Bob Bischoff Talks about State Farm's New Customized Offer Program

AGRR Magazine/glassBYTEs.com™ 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 recent Auto Glass Replacement Safety Standards (AGRSS) Conference in Las Vegas.

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

BB: Customized Offer is a tool that allows participating auto glass replacement 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 Services, our program's Third Party Administrator and does not know where they want to go. However, our glass service providers 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 the insured selects the glass shop from rotation 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 of NAGS, a shop 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 were 2 percent above NAGS as the baseline, they would have to go to at least 0 or no percent above baseline pricing. The offer they are making to us enables their name to come up more often on the rotation, depending on what other shops make a customized offer. When the customer calls in and knows he or she wants a particular glass shop, the price that would be paid would be either 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, offering another pricing option to the glass service providers and it enhances our O&A program in delivering customer service. 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 market driven.

AGRR: This means that glass shops may come up more frequently on the State Farm rotation at the customized offer which they make than they would had they not made a customized offer?

BB: Exactly.

AGRR: Is there any other aspect of this that an auto 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, we ask if they have a shop selected, if the insured says yes, we work together with the customer's shop of choice. If they do not have a shop selected, we ask if they want our assistance in knowing what shops are available near their home or work locations and LYNX provides the names of at least three shops. It's still the insured who makes the decision. With any customized offer that is made there is a minimum period of 60 days that the customized offer would apply. What we're not allowing is a shop making an offer, hypothetically, of 20 percent off in market 1 and then the next day going to 19 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.

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 groundwork for the implementation of Customized Offer. 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. Shops have until December 1 to make a customized offer for 60 days forward. We expect to accept Customized Offers after Dec 1 but will monitor as we go forward. But to start with there is that first 30 days, from November 2 to December 1, that a shop can submit a customized offer and that may be extended. It becomes effective with dispatches made on December 1.

AGRR: Based on your policy of giving policyholder 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 --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: We continue to evaluate our glass program and services for our policyholders. Recently State Farm made some changes in its collision damage service program and it was a good time to implement changes to our glass program for our customers and in conjunction with an offer and acceptance contract between State Farm and glass shops. It's market driven which we're excited about. Managing and evaluating this program in the future will assist us in making decisions to continually enhance our program. State Farm's commitment to our customers is we will pay what we owe, and be 'fair and competitive' in the market.

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

BB: One aspect of the program is to see how we are faring in the overall market. Customized Offer allows the market to tell State Farm what it is willing to charge for glasswork. 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 less than what the O&A price is. We also receive feedback from our State Farm agents and customers combined with the dynamics of the glass industry 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 in accordance with the AGRSS Standards and meet the expectations of our mutual customer. We will be monitoring all the pieces of the customized offer offering.

AGRR: This will be done through customer satisfaction indexes?

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

AGRR: Could you elaborate on this inspection process?

BB: We have our Estimatic partners throughout the country who as employees of State Farm inspect a vehicle whenever we deem needed in some way or just as part of our Company routine re-inspection program. It's the same group who go out to see a vehicle when it has sustained collision damage.

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

BB: If a shop makes a Customized Offer, the LYNX website is clear that the offer they make is in addition to the current baseline price. Should a glass shop have any questions they can contact LYNX Services or Glass Claim Services.

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

BB: We think so, but we just want to make sure that shops are paying attention and that no mistakes are made here. One of the questions that came up is what happens when a list price change comes up. We are 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?

BB: Correct, unless a more competitive offer is being made.

AGRR: If a NAGS change does occur, 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 if a change occurs to baseline pricing 30 days after a shop had made its customized offer, it could not make a change for another 30 days.

BB: No. If State Farm makes a change to the baseline program pricing in the future, shops will have an opportunity to change their offer as of the effective date of the baseline program price change regardless of when they last submitted or changed their current offer.

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 accept. 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.

If a glass shop has a customized offer for repair, 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.

We want to emphasize that it is market driven, 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 participant management group at LYNX can be a source of information as well as our own Glass Claims Services group.

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