In many industries, companies use dealers or support organizations to deliver products and services. Carmakers rely on independent dealerships, insurance companies have external agents, and cable television companies commonly use private contractors to do installations and service.
Such cascaded models, however, make it difficult to remain customer oriented. The customer may come first in the eyes of the cable company, but the third-party technician installing a box in your home might not see it that way. They're usually more focused on those who pay them rather than those who expect quick, competent, and friendly service. That's one of the reasons the net promoter score -- a common metric of customer satisfaction -- ranks cable companies near the bottom.
A cascaded service models is where good intentions too often meet awful execution. I recently experienced this first-hand when trying to get our home warranty company to repair a broken gas line at our house. A relatively straightforward repair took 45 days. It's not that the company didn't want to get things right. Let's just say things didn't go according to plan.
My home warrantee company is large and one of a number of such firms offering contracts that promise to quickly repair broken electrical wiring, gas fuel lines, plumbing, cooling and heating systems. Depending on where you live and the type of coverage (gas versus plumbing, say), costs range from $3 to $6 a month. Combination plans allow you to mix and match coverage.
Most companies promise customer service 24/7, no deductibles, and a one-year guarantee on repairs if they are handled by an approved subcontractor. Although repair warrantee plans for appliances have been common for quite some time , consumers care even more about their critical systems such as water, heat, gas, or toilets. Indeed, such failures can cause a genuine emergency and repair costs can quickly exceed $1,000. I'm an academic and business consultant, not a plumber, so this protection appealed to me (and even more to my wife).
A Good Idea in Theory
The logic of home warrantees is simple: Homeowners shift the financial risks of system failure to the insurer, for a premium. This lets homeowners avoid large losses while securing immediate access to repair companies vetted by the insurer. The insurer earns money by spreading that risk. Moreover, the insurer can arrange better prices by working with multiple contractors. In return, you give up control over how quickly and well the home emergency is fixed.
And that can lead to trouble, as we recently experienced. Our warrantee company was not equipped to handle a slightly out of the ordinary case. Result: an unhappy customer and the company overpaying for inefficient and slow repairs performed by its own contractor. A lose-lose proposition all around.
Our case concerned the repair of a gas pipeline network, running above and below ground, that provided natural gas to a kitchen stove, a pool heater, and a back-up generator--which we need in hurricane-prone Florida. One pipe section started to leak gas, which we could smell outside. We called the municipal gas company, which dispatched a team quickly to turn off all of our gas until the leaks were properly fixed.
And they were, a month and a half later.
Clearly, having to wait for more than six weeks to repair the gas pipe to our kitchen, plus some other essential appliances, qualifies as bad customer service. The twists and turns of our sad story involve poor communications, improper diagnosis upfront, overworked subs, unfamiliarity with local codes, and multiple failures trying to fix things.
A Strategic Perspective
How did our insurer manage to both provide lousy service and overpay for repairs it covered? Intermediaries. The process of communicating with the insurer, which in turn communicated with the contractor, was tedious because it was multilayered. Different individuals answered at the insurer's call center (possibly run by an outsourcing company) and none would provide callback numbers. Although the live phone interactions were usually courteous and pleasant, nobody owned our problem--at least not until the very end, when bigger, costlier issues arose. At that point, we were assigned a customer advocate, who listened patiently. But she lacked authority to do anything and didn't seem to own the problem either.
National companies can have problems executing locally. In our case, the company and its contractors seemed unfamiliar with changes to local building codes regarding gas regulators, the size of the pipelines, and connections to a new meter. To resolve this, I had to ask the insurer's regional supervisor, the county's public utility supervisor, and the head of the contracting firm for an on-site meeting. We needed to sort out issues of jurisdiction, scope of coverage, and repair standards that needed to be met. It was clear to me that the contractor wanted to minimize any additional work and never fully grasped the scope of the issues that need to be addressed. It was also clear that our insurer had little knowledge about the faulty repair work already done, the multiple times the repairs failed the city's gas pressure tests, or the contractor's general incompetence.
As a consequence, the insurer paid about $8,000, or more than double what the repairs really should have cost when we checked with private contractors ourselves. And we were forced to go far too long before having natural gas again for our kitchen and other appliances, while at the same time maxing out on our total coverage allowed for the year.
Our case demonstrates how difficult it can be to institute a truly customer-centric business model remotely. The starting point has to be a deep understanding the customer's situation--and not just the pain points. If only service providers could staple themselves to the work order from start to finish, they would realize how many bureaucratic hurdles the customer has to negotiate to get good answers or service. Since the insurer plays a volume game in which repairs are handled through a network of local contractors, anything out of the ordinary may involve problems the insurer never learns about in a timely manner. The company thinks it is providing mass customization, with everything running smoothly behind the curtain, and customers getting personalized attention.
But the more intermediaries you insert, the more that idea breaks down, as it did in our case and presumably many others. In short, if you buy a home warrantee policy, understand that you really lose control of the repair process once it gets started. Still, if you're on a tight budget or unable to easily handle home emergencies yourself, teaming up with a credible repair insurer is often a decent solution. Although by no means a perfect one.