Volume 9, Issue 1 - January/February 2007

New Customized Offer Program

Bob Bischoff Talks About State Farm's

AGRR recently spoke with Bob Bischoff, national glass manager for State Farm Insurance Companies, concerning the company’s Customized Offer program, which was announced at the Auto Glass Replacement Safety Standards (AGRSS) Conference in Las Vegas in November.

: Can you explain your new Customized Offer program for us?

BB: Customized Offer is a tool that allows participating glass companies to submit their own customized offer for pricing and allows them to compete for the non-choice work—those situations in which a State Farm policyholder calls LYNX and does not know where they want to go. However, shops need to realize that the Customized Offer applies to all the jobs they do for State Farm policyholders.

AGRR: In other words, if someone makes you a customized offer, all the work they do for State Farm is at this price, regardless of whether they are the shop of choice or not.

BB: That’s correct. For example, depending on what market they’re in, market 1 where our baseline pricing is 15 percent off, they would need to make a minimum of 2 points better than that baseline pricing. That would then be 17 percent off. In a market 2, if they are 2 percent above NAGS as the baseline, they would have to go to 0 or no percent above premium. The offer they are making to us allows their name to come up more often on the rotation, depending on what other shops make a customized offer and the market forces whether they can better compete for that, but the offer they are making does apply to both choice and non-choice work. When the customer calls in and knows he or she wants a particular glass shop, the price that would be paid would be the baseline offer if no customized offer is made or the customized offer if the shop has a customized offer. 

AGRR: What is the goal of the 
program?

BB: I’m not sure I would phrase it that there are goals to the program, but we see it as an important part of the market driving the competition that is going to take place or not take place. A shop does not have to make a customized offer. It is voluntary but it allows a shop if it so chooses to compete for that non-choice work. We like the fact that it is really market driven. 

AGRR: This means that for the glass shops they can come up more frequently on the State Farm rotation at a fixed price which they have set?

BB: Exactly.

AGRR: Is there any other aspect of this that a glass shop needs to take into account when it is making a customized offer?

BB: Consumer choice is always going to be honored whether or not a shop makes the decision to make a customized offer. When a policyholder calls LYNX, one of the first questions asked is if they have a shop selected. If the insured says yes, we work with that shop as best we can. If they do not have a shop selected, we ask if they want our assistance in knowing what shops are available and LYNX provides the names of at least three shops. It’s still the insured who makes the decision. Another point is that with any customized offer that is made there is a period of 60 days that that customized offer would apply. What we’re not promoting is a shop making an offer, hypothetically, of 20 percent off in market 1 and then the next day going to 22 or 18 or retracting their offer. They need to make sure that the offer they are making is one they can stand behind for at least 60 days.

AGRR: Will shops have any idea of what competitive offers have been made?

BB: No, they would not. We consider offers to be confidential information. We don’t think shops would want their competitors to know whether they made a customized offer and what that percentage would be. This is going to be completely market driven. As Chris Umble of LYNX explained at the AGRSS Conference, we’re going to look at a given market, and on a case-by-case basis. For example, a customer calls in somewhere in Virginia, assuming the insured is looking for assistance, we’re going to look at the shops there. Let’s say hypothetically it’s a 10-shop market area, we’re going to look at the number of shops within 10 percent of the most competitive customized offer. For example, if one shop is 25 percent off in market 1 and another shop is 24 percent off and another 17 percent—I believe that would fall under the 10 percent—those first two shops’ names would always be given as part of the three choices to the policyholder and then any shops that are outside the 10 percent, if they did make a customized offer, would rotate through that last spot. So the insured is always going to be given three shops and it may or may not be a shop that has made a customized offer. It depends on who has made a customized offer. 

AGRR: So if you had a situation in which two shops had made a customized offer within 10 points of each other and other shops that had made customized offers that were not within 10 percent of those, the first two names would be given and the other customized offer shops would rotate. And if you had a situation in which only two shops in a market had made a customized offer, then the shops which had not made customized offers would rotate in the third spot?

BB: That is correct. Let me add two other scenarios. In a 10-shop market where we’ve had four shops make a customized offer, and all four of those are within 10 points of each other, what will happen is that those four will all be treated equally. Even though one of those might be 18 percent off in market 1 and the other three are at 17 percent off, all four are treated equally. The 18 would not come up every time; the four would rotate through. So, in the case of a policyholder not having a choice, three of the four shops would be given and the one chosen would go to the bottom of the list for the next policyholder and the other three would be given as choices, with the rotation continuing for all four. For another example, let’s say we have a 10-shop market and three shops have made a customized offer. Two of them are within 10 points and the third is not. In that situation, every time all three shops’ names would be given.

AGRR: You already had a program that allowed shops to give customized pricing. Is that still in effect?

BB: When we rolled out the new Offer & Acceptance program in October 2005, we had language in it that related to customized offer. Basically that was laying the ground work for this move. We put in that language and said that we were going to implement it at some later date, and this is that later date. 

AGRR: When will the program be implemented?

BB: The announcement was made on November 1 and the actual change on the contract was November 2 with the terms and conditions being added to every O&A contract. And shops had until December 1 to make a customized offer. We very well may expand that and allow shops to make an offer at any time. We’re going to monitor the activity, and there may not be an announcement made to the industry, but we’re going to monitor how many shops make a customized offer and look at whether it is appropriate that all shops have to make an offer for the program. But to start with there was that first 30 days, from November 2 to December 1, that a shop can submit a customized offer and that may be extended. It became effective with dispatches made on December 1. 

AGRR: Based on your demographic, with the policyholder getting three shop recommendations, do you anticipate that there will be three shops that have made customized offers?

BB: We don’t know, because it is going to be market driven and the shops are going to have to decide if they want to compete or not. As a company, we don’t have experience with customized offer and we don’t really know what to expect. 

AGRR: Let me rephrase this. Based on your demographics, in any given market are you dealing with three or more shops?

BB: By far in the vast majority of cases, we’ve got more than three shops in a market. There may be some rural areas where this is not the case, but that is the exception.

AGRR: So then each shop is going to have to make its decision based on that demographic of the number of shops it is competing with in its market?

BB: Exactly. 

AGRR: Is there any specific reason the program is being introduced now?

BB: On the collision side of our business, there were changes which took place, and we looked at the glass program and decided that this made the best sense for our policyholders in conjunction with an offer-and-acceptance contract between State Farm and glass shops. It’s market driven which we’re excited about. It also allows us down the road to evaluate the program further and make decisions as to whether this helps us at getting to paying what is ‘fair and competitive’ or do we have to reevaluate in the future.

AGRR: In other words, ultimately what’s you are going to do is use the program to see how State Farm is faring in the overall market.

BB: Yes, in the overall market. Whether that is walking in off the street—and I’m not suggesting that our price must be equal to a cash price because there are some differences there—but at the same time it continues to be a challenge for us when a policyholder can walk in off the street and get a price that is significantly better than what we get. It’s also feedback from glass shops, the industry itself, that we are seeking out, letting the market drive what that price is. At the same time, it is clearly our expectation that the quality of replacement work needs to be, at a minimum, in accordance with the AGRSS Standard. We’re going to track and monitor as best we can the quality pieces as well.

AGRR: This will be done through customer satisfaction indexes?

BB: That will be part of it. We have our own visual inspections by State Farm employees. 

AGRR: Could you elaborate on this inspection process?

BB: We have our Estimatic force throughout the country who are employees who inspect a vehicle whenever that is needed in some way. It’s the same group who go out to see a vehicle whenever it is involved in a collision. 

AGRR: Any other points you’d like to make?

BB: We’ve seen some of the data we’ve received so far and one point on which I think there needs to be some clarity is that when the shop makes its customized offer, this is above the baseline pricing. In other words, if a shop is in market 1, it is already 15 percent off so it has to be careful that it makes an offer of 20 off (up 5 percent) and not 35 off (the 15 percent baseline plus 20 percent off). 

AGRR: This is clear in the system when a shop is making its offer?

BB: We think so, but I just want to make sure that shops are paying attention and that no mistakes are made here.
One of the questions which came up is what happens when a list price change comes up. I am assuming this refers to a NAGS change. A change in a published list price is not going to change an existing customized offer. 

AGRR: If the shop then wants to make a change this has to be done outside the 60-day limitation period? So that if a NAGS change happened 30 days after a shop had made its customized offer, it could not make a change for another 30 days.

BB: Correct. 

AGRR: If it did not occur during a shop’s 60-day period, then it would be up to the shop to go back and change the offer?

BB: Exactly. The decision to modify a pricing offer is the shop’s decision alone. 
AGRR: That can be done at any time as long as the 60-day period is adhered to?

BB: Correct. 

AGRR: So when a shop is making its bid, it will be based solely on what the baseline price is and how it perceives its position in the pricing market?

BB: Yes, I think that is a fair assessment. Another point of clarification is that the customized offer is being limited to the parts—glass—side alone. On the repair side, if someone wants to make a customized offer on repair, that is something we can consider. My point is that we are not accepting someone making a change regarding labor, for example. There are difficulties in comparing if someone makes an offer of 17 off and reduces labor to $85 versus someone who makes an offer of 19 off and leaves the labor alone. 
Another point. If someone has customized for repair only, that does not affect their rotation for replacement. 
Another question which came up is whether there is a minimum or maximum number of times that a shop can adjust its pricing and the answer is no, the only restriction is the 60-day period in which an offer cannot be rescinded. 
I want to emphasize that it is market driven and it is voluntary and it allows a shop to make a decision as to how much it wants to compete for the work. 

AGRR: Where can readers get more information if they have questions?

BB: This is a list of frequently asked questions on the LYNX Web site. The participants group at LYNX can be a source of information as well as our own glass claims group. 

AGRR
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