The Changing Nature of Customer Service
One of the unfortunate consequences when any market commoditizes and its race to the bottom in terms of price, one of the first casualties is good customer service. That is customer service that involves real live humans. This happened when the conventional BGM market commoditized, it happened again in the insulin pump market and we see it now moving into the CGM world. The simple fact is as prices decline and margins shrink companies must find ways to cut costs and when it comes to cost cutting customer service is the low hanging fruit.
Sales forces are also on the chopping block but in the beginning of cost cutting customer service people come first as they are not viewed as humans who generate revenue. This happened at every BGM company who then moved to cutting sales teams followed by shaving R&D projects and people. This happened when Medtronic (NYSE: MDT) first bought MiniMed, a move which was later reversed but never completely reinstated. Even now the company loathes to add more support personal as while needed they are not cheap and cut into margins. Just any Medtronic customer whose sat on hold for an hour or does not get a returned phone call.
Now that Abbott (NYSE: ABT) has initiated a price war with Dexcom (NASDAQ: DXCM) we cannot help but believe that CGM customer service will also suffer. This is not what anyone wants but it may be necessary if they want their CGM at an affordable cost. The reality is patients want it both ways, low costs of products and excellent customer service, but they can’t have it both ways.
Just as we see the CGM market developing with multiple products with varying price points, we also anticipate different levels of customer service based on what THE PATIENT WANTS TO PAY OUT OF POCKET. We see this same thing happening in the insulin pump world as well. And to be honest we don’t see this as a bad thing as other markets have been this way for years. Let’s be honest here there are a group of patients who rarely use customer service and would be willing to pay when they do use it. In contrast there are others who will pay for a plan that gives them support anytime they want it.
Think of it this way, frequent business travelers might buy more expensive tickets which allow for flexible travel plans. There are other more budget concise travelers who will find the cheapest tickets possible accepting the fact they will have to pay a hefty change fee if their plans change. This business model of paying for different levels of support is also common when it comes to computers or software.
The big issue here is not if this will happen but how companies will deal with the initial backlash when it does happen. Banks had to deal with this when they started charging fees for using a human teller. Airlines dealt with this when they started charging for checked bags. Grocery stores dealt with this when they started charging for bags. Today most consumers have adapted to these changes but initially there was backlash.
See in the old days customer service was part of the package. A patient would select a BGM, insulin pump or CGM and would just take it for granted that the company who made the product would also support it. That this support was part of the price. They expected to call an 800 number and speak to a human. Well those days are coming to an end as companies just can’t afford to give away this service for free. Now some will say that they should just charge higher prices to payors to cover this cost, to wit we say fat chance. Others will say they should just accept lower margins, to wit we say fatter chance.
Market dynamics are going to force all the toy makers to rethink how they provide customer service. The smarter companies will embrace technology and offer multiple options to the patient. Perhaps an echat will be free or app based support will be free as well. However, we see nothing wrong with charging a patient if they want to speak with a human. Now it should go without saying that if it’s a medical emergency no patient should have to pay a dime but then again other than insulin pumps we cannot envision a medical emergency that involves a BGM or CGM.
No question patients will initially hate paying for something they used to get for free. But just as they became used to fees for using an ATM or paying more for an aisle seat, they will get used to paying a fee for different levels of customer support. Let’s be VERY clear here as we are in no way saying they are going to like paying rather they will get used to it. As Momma Kliff used to say there is a huge difference between liking something or just getting used to something.
This situation could also push the toy makers to design better toys and/or more patient friendly web site or apps. Think about the last time anyone called an airline, spoke to an agent and then bought a ticket. Sure, it happens but most travelers use the web or app to buy tickets. The same goes for ordering a taxi, yep there are times when we hail a cab, but Uber and Lyft have become the preferred method.
The reality is the toy makers must adapt to changing market dynamics, that when it’s a race to the lowest price point they must find new less expensive method to provide support. They cannot live in the past and should embrace this change. As we have seen with so many markets the initial backlash eventually fades away and life goes on. As Momma Kliff always said no one really likes to change all that much but they do eventually adapt to it.