Front book vs back book pricing: The service marketing conundrum and what it means for service designersI'm currently working on a very exciting and complex project to deliver a suite of new digital experiences for customers of one of the UK's biggest media companies. The programme of work is very detailed and hands on, something I'm really enjoying (and one of the reasons I took the job with EMC Consulting), and it throws up new challenges every day.
Last week a particular issue that we're grappling with caught my attention that has big implications for service design - the conundrum of 'front book' vs 'back book' pricing.
Above: A classic front book offer - who'd have ever thought they'd give 'em away!
This is a great example for illustrating the differences between designing for service-centric organisations as compared to designing for product-centric organisations, and it fits nicely with the insight (that I attribute to my old boss Joe Heapy that service design is really an organisational challenge, not an aesthetic one.
In this post I'm going to:
- explain a bit about front book and back book pricing;
- explain why it should be of interest to service designers;
- outline the specific challenge that we have as user experience designers on this project, and;
- conclude with some thoughts on how to try and avoid making front book and back book price differences impact on the customer experience.
As always, I very much welcome your comments here and on twitter.
What is front book vs back book?
Front book vs back book prices is a very simple concept, but one that leads to lots of complexity. Essentially, front book prices are the prices of services available to new customers, and back book prices are all the prices that were previously available to customers, stretching back over time.
The front book is very simple - its just a list of the current prices. The back book, however, can be huge and complicated - although it is still just a list. It stretches back in time over the entire period in which the service has been offered, and contains a list of every offer, bundle, package and price that every customer has signed up to. Keeping up to date back books is absolutely vital where customers sign a contract, but it is still important when customers by products and services 'off the shelf' as they may still want support later down the line.
Above: A simple product portfolio...
As a rule of thumb, in a competitive market, you would expect front book prices to slowly go down over time (or to incorporate more features, extras, auxiliary services and so on). This means that, and I'm generalising massively here, existing customers of a service are generally paying more than new customers for the same benefits that the service provides them.
A good example of this that most people will be familiar are mobile phone contracts - every time customers get a new contract in the UK (which has a very competitive mobile market) they expect more minutes, more texts, and a better handset than they had 12 months ago, for less money.
Above: ...no even the milkman has these service design challenges these days
Why does it matter to service designers?
The difference between what new customers pay and what old customers pay doesn't really matter if you are selling services as if they were products 'off the shelf' - in other words if you are just trying to get customers to buy once.
If you take the attitude that once the customer has taken the product home, or signed on the line for the 12 month contract, you don't want to have anything to do with them again then you're pretty much free to change and manipulate prices as much as you want to maximise sales, as all your customers care about is what they are paying for the product at the point that they buy it.
However, this attitude towards the customer falls apart when you're trying to sell and provide products that are consumed over time and involve repeated contact with the customer - i.e where you want to build a relationship with the customer.
In their article 'reinventing mortgages' Chris Downs and Ben Reason of service design consultancy live|work explain how this sales oriented, product mindset just doesn't create long term value for financial service organisations:
"Banks focus relentlessly on winning new customers with the marketing strategies of soap and beer companies. We are promised that we can take a financial product home today. Worse, we are bribed with cash-back offers and gifts. These discounts and offers mean that the banks have to make their money by putting the rates up later.
Savvy customers then shop around, leaving when they spot the next great deal. The result is we have no meaningful relationship with the bank and the bank has no incentive to invest in us as customers. It is a vicious circle. Little wonder that the Norwegian insurance and banking firm Gjensidige found that over 50% of customers lack trust in financial service companies."
Devising strategies for the pricing of your portfolio of services is complex. What you charge is intimately connected to what your portfolio actually offers, what it will offer in the future (your service roadmap) and what the rest of the market is doing.
I don't pretend to have a deep knowledge of how to develop these strategies in detail, but there are some obvious drivers behind front book pricing creation and back book pricing management that I think are worth highlighting, and that explain some of the tensions and difficulties in balancing innovation with clarity.
Firstly, marketing managers working in sales want to create novelty and differentiation in the market in order to create sales, so they devise new offerings, positioning and campaigns that rename services and products, combining elements into new propositions to entice customers to buy. However, the more often they redesign the front book, the more complex it makes the back book. Thus, service innovation is can actually be a headache for any service designers looking to improve the experience for back book customers.
Secondly, there is strong pressure from 'the business' (a mythical money minded part of the organisation that all the other teams always talk about), to maintain margins, and not to give up more profitable customers. This means that customers on back book prices tend not to be able to move to front book prices easily, as there is pressure from the business to get as much money out of customers as possible for as long as possible. This is a strategy that often exploits ignorance and apathy amongst customers, and encourages service designers and managers to treat new and existing customers differently - often, it seems, treating existing, loyal customer worse!
Thirdly, there is confusion about who should take responsibility for existing customers who want to change, manage and upgrade services. Should customer services, or care teams look after them? Or should it be sales groups? This doesn't matter to customers of course, but it does create organisational challenge for the business.
Finally, with a frequently changing front book, there is of course a constant confusion in the mind of customers, new and old, about what is the best service for them. Just thinking about choosing and buying mobile phone contracts, mortgages, broadband and energy services and so on makes me stressed out that I'm not currently rationally maximising myself.
All these challenges, plus a host of issues unique to the client we're working for, have come together in a perfect storm of (exciting) complexity in the project we're working on.
Our challenge - making the back book visible
So, now we get to the really complicated bit from a design point of view! Our challenge on the project I'm working on is to create a web based tool that enables existing customers to manage their service packages and extras, and upgrade and modify their choices. This means creating an interface that links the customers back book package details with the current front book service portfolio and prices.
No mean feat when you think that there's 63 potential front book configurations alone - I currently don't know how many back book configurations there are, but it will be a lot more than 63 if you think that marketing managers change the front book roughly every quarter, introduce several major new products throughout the year, promote seasonal offers and incentives and that the company has been selling these services for over a decade.
Above: Where the action is at the moment
In the past, the company has only really enabled existing customers to upgrade and manage their packages through the call centre for obvious reasons - firstly the call centre agents can act like sales people and try and persuade customers to buy more, secondly the call agents can mask the complexity and simply offer customers bundles, and make suggestions.
Of course, the design strategist in me says, 'just make the whole portfolio much simpler', but of course when you're trying to actually get something done, your realise that it just ain't that simple! There's a lot of vested interest in maintaining the back book (not to mention legal commitments), and marketing managers aren't going to stop coming up with new campaigns, offers, offerings and pricing strategies for the front book.
How will we solve the problem and design something that customers love to use?
I can't go into detail about the solution we're designing (partly because we're designing it right now!), although I should be able to revisit this article and link to the end result in about four months or so. However, I can discuss the approach to designing the solution.
Firstly, we have the classic challenge of having a lot of existing stuff that's already been designed that sets up the expectation that we'll reuse it. We have a 'tactical' release of the new tool, a tool described in the 'vision' programme, an enormous pile of business requirements and an associated tool that's already been designed for another stream on our project that we need to think about from a UI perspective. Thorny!
How to cut through this complexity? Unsurprisingly and rather un-excitingly we're going to use a User Centred Design process (delivered via a project level Agile methodology) that goes back to basics, and starts by figuring out what users actually do at the moment. Fortunately, as most of the processes contained within the tool are currently handled by the call centre we have a wealth of information about what customers are saying and doing.
Above: The design bit
From the insights gathered in the call centre we'll begin to develop some clear, user centred design principles aligned to some clear, realistic use cases to help govern decision making. We'll then start design work to sketch out journeys, scamps and concepts, process flows and so on, all the time working closely with our business analysts and technical architects to make sure our ideas are financially and technically feasible. Once we have the UX nailed the visual designers and developers can really get stuck in (although they'll be involved earlier of course). Standard stuff for anyone who's worked on software development projects - The challenge, as always, is to deliver a solution that actually works, on time.
In the process of doing this I hope to start talking more with the propositions and pricing teams about the current product portfolio and how we can use this project to support move towards a better front and back book relationship over time.
Some ideas to help service marketing get along well with service design
Taking a step back from this specific project, below I've outlined some of the lessons I'm drawing from this project that are relevant for the 'service designers' working on the pricing strategies, product and service roadmaps and marketing campaigns that shape the front and back book of a companies portfolio of propositions.
1. Design great services (and prices)
This seems trite, but the reason that marketing managers have to come up with wacky promotions, discounts and offers that end up creating front and back book headaches is because the services they are selling just aren't that useful, usable or desirable. The best thing that an organisation can do therefore is make sure that they are offering stuff that customers really want. Easy to say of course.
Prices and pricing structures are amongst the most important bits of services to design, but, in terms of the kinds of deliverables that I've seen from service design consultancies, I would say that the thing that is always missing is prices! This is partly because designers don't like numbers, but also because the client doesn't always like to reveal very sensitive information about pricing. But, if prices aren't designed and its left 'up to the business' it risks undoing all the good proposition and service design work as customers end up looking at a confusing front book price list and an even more complex back book.
2. Remember that customers experience and view services as part of a portfolio
Beyond designing great services that customers want, if you are working in an organisation that offers more than one service its really important that new service development occurs at a service and portfolio level - in other words don't conduct innovation in service delivery silos, and make sure there is a clear, portfolio level roadmap in place for your services, as well as individual roadmaps.
Your service portfolio is, to a large extent, how customers will perceive your company as a whole and it represents your story to customers - one that stretches back in time from the current front book offerings to the back book services that they are using. Make sure it makes sense as a journey - at the very least this provides clear upgrade paths for customers, and at the very best it creates a shared sense of forward movement between the brand and the customer. Think of the evolution of the Apple product and service portfolio. There you go.
3. Keep speaking to customers all the time
One of the great things about using a design-led approach to improving services is the very strong focus on users and their requirements as the principle anchor for decision making. Engaging users in innovation efforts at an early stage will, at the very least, ensure that overly complex ideas get culled quickly. There are of course many other benefits to staying close to the customer, but making sure that they are not confused by your portfolio is vital.
4. Keep it simple and focused
Simple and clear is easy to say and very, very hard to do. However, in a complex market like media and communications, simplicity, combined with great services cuts through quickly. In terms of an evolving portfolio of offerings, this of course means having clear principles and sticking to them - very clear service lines, with simple prices and a clear separation (ideally at the price level) between core services and any extras.
The best result for customers in terms of front and back book would, in my opinion, generally be just one price for everyone. In other words, existing customers pay whatever new customers are paying. Simple.
As mentioned above, messing about with prices, reducing them, re-configuring bundles and options and offering incentives like 'first three months free' and so forth and then making a massive fuss about it in advertising campaigns confuses new customers and irritates existing customers so they leave and you have to spend even more money reacquiring them - and it slowly makes your back book more and more complex to manage.
It also has a secondary negative impact on new customers, as provided they have got beyond any initial confusion, they are likely to wait before buying and hold out for the next, better deal.
Finally, the worst thing about complex, offer driven sales strategies and portfolios is of course that they encourage customers to focus on prices - and they build an expectation that prices will always be going down.
5. Build a strong brand to help protect margins and value
Brand is a tricky thing for service designers to engage with - it represents a tangled mess of everything that the company does and is perceived as doing. Thus, a strong brand is built on repeated great products and services (delivered through great innovation and operations), great marketing and great customer support, so saying 'build a strong brand' is like saying 'build a strong company'. It's a bit trite, and kind of what service design is all about too.
However, its worth reflecting on as a strong brand has two clear links to front and back book. Firstly, the more you mess with the front and back book and make changes that confuse the portfolio story or offer price reductions the more you erode the perception of the brand as something for customers to get behind and believe in. The flip side to this is that, the stronger your brand in the minds of customers, the more you can protect margins and prices and reduce the need for front book 'innovation' (i.e special offers, discounts and so on.)
6. Remember that service design is really an organisational challenge, which means you need to keep talking across the business as much as possible and keep sticking to your user centred guns!
This is a nice one to end on. The principle challenge in tidying up the front and back is not in coming up with a fancy framework for customers but in getting everyone that works in the business to agree to a common approach. I'll let you know how it goes! January 20th, 2010 / Tags: servicedesign, example, servicemarketing / Trackback / Comments