At Boot camp we do a session on the power of guarantees, it’s one of the 18 profit-driving leverage points we teach. My favorite example of the articulation of a powerful guarantee was that created by Alvin “Bugs” Burger for his business, Bugs Burger Bug Killers (BBBK). Although we discuss this service guarantee in the context of reversing a customer’s buying risk its real value rests with its broader strategic impact.
The goal of BBBK was to eliminate rodents and insects from hotels, restaurants and other premises that most pest exterminators who offered “pest control” services had found difficult or impossible to serve.
Alvin was not interested in “pest control” he wanted to kill the bastards at a premium price that was 4 to 6 times higher than his competitors. He realized something his competitors didn’t – the cost of a pest extermination process not working for a prestigious hotel, health service provider or restaurant for example was always higher than the price paid for the extermination service. With that in mind he created a strategy that was summarized in this service guarantee….
In return for submitting to, and paying for,a complete clean out prior to the contract, Bugs Burger would, if a client were cited by a local health department:
(1) pay any fine incurred,
(2) pay the client for all lost profits due to being shut down plus $5,000 in damages for lost reputation,
(3) provide the next 6 months of service free or pay for one year’s service by another exterminator of the customer’s choice and … for the customers of a client who might sight a pest, BBBK sent them letters of apology and coupons for free services or paid for a night at the hotel they stayed at if a hotel was the client of BBBK.
This is the Guarantee as shown on the home page of the BBBK website.
Let’s take a moment to look at the strategic implications of this guarantee.
- It immediately differentiated BBBK from its competitors (unless of course they were able and willing to match it, which they weren’t) – differentiation is the foundation of good strategy.
- The guarantee is so strong people cannot help believing the underlying value proposition – BBBK are saying we will eliminate bugs or it costs us big time! Giving prospects a real reason to believe is a critical concept in effective marketing.
- It demanded the successful implementation of processes that actually did eliminate pests the vast majority of the time – his average monthly payout on the guarantee was only $2,000 although at the time his revenue was more than $2.6 million per month. This resulted in higher-than-average costs for the industry but that was more than compensated for by the significantly higher price.
- It represents a price-value proposition that does not appeal to every potential consumer of pest management services i.e. customer selection is a key element of the business strategy. Burger had a very clear understanding of where he intended to place his business on the industry service chain. He focused on customers who had a lot to lose as result of bug infestation and therefore had a high cost if the service failed.
- Because the bug elimination process requires a high degree of skill and attention it called for a rigorous team member selection process that resulted in extremely high loyalty, technical capability and responsibility as well as pride in their work and their company (these people viewed themselves as members of a bug-killing-elite.) Service agent turnover was 3% compared with an pest control industry average of 60%! This is a HUGE driver of sustainable profitability. The premium operating margin also gave BBBK the capacity to pay premium compensation and training for the “right” people.
- The complete “fit” between all elements of the strategy give it implementation integrity. This enables it to work in a way that the service promise is achieved and calls on the guarantee are minimized. Namely, premium prices; use of superior, more expensive materials; loyal, skilled, highly trained, empowered and engaged operators who take pride in seeing themselves as being members of a “bug-killing-elite”; systemized processes that include clearly defined limits within which team members can act but nonetheless wide latitude to properly serve customers; a clear understanding of the customers the company targets, a strong customer satisfaction feedback loop and associated learning protocol; team members are rewarded on the basis of critical result areas (customer satisfaction and customer retention). The point here is that any organization could publish that guarantee but unless it has all the pieces in place, and working, it will surely fail.
Although this is a bug killing company it serves to illustrate three very important points about creating any successful business. First, there needs to be a strategy in place – one built on a clearly defined customer value proposition for a clearly defined customer (that gives you the opportunity to create premium value either through volume or price or both); second, there needs to be a set of activities that together deliver on your customer value proposition at a cost that that competitors can’t (or don’t want to) easily replicate (that gives you the opportunity to achieve sustainable competitive advantage); and finally, you need to be able to stay focused on those activities and not get distracted by other “opportunities” that always pop up. By staying focused you are able to allow your operational initiatives to evolve into a workable successful “whole”. It is rare for a successful strategy to emerge right out of the gate — it is an evolutionary process of doing, failing, learning, refining, doing etc. etc. and over time you figure it out.
BBBK passes all the tests of a good strategy which are:
- A unique value proposition – are you offering value to a clearly defined set of customers at the right relative price (relative in this context means relative to your rivals’ prices and relative to your cost structure)?
- A tailored value chain – do the activities you have in place deliver your value proposition in a way that is different from those of your rivals?
- Trade-offs – are you clear on what you don’t and won’t do so that you can focus on what you can be great at?
- Activity fit – do the activities in your value delivery chain fit together synergisticly so that they complement and enhance their respective impact on the value created for customers?
- Continuity – is the essential core of your strategy stable so that you’re able to achieve evolutionary process improvement and tailor your delivery processes to accommodate changing environmental circumstances?
And now here’s a test for you … how does your firm’s strategy (and your clients’ strategies) line up against this 5-point test?