John Tschohl, called the “guru of customer service,” by USA Today, Time and Entrepreneur magazines, is a best-selling author, service strategist and president of Service Quality Institute. John is a regular contributor to the Desk.com Blog Expert Corner series.
Today the Delta Dental Plan of Massachusetts offers their customers a “Guarantee of Service Excellence.” This customer service strategy guarantees that client companies and customers receive cash payments — specified in advance — if service does not meet the high standards laid out in the guarantee.
In an enlightened move, Delta did not begin implementing its Guarantee of Service Excellence (GOSE) until all employees had been thoroughly trained in service procedures and service philosophy.
For small firms trying to figure out how to compete with large well-known companies, a guarantee-of-service customer service strategy is worth copying. Let’s take a closer look at how Delta Dental used a service-guarantee strategy to blow their competition out of the water.
Fighting for survival
When Robert Hunter, DMD, former president of the non-profit Delta Dental Plan of Massachusetts and retired CEO of DentaQuest Ventures Inc., joined Delta Dental Plan of Massachusetts, the company was in a crisis situation and fighting for survival. In 1986 it only had about 125 employees.
Hunter had practiced dentistry for 20 years and had no business experience before joining Delta Dental of Massachusetts in 1989. Delta Dental had a 10% market share. He said he felt the level of service in the insurance industry was one step ahead of self-service gas stations.
Hunter read an article by Christopher Hart, a professor at Harvard University, on unconditional service guarantees and decided he would use this as a way to differentiate Delta Dental from its competition.
Developing your customer service strategy: know what your customers want
Through research and focus groups with companies who select dental insurance companies, Delta Dental identified the most critical things companies want from an insurance company, including:
- Perform perfectly every day
- Develop a service plan and guarantee performance
- Back up a guarantee with money
The company identified seven service guarantees that were extremely important to customers, made the service guarantees public and then said it would pay money for every mistake it made. Interestingly, customers did not choose price. The focus was on service.
Before launching the service guarantee, Delta Dental’s legal council had searched the world and found no insurance company that had ever implemented a service guarantee.
The importance of service training
The comprehensive employee training before activating GOSE was a major reason for the company’s minimum guaranteed payout for non-compliance of merely $1,610 during the first nine months of 1990, Hunter reported. Delta budgeted $75,000 for this purpose! It had to call customers to get them to accept mistakes Delta Dental made.
Delta Dental realized increased sales and decreased expenses that paid back the cost of the service guarantee many times over, said Thomas Raffio while senior vice president of Delta Dental:
- Delta Dental of Massachusetts’ market share has increased from 10% to 50% since it started the service guarantee.
- In Massachusetts, 94% of accounts and 95% of dentists rated Delta Dental good or better in service quality.
- The barrier to entry is so high for their competition that competitors go on to other states.
With a 50% market share, few competitors are willing to match their service guarantee, record revenue and profits. I asked Robert Hunter, DMD, why other Delta Dental organizations don’t copy his customer service strategy. He said jealousy.
Only one other firm in the world successfully copied the service guarantee of Delta Dental Plan of Massachusetts: Northeast Delta Dental. And that’s only because Tom Raffio, one of the creators of the original service guarantee for Delta Dental of Massachusetts, became president and CEO of Northeast Delta Dental. He implemented 95% of the same service guarantee, to significant results:
- Northeast Delta Dental’s market share of the covered population in 2012 was 50% in Maine, 70% in New Hampshire and 60% in Vermont.
- Revenue in 2012 was $429,272,944, an increase of 31% from 2011's revenue of $295,880,000.
- Profits in 2012 were $7,641,230, compared to $7,674,000 in 2011.
- When Tom Raffio started the service guarantee, the company covered 275,000 people, now it covers more than 730,000.
- The company retained 100% of its largest purchasers (all three state accounts of Maine, New Hampshire and Vermont) and, typically, more than 95% of all other purchasers for the past 10 years.
- No competitor has copied its service guarantee. Most are looking for ways to work with Northeast Delta Dental.
- A year after the guarantee took effect, the company reported that cost savings averaged 15% (a 10% saving had been planned).
- Within 15 days after the Service Guarantee became effective, 98% of claims were processed (85% had been promised). That figure has risen to 90% processing within 15 days.
How you can succeed like Delta Dental
- Develop a service guarantee customer service strategy. The customer service strategy is the only competitive weapon you can use with competitors that will dramatically increase market share and rarely ever be duplicated. You will have a 5- to 10-year lead-time over your competition.
- Write a policy and communicate it to your customers. Even before customers benefit from the policy, their loyalty toward you may move up a notch — just because you’ve been considerate enough to write such a customer-oriented policy and tell them about it. However, you must follow through on your promises, or the customer fall-out will be a terrible thing to see.
- Invest in customer service training. In 2012, Northeast Delta Dental spent $762.48 per full-time employee on training, which was 1.17% of payroll. Each full-time person spent 17.77 hours in training.
If you want market dominance, market share and increased revenues and profits, I encourage you to master the customer service strategy. Most organizations today spend almost 100% of their money on getting new customers. Spend 5% on keeping them and you can have the same success as Northeast Delta Dental.
Photo Credit: The Ugly Duckling, Pasma