Has Traditional Customer Service Become A Crutch For Legacy Products?

Many of today’s legacy companies, including those that have been around for 50 or even 100 years, face severe margin pressures, an urgent need to go to market with new offerings and more demanding customer expectations. Plugging product gaps with added customer service expenses is becoming a luxury many cannot afford. With the advent of the cloud and developments in AI and automation, the barrier to entry to markets is lower, increasing competition and making it more important for products to be optimized rather than lean on traditional customer service channels as a crutch.

Giving up on customer experience is certainly not an option for executives, either. A report published by the Temkin Group found that “a moderate increase in CX generates an average revenue increase of $823 million over three years for a company with $1 billion in annual revenues.” For a long time, these types of statistics served as an excuse for companies to offer a burgeoning ocean of customer service representatives in call centers where the whim of every customer could be addressed. The customer service side of customer experience was associated with an “issue” — subpar-performing products that trigger a customer problem or a mundane task that needs to get done. For example, the cable system goes out or an insurance claim is denied.

But for today’s consumer, calling the call center has shifted from annoying to unacceptable. The lines are blurring like never before, and product experience and customer experience are becoming one and the same. Customer experience — the aggregation of all touch points with a brand — overlaps with and is heavily influenced by how consumers actually interact with the product itself.

Legacy Vs. Startup Mentality

Companies need to cultivate product suites that provide customers with a seamless journey. Yet large legacy players like State Farm still have 19,000 people answering telephones in call centers, with each call costing $6 to $15 per industry average. Contrast State Farm with four-year-old Lemonade Insurance, which has received $480 million in venture capital because of its business model that allows customers to avoid long telephone wait times and even human interaction. Lemonade’s conversational AI quickly and easily provides a customer with a homeowners or rental insurance quote. The privately held company has effectively merged the product and customer experience.

State Farm and Lemonade have clashed in a classic “old vs. new” battle, and similar market dynamics are in play around the world. New ventures are following suit in disrupting legacy products that are addicted to leaning on their call centers. Robinhood, a zero-commission equity trading app, has won design awards for transforming previous experiences, trading in clunky web portals for seamless thumb swipes so even the most novice investor feels comfortable operating without human interaction. Via, the on-demand transit service, engages with riders through in-app messaging in the leadup to each ride so that direct-to-consumer engagement surrounds the product experience.

Lemonade, Robinhood and Via don’t run 9-to-5 hours. They are “always on.” This is fast becoming a challenge for legacy companies that will require massive amounts of resources to modernize their systems while also reengineering the customer journey for traditional customer service pain points such as technical troubleshooting or authorizations for account transfers.

The urgency for these adaptations by legacy companies only increases as each new always-on venture comes to market, adding further competitive pressures to industries that previously might have gotten away with suboptimal products.

Innovating With A Business Impact

In a race to keep up with shifting consumer expectations over the past three years, many legacy companies scrambled to introduce chatbots to their websites. Few of these solutions provided actual utility, and most just provided innovation theater. Now, some legacy companies are moving to more advanced technologies to simulate human-to-human communication at scale while providing transactional functionality as well as proactive care.

This approach has become one of the most powerful mechanisms for large enterprises to keep up with startups, as a study conducted by American Express found that 63% of consumers say their go-to channel for simple customer support inquiries is a digital self-service tool. This consumer preference will increase if enterprises can implement these self-service conversational approaches effectively, freeing up more funds to invest in their products.

In preparing for a transition from traditional customer service methods to more advanced technologies, innovation can come from inside and out. Rather than simply viewing startups as competitors, I believe legacy companies should embrace opportunities to collaborate with them. These partnerships can produce the most promising opportunities to apply emerging solutions to problems at scale.

For this to work, however, legacy companies should ensure they’re treating startups as partners. Some of the most exciting new product companies might not appear as polished as traditional suppliers of legacy companies, and that’s OK. This mindset shift should ultimately pay dividends for customers and employees who will get new exposure to tip-of-the-spear ideas.

As the money keeps pumping into cloud-native, digital-first products, executives at legacy companies need to take note. Venture capitalists are investing record capital into AI, and many of the companies receiving this backing have automation powering the core of their products. Meanwhile, according to a report from Constellation Research via Capgemini Consulting, “Since 2000, 52% of companies in the Fortune 500 have either gone bankrupt, been acquired or ceased to exist;” many simply failed to keep up with consumer demands.

As executives strive to increase shareholder value, their successes are most likely to be determined by their ability to deliver quality, always-on products, not by the number of seats in their call centers.

This article was originally published in Forbes.