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December 18, 2014

From Soaring Corporate Profit to What's Wrong with the Entire U.S. economy

By Charles Hugh-Smith, OfTwoMinds blog

Will we ever tire of navigating the multiple layers of intermediaries between the customer and the provider, while corporate profits soar to unprecedented heights?

If we had to summarize what's wrong with Corporate America and the entire U.S. economy, we can start with all the intermediaries between the provider and the customer. There are a number of examples we're all familiar with.
One is healthcare, where a veritable phalanx of intermediaries filters the interactions between doctors and patients so heavily that the traditional practice of medicine has been nullified.

By traditional I mean the arrangement that was conventional a few short decades ago: you went to the doctor of your choice (typically, the same doctor your family used), he/she treated you, and you paid the doctor's bill in cash. Only hospitalization was covered by the minimal (and minimally limiting) healthcare insurance plans of the time.
The second example is home appliances purchased at a Big Box retailer. Here's the list of interactions between Corporate America and the customer:
1. Customer enters Big Box Store and is sold a high-margin appliance, unless customer insists on the sale item. Either way, the appliance was assembled in China for a few hundred bucks and shipped to the U.S. for a few more bucks. The difference between the low cost and the price the customer pays is gross profit for Corporate America.
2. Customer and salesperson both know the reliability of the appliance, regardless of brand or price, is low, so an extended warranty is an easy sale. The manufacturer's warranty is typically one year, and the extended warranty tacks on a couple years to the minimal manufacturer's warranty.
(Recall that not too long ago in America, any major appliance was expected to last a few decades, not a few years.)
3. Customer shells out $1,000 for the appliance and another $300 for the extended warranty, and a few more bucks for delivery.
4. Corporate America to customer: we're done with you, bucko. The delivery is subcontracted to another company, the extended warranty is handled by another company, and should the appliance fail during the manufacturer's warranty, the customer has to contact the manufacturer directly.
The only interaction retail Corporate America has with the customer is the initial sale. Everything after that is handled by other companies. So Corporate America has no interest in customer satisfaction or happiness after the sales experience.
5. Calls made to Corporate America--the Big Box retailer or the manufacturer--will be directed to somebody else. The job of taking care of the customer has been shunted to intermediaries that the customer cannot contact directly.
Compare this with the traditional arrangement between the retailer and the customer: whatever the problem, the retailer took care of the customer. If the appliance broke down, the retailer's repair crew would go out and fix it. The retailer was accountable to the customer all the way down the line; if there was a warranty covering the repair, the retailer handled that bureaucratic layer as part of their service.
6. The appliance fails two days after the manufacturer's warranty expires, i.e. one year after purchase. (True story.)
7. Customer calls Corporate America retailer. Response: we're done with you, bucko. Call the manufacturer or the extended warranty company.
8. Customer calls Corporate America manufacturer (or the U.S. office of a global appliance manufacturer). Response: Since your appliance is off warranty, the service call will be (insert outrageous fee): $99.99 (that's our special price for good customers, pal.) Parts will also be marked up triple from what you could buy them for on the Internet, and our labor charges are so high that the repair, even if it is modest in scope, will cost a third to a half of the original price of the appliance.
If the repair is serious, the cost might exceed the original purchase price a year earlier.
Stripped of phony solicitude, the manufacturer's response: we're done with you, bucko. You bought our appliance, but we're under no obligation to make you happy beyond the 365-day warranty period--and well, to be honest, we don't really care if you're happy with our service under warranty, either. Our repair people will get to you when they get to you, and there are plenty of loopholes in the warranty.
Here's the view from Corporate America: we can get these appliances assembled in Robotic Factory #2 (yes, the appliance was stamped with this phrase) in China for an absurdly low cost for an order of thousands of units, and if 10% of those fail within a year due to defective parts, that's just the cost of doing business.
We can grind the customer down with lousy service to the point that many will give up and not even pursue repair or replacement under warranty.
Since Americans have been trained to buy the lowest price, a.k.a. The Tyranny of Price, or the currently fad (over-hyped, overpriced) model, we don't care if they're happy or not. They'll buy the lowest cost appliance or the over-hyped brand next time anyway.
9. Customer calls the extended warranty provider. The extended warranty provider is in a distant state and contracts with a local firm to handle the repair. The customer cannot contact the repair outfit or person directly; everything must be handled through the extended warranty provider.
10. Two weeks later, the repairperson shows up, takes apart the appliance and presents the customer with a bill for $900 which must be paid before he can order parts. But I'm under the extended warranty, the customer says, and the repairperson shrugs. "That's not what the paperwork says." (True story.)
11. Customer calls back extended warranty provider and gets the paperwork straightened out. Boxes of parts start arriving shortly thereafter.
12. A different repairperson comes back in two more weeks, takes a look at the disassembled appliance and the parts that had arrived, and declares the repair will cost more than a new replacement appliance, so the customer should contact the extended warranty provider for a voucher to buy a new appliance.
13. The repairperson leaves the disassembled appliance and the parts. The customer has to call the extended warranty provider again to demand the broken appliance and the new parts be hauled off. Three weeks later, somebody shows up to haul off the useless appliance and the new parts.
14. Customer reads that corporate profits for the Big Box retailer and manufacturer just hit record highs, and has a seizure. Corporate America doesn't make money making the customer happy, beyond the few moments needed to collect $1,300 from him/her. That's how you reap record profits: make the sale and you're done with the customer.
Nobody is tasked with making the customer happy--that's some other intermediary's job. The customer is denied contact with the actual person who ends up with the job of making the customer happy--all communications must go through multiple corporate intermediaries, guaranteeing frustration and wasted time and money.
Will we ever tire of navigating the multiple layers of intermediaries between the customer and the provider, while corporate profits soar to unprecedented heights? The two dynamics are intimately linked: once we book the sale, we're done with customers. 

Courtesy Charles Hugh-Smith, OfTwoMinds blog

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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