The Root Cause

Article excerpt

The relentless downward pressure on prices and budgets for employee assistance services is a serious concern for many in our profession. Each week brings more stories of how external EA providers are forced to lower prices to win new business or retain existing clients. Managers of internal programs say they are under increasing pressure to justify their budgets in the face of the considerable cost savings (as touted by benefits consultants) to be captured by outsourcing EA services.

Some have framed this price erosion as an ethical issue; others have seen regulation as the answer. It may be more productive to try to understand the problem--and its root cause--more completely before reacting to the most obvious manifestation of the problem.

The experience of the carpet industry, while seemingly very different from the EA profession, can offer us a useful lesson. From the beginning of the 20th century, rug and carpet manufacturers promoted their products as among the least expensive and most effective ways to improve the appearance and comfort of a home. While true, this message was not sufficient to stop the steady, long-term, and apparently irreversible decline of the industry. In the first half of the century, most homes had no more than a moderately priced rug in their living room.

Today, even the least expensive homes typically have wall-to-wall carpeting in most rooms. How did the carpet industry turn itself around? The carpet industry achieved its success not by trying to regulate rug prices or challenge those who sold rugs less expensively, but by thinking more carefully about who its real customers are and what would motivate them.

Traditionally, rug manufacturers had defined their customers as homeowners and particularly families buying their first home. But families buying a home, especially first-time buyers, seldom have much money left over for luxuries. If they buy a rug at all, they often look for the least expensive one that will get the job done. The industry realized that it would have to appeal to a different customer--namely, the mass home builder.

If the carpet industry could demonstrate to the commercial builder that incorporating carpet into new homes at the time of building could be profitable, it would have a significant new customer. Demonstrating potential profitability to builders required the carpet industry to switch from primarily selling individual rugs to selling wall-to-wall carpeting. In a traditional non-carpeted home, builders had to lay expensive finished floors; with wall-to-wall carpeting, builders could lay carpet over unfinished flooring, resulting in a more appealing home at a lower cost.

The carpet industry's shift in its primary customer group led to important advantages. …