Policy Changes - A Shift to Consumer Choice

Over the past several weeks, I've been taking a close look at the large-scale government policy trends in Australia, and what these mean for non-profits. The first in my series of three articles, explored the trend towards outsourcing. My second article looked at the shift to outcomes measurement. And this, my third and final article, will take a deep dive into the issues and pitfalls for non-profits surrounding consumer choice.

A shift to consumer choice

The government is developing consumer markets in social services for a variety of reasons. In principle, consumer choice improves overall quality and efficiency of services as organisations compete for consumers. It does this by changing the frame of reference for both providers and customers. Organisations see their customers as people with preferences and expectations rather than as beneficiaries needing help, and customers have more choice and agency over their services and service providers. Consumer choice removes the need for funding mechanisms as a way of controlling where service providers operate, and allows the government to focus on minimum standards and regulating only the points of market failure.

The change to consumer choice is in progress across a wide range of government services, including residential aged care. We saw Home care reforms rolled out in February 2017, with funding attached to the consumer rather than block-funded to providers. In disability services, the National Disability Insurance Scheme created enormous challenges and opportunities for providers and increased equity and choice for consumers.

Regulatory issues when it comes to consumer choice

The main problem with a market-based approach is that it assumes informed and empowered consumers. This is not always the case. Consider someone with dementia, or another significant cognitive impairment, who requires social services. This person may be without family assistance, they may not speak English, or they may live in a remote community.

What is crucial for consumers is strong regulation and enforcement around minimum standards and swift responses to areas of market failure. We’ve seen how systems can be abused in the VET Fee Help rorts. Scandals like this work against the interests of all stakeholders who are genuinely committed to good outcomes. When organisations do fail vulnerable people, the industry must have the capacity to take up the slack and minimise the impact.

Impact of consumer choice on non-profits

The switch to a consumer-driven market represents both an enormous opportunity and an enormous threat to non-profits. It’s an opportunity to innovate, grow significantly and achieve much greater impact. However, to achieve this, non-profits will need to meet increasing competition from other non-profits, including the systematic large-scale entry of the private sector into the marketplace.

In the past, organisations have geared themselves towards government relationships, compliance and tendering. Now, they must manage compliance and simultaneously work hard to engage with consumers. Thriving in a consumer market requires a much deeper understanding of customers and a greater investment in marketing than in the previous business-to-government model. We find that most non-profits are still not geared for this either culturally or financially. Consumer choice requires a reappraisal of organisational structure, governance, leadership and marketing, where all aspects of the organisation focus on enhancing the customer experience.

Organisations that survive and thrive will develop a compelling value proposition, communicate it effectively to their target market, and provide a great customer experience. Market positioning is a vital part of this. Organisations will be either highly efficient and offer services to the mass market at a compelling price, or inhabit a niche within the market with the ability to build a strong reputation within that niche. Currently, many organisations lack scale, any particular niche and any real marketing capability.

Summary

As governments place greater emphasis on outsourcing, outcomes measurement and consumer choice, they will learn from areas of policy failure. Despite this, government budgets will always be under pressure, which guarantees constant change to policies and regulations. To survive and thrive, non-profits must maintain a strong compliance focus and ensure their business systems are flexible enough to adapt as required.

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