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The root cause.

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. Selling to builders and teaching them how to market different grades of carpet to home buyers cut down on the "cost of sales" incurred by carpet manufacturers and distributors. In addition, built-in carpeting could be amortized as part of buyers' mortgages, allowing buyers to afford better carpeting than if they had to purchase it separately Because the difference in mortgage payments is small when a buyer selects the best grade of carpet compared to a lower grade, home buyers typically order at least a mid-grade or better.

What can the EA profession learn from the carpet industry? Simply this: If we sell to the wrong customer, we will never overcome the price problem.

The rug industry never could have turned itself around by staying with the wrong customer, no matter how many regulations or rules it might have created (either to define a "quality" rug or exclude particular groups from calling their product a rug) or how many rug sellers it might have labeled unethical for selling an inferior product. Likewise, the EA profession will never turn itself around by relying on regulations, definitions, or ethical sanctions to solve its underlying problem.

The root cause of the downward pressure on prices for EA services has little to do with a lack of regulations, definitions, or ethics. The root cause is that many in the EA field are trying to sell to the wrong customer.

As long as the EA profession sees benefits managers and benefits consultants as its customers and packages its services as health care services, it will never reverse the price decline. Companies and consultants will always try to drive down the cost of health care services. In their eyes, the traditional EAP has become a commodity

The true customer for the EA profession is the workplace decision-maker who has responsibility to produce value from the organization's investment in its human assets. Only when the EA profession understands its essence as applying behavioral expertise in the workplace to build the value of human capital will it begin to address the needs of this customer. Only when the EA profession can demonstrate how purchasing its expertise can be profitable for this customer will it reverse the downward price trend.

This is not a time to be defensive or reactive. This is a time to be thoughtful and creative. We have the knowledge and ability Let's make it happen.

John Maynard, Ph.D., CEAP

John Maynard is chief executive officer of the Employee Assistance Professionals Association. Contact him by e-mail at ceo@eap-association.org.
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Title Annotation:The View from Here; prices and budgets for employee assistance services
Author:Maynard, John
Publication:The Journal of Employee Assistance
Geographic Code:1USA
Date:Oct 1, 2005
Words:860
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