Talking Through Service Costs

Service provider focuses on customer expectations and sets prices accordingly.

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Pricing a new service is tricky because it's hard to project service costs -- how often customers will call for support, or if they'll need features not in the contract, for example.

"It's not like buying a car, where you can see all the extras," says Alan Shusterman, CEO of $17-million CMG Health, in Owings Mills, Md., which packages mental-health care for insurance agencies and health-maintenance organizations.

Having underpriced once or twice, he now focuses on understanding customers' expectations. For CMG, that means helping customers distinguish its various products: a basic benefits package from one with the "extras" (more hospitals, big-name doctors, more information on treatment usage).

"We get the customer to explain exactly what his assumptions are," says Shusterman. " 'Do you expect to get this? Do you want to pay A or B?' " To help customers define their needs, CMG's salespeople bring in regional service administrators -- who work closely with the care providers -- to explain the nitty-gritty. CMG gets the customer to sign off on what's discussed, allowing later renegotiation if necessary.

CMG's approach lengthens the sales cycle, but only one of the company's 30 clients has canceled a contract on service grounds. And CMG has been profitable, while growing 3,381% from 1987 to 1991. -- Susan Greco

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