In this article I want to explore the idea such as “Opportunity Cost” and how can it be apply in the service world.
Had you gone to a store to buy a Bose music system and once you are there ready to buy a voice starts telling you “are you sure you want to spend this amount of money? Do you really needed?” Maybe some of you can relate others might replace the Bose system for a car, a house or something out of your price range, but you surely want it.
The experience salesperson will notice this mood change and rapidly will apply a technique called “Opportunity Cost.” At this point the salesperson might gage how far to push you into the buy, but will provide some offers that you will provide the sense of saving money. He/she will continue to tell you “instead of getting this, why don’t you consider that (cheaper) and spend X (the difference) in accessories.”
Without realizing it you might spend the same amount in the store but doesn’t it feel that you save money because your hands are fuller?
Now that I explain the idea, let us see how to best apply it in the service business.
Case study, not so far from today’s real world.
I am the manager of this small department in an organization that serves as consultants to the enterprise in Continuous Improvement. We specialized in methodologies like Six Sigma and Lean that focuses in problem solving, providing a culture change to accept and sustain Continuous Improvements, and building up skills capabilities in this topic.
Going back to the intention of the article: “How do I implement the idea of ‘Opportunity Cost’ when selling my organization and its services?”
First I would start with understanding what is my menu. I would recommend to provide some options (for example): the premium, the value, the basic, and the customized package.
- Premium Package
- Structure Lean Deployment
Here we invest in creating a Continuous Improvement Culture throughout the organization. This will allow for a sustainable, engage and knowledgeable culture that will modify, create and challenge processes to make them effective and efficient. The form of payment is measure in commitment. In this package the department is in for the long haul. We ask for Value Stream Managers, time and resources to learn and develop the Continuous Improvement skills.
- Value Package
- Quick Wins
In this package we provide the organization our support to participate in a Kaizen event or similar. The commitment in this package will be intensive but for a short amount of time, normally less than 2 month, most customers not ready for a dedicated Lean deployment would select this package. This package will provide the customer with the support and leadership from the experts and at the same time they will be acquiring some knowledge as the customer most provide a leader and co-leader to lead by the guidance of a Lean Master.
- Basic Package
- Facilitation
One of the abilities of the experts is the ability to facilitate and guide a group of people with different personality through a session to arrive at a common goal. In order to do this they use Lean Six Sigma, Project Management or Change Management tool. This type of session are less than a day long and have very little pre-work. It is important to note that in this package the commitment from the team of experts is minimal, no pre-work and no post-work. With that being said the more the customer is involve the most valuable and actionable the session will be.
Customized Package
- Catch all bucket
This package is consider as the catch all bucket. This is the package could be a 3-6 month project, a dedicated resource in a remote assignment and may others. Due to the talent pool acquired you will be ask from time to time to share this resource with the rest of the organization where needs arises. It is important to provide the customer with options and accept to this package as a last resort.
Now that we discuss the opportunity cost, let us rank the Price and the Cost from 0 to 100.
| Package | Customer Price (Commitment) | Team Cost (Resource) |
| Premium | 100 | 100 |
| Value | 50 | 25 |
| Basic | 25 | 10 |
| Customize | 35 | 100 |
I will not do the math but if you subtract the commitment from the resource you will see that the “profit” varies but you will notice that the most risqué category is the customize package as you and your team are more prone to spend and dedicate more time than the customer you are serving.
The hardest part is done. Quantifying the effort and benefits of your service. Now you can prioritized and work and offer the best benefit for your customer.
If you want to balance your scorecard, I would add a customer scorecard for internal use only. This scorecard should reflect if the expectation and commitment were met from the customer. The intention would be to understand what offering is the customer ready for.
Using this tools you can optimized and be able to sell the appropriate service to your customer. The icing on the cake is that you would be setting yourself and your team for success as you will ensure that the customer can provide the right level of commitment.
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