is that I'm reading a book at the moment called The Speed of Trust: The One Thing That Changes Everything, written by Stephen M R Covey, son of Stephen R Covey of 7 Habitsfame. What's fascinating is how he has managed to articulate simply what trust means and actually managed to demonstrate how trust affects the bottom line. Simply put he shows how when the level of Trust goes down, the speed of transaction/interaction goes down and the cost goes up – conversely, when the level of Trust goes up the speed goes up and the cost comes down. He then goes on to provide a couple of examples. Firstly discussing how in the wake of the Enron and WorldCom scandals, trust was shattered and so the US implemented the Sarbanes-Oxley Act which essentially introduced additional regulations and audit controls – which slowed things down causing additional work – and increased costs with one estimate putting this at $35 Billion. He then shows an opposite example of where high trust can increase speed and reduce costs – talking about a small vendor in New York who was struggling to serve customers at peak times and so simply provided a basket for customers to put their money in, taking any change and freeing him up to serve more customers (without additional hiring costs).

This example was demonstrated recently in the UK when a man left his shop open on Boxing Day while he went away so that customers who needed something could simply help themselves – trusting that people would be honest and pay for the goods – which they did to the tune of £187 with nothing stolen.

Now I'm not suggesting a new form of retail whereby brands simply open the doors and let customers help themselves, but it does raise some interesting questions about trust and how this can be developed with customers so as to "grease the wheels" to ease transactional pain and reduce costs.

A good example of a brand doing this at the moment in the UK is Norwich Union (soon to be Aviva). They have introduced a service within their motor insurance website which provides details of the prices of over 140 competitors – showing details of their quote even where this is cheaper.

Despite appearing to have its origins in the film Miracle on 34th Street where the store Santa advises customers to go to a competitor store for a better price, Norwich Union could be on to a winning formula here.

The reason for this is that firstly it builds confidence – people will feel the brand has integrity as they show themselves to be in touch with the market and willing to say "hey, we're more expensive, we know that - but there's a reason" – this then gives them permission to explain and demonstrate why.

Second it allows them to "own" the buying process – for many people insurance is commoditised and they simply use a price comparison site to choose the cheapest vendor that meets their needs. The hope here will be that these "price hunters" will give them a go knowing they get the comparison anyway, but now Norwich Union are in control and can begin to build a relationship.

What Norwich Union seems to have realised is that trust is a critical component of customer retention – something which has been severely lacking in the insurance industry for many years. Every time a renewal quote is sent to an existing customer which is obviously higher than that offered to new customers – trust is destroyed.

Focusing on genuinely building trust however can reap real and tangible benefits.

If a customer trusts that you have their best interests at heart then they will be less likely to look at competitor products and services.

If a customer trusts that you're always working for mutual benefit then they will be more likely to trial additional products and services from you.

If a customer trusts that you'll look after their personal data then they are more likely to provide it to you.

If a customer sees you demonstrating trust when problems arise – handling complaints or queries fairly – then they are more likely to speak about it with others – generating positive word of mouth.

On the other hand all of those benefits disappear quickly if trust doesn't exist or is destroyed through the course of doing business.

Trust is at an all time low within many industries at the moment so those businesses which cultivate it, demonstrate it and generate it will surely prosper with lower costs to serve, increased retention and a willingness to trial.

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