Re-thinking Pricing Strategies for Service and Support

price tag

I have recently noticed an uptick in the number of clients in the High Tech Service &  Support Industry who are in need of a targeted overhaul in their pricing strategy. As this has been occurring more and more frequently here at the Blumberg Advisory Group, it seemed like the ideal time to discuss the typical problems the service industry faces when it comes to pricing and explore some viable solutions.

Common Problems

A great deal of equipment service and support businesses are facing pushback from their client base, with customers saying prices are too high or revealing that they are going to take their business elsewhere, to a cheaper competitor. The issue with equipment-based service is that the manufacturer is not the only one who can provide support for the equipment. There are Third Party Maintainers (TPMs), Independent Service Organizations (ISOs), and Manufacturers with Multivendor Service (MVS) capability. In short, theres a great deal of competition out there and an increasingly large number of businesses that are unprepared for this type of marketplace, mainly because they have not recently examined their service pricing. As a result, they may be losing customers and/or leaving money on the table.

Commoditization is a real issue as well; the idea that anyone can provide this kind of support and enter the marketplace, a general (unfounded) feeling that perhaps theres no such thing as a specialist anymore. Theres also intense competition over parts manufacture; competitors are creating more generic parts than ever before, at a cheaper price, meaning that clients might opt out of paying the OEM for a new part if something malfunctions. Technology itself is becoming less costly to acquire.

How do you know if your business’s pricing strategy is no longer firing on all cylinders? 

If youve encountered some of the following issues, you might want to take a closer look at the way your services are being priced:

-While some of your contracts might be profitable, others are losing money. The results are inconsistent.

-You have recently lowered your prices to meet client demands, but are now losing profits

-You do not have a standard price book or your book has not been updated in quite some time

What are some tips for re-conceptualizing your pricing strategy?

-Most importantly: get current data!

-Understand what your current pricing strategy is based upon. Is it based on future market projections? Competitors’ prices? Get a handle on why you selected the prices you did.

-Understand the value of your services. Services are intangible dont have a standard form and function so you need to understand what is being priced and at which service level. *

-On that note, always compare apples to apples when getting data on competitors pricing

-Look at the pricing, then look at what it costs your company to perform the service, and understand how much markup you must add to make a profit

-Look at your market data and figure out how much it would cost your client if they do not receive the service in a timely manner and how much theyd be willing to pay to have it done in a specific time frame. See if they would be willing to pay a premium.

-If you use a database to research the marketplace, make sure that it shows you price points that businesses have actually won not just trends and typical bid data.

* = Bear your Service Level Agreement (SLA) in mind! For example, if your company utilizes 24XXi4 (i.e. customers can call for service 24/7 and get a response in 4 hours), you must understand the SLA’s nuances in order to make sense of competitors prices. Theres a difference between saying Ill have a service tech there in four hoursand Someone will call you in four hours” and “we will have your issue resolved in four hours”. You might not dispatch someone at all; you might typically opt to resolve issues over the phone. Theres a lot of variation, so you are going to want your pricing, as compared to your competitors, to reflect those specifics. 

Its important to remember that cutting costs can impact quality and that your business might not even have to go that route if you understand your pricing dynamics.  In fact you may even be able to raise prices by providing a premium level of services to your customers. Blumberg Advisory Group is actively helping businesses re-strategize their pricing every day and seeing bankable results. Visit our site for more information on the services we offer and to learn how we can help elevate your pricing strategy to a new level. 

Reducing E-Waste: Good for Marketing and The Bottom Line

e-waste

According to the EPA, over 2.5 million tons of electronic waste are produced each year, making it the fastest growing form of waste in the US. Electronic waste, or “e-waste,” is defined as discarded electronics, including but not limited to computers, mobile phones, and TV sets. This also includes used electronics being processed through the Reverse Logistics supply chain that are being salvaged, recycled, resold, or disposed of.

Improper disposal of e-waste is a very real challenge facing the manufacturing and consumer electronics industry today. E-waste is considered not only hazardous to the environment but also to the human population: electronics’ components typically contain lead, a neurotoxin, and cadmium, which is a carcinogen that can cause lung damage and kidney failure. Hazardous waste may also leak toxins like mercury, beryllium, and arsenic into the ground and water. In large amounts, especially in landfills, these discarded parts have proven to be highly unsafe. 

Though a growing number of states have enacted laws to manage the disposal of e-waste, the United States does not have a federal system it adheres to like that of the European Union, for example. By law, any manufacturer in the EU is held responsible for its own safe disposal and must follow a “green design” initiative for electronics design (meaning that there are limits to the amount of lead, mercury, and other harmful toxins that can be present in these devices). There’s also a system referred to as “take-back”, which requires manufacturers to implement e-waste collection and disposal infrastructure. Here in the USA, there’s a lot of pressure on businesses to to implement strict policies for reducing E-Waste in their Reverse Logistics processes and carefully monitor their own progress. But it’s to their benefit to do so. Not only do sustainability programs have a huge impact on a business’s bottom line, but, in general, people want to do business with a “greener” company nowadays. It’s good for marketing and makes perfect sense financially. But it can be difficult for businesses to individually streamline optimal solutions. 

A great example of the way businesses are cracking down on e-waste and developing innovative new solutions is Sprint’s phone recycling program. Their sustainability efforts have  saved them over $1 billion in excess costs through design, recycling responsibility, and maximizing a device’s useful life; at least 70% of Sprint’s electronics will meet Sprint’s meticulously detailed environmental criteria by the year 2017. They also put a great deal of emphasis on their refurbished devices to ensure high quality and long life so they don’t end up back in the reverse supply chain. Their brand has now become synonymous with “green design” among industry insiders, which has boosted their image and sales.

Sprint’s Buyback program is a great model for the ways a consumer electronics business can reduce e-waste and significantly cut costs. Sprint will accept any used mobile device, even if it’s from a different carrier and in less than perfect condition, and offers its customers up to $300 per device. A great deal of these old phones can be refurbished and updated, so Sprint tests and sorts each one accordingly. A lot of these refurbished phones are sold overseas where the older models are in higher demand. The devices Sprint cannot refurbish and resell are either salvaged or sent to 3rd party recycling vendors who harvest raw materials from the devices, like metal and plastic, to be repurposed for a huge variety of other products. 

One of the many ways the Blumberg Advisory Groups helps businesses with their Reverse Logistics Management is in the department of e-waste reduction. Visit our site to learn more about the Reverse Logistics services we offer, especially if you’re looking towards a more promising, greener future for your business. Remember: environmental consciousness doesn’t have to feel like a burden, especially in this day and age, when it can only serve to boost your company’s potential even further.

Demystifying the Reverse Flow of Consumer Electronics

140317103037-walmart-consumer-electronics-620xa

After years as a professional advisor in the Reverse Logistics Management industry, Ive found that one of the most common misconceptions about the Reverse Logistics supply chain for consumer electronics is that its an indecipherable, disconnected maze. Businesses are often unable to optimize their reverse flow for salvage inventory because they dont see the bigger picture and patterns that emerge during this process. As such, theyre unknowingly turning a blind eye to greater efficiency, potential growth, and profit. This is where we come in: Blumberg Advisory Group has developed a three-stage model through which businesses involved in the reverse supply chain can take full advantage of this markets potential and easily digest these processes that appear very complex upon first glance. Our goal is to decode this often mysterious procedure and illuminate the points of connection, from the products OEM to the single-unit purchasing consumer and back again. 

Stage One

First, we focus on the movement of product from OEMs, retailers, and carriers to distributors, 3rd Party Reverse Logistics Providers (3PRLs), and closeout liquidators. 3PRLs and liquidators are often eager to get their hands on off-price products from an OEM or retailer, but oftentimes an OEM, carrier, or retailer will hold onto their off-price products for a time in hopes of selling off the excess material on their own auction sites. There are 3PRLs that have expanded their refurbishment processes in addition to holding auctions online, but a great deal of devices on the reverse chain are actually not defective. Because of this, most of the returned off-price product winds up going to closeout liquidators and general distributors, who then send off large quantities of the product to

Stage Two

Brokers, resellers and refurbishment companies. Heres where things start getting complicated because theres quite a bit of provider overlap. But heres essentially what you need to know about these different players: 

-Brokers buy from liquidators and typically dont physically deal with the products themselves. 

-Resellers physically handle the products and house them in their facilities

-Reseller & Refurbishment Providers (3PRs) not only have their own liquidation processes, but they also move the products to other businesses looking for revenue potential through this off-price merchandise (mostly online retailers).

This takes us into

Stage Three

Here well find companies in the market for selling small quantities of merchandise, at a discount to the end customer – typically online retailers you might be familiar with, such as Amazon, eBay, and Overstock.com. Because they aggregate salvage inventory and create a marketplace, they create economies of scale and gain  a large share fo the market for an OEM’s or Retailers’ excess inventory.  In addition,  the prices they list make this option highly favorable to the consumer. However, the large decrease in price can be a headache for the OEM as they strive to protect the price of their brand (i.e. the way you can find an iPhone on Amazon.com for 25% less than the list price at the Apple store). 

Screen Shot 2014-06-07 at 4.27.07 PM

How then do OEMs and similar upstreamplayers compete with these depressed prices and take control of their inventorys destiny? In-house platforms for refurbishment and/or online auctions are often effective ways to keep businesses downstreamfrom impeding upon potential revenue by slashing prices. And for these Stage Threecompanies, the online retailers in the market for salvage inventory, there are opportunities to move business further upstreamby incorporating more of a full-service business model. 

The Reverse Logistics supply chain has a large number of moving parts, but we firmly believe that the process can be easily demystified and capitalized upon for future growth. Blumberg Advisory Group helps companies confront a number of challenges they might encounter as they manage their Reverse Logistics efficiency, including but not limited to tracking the value and volume of returned products, improving the productivity of service logistics operations, and, most importantly, taking control of your supply chains destiny. To learn more about how we can help bolster your businesss potential, visit our Reverse Logistics service center and schedule a consultation today. 

Optimizing Knowledge Management with Model Based Reasoning

Intelligence

In the Service Lifecycle Management industry, where resource optimization is key, optimization of Knowledge Management is a concept that often evades businesses. Knowledge management, which is the intelligence of processes required to pinpoint and fix technical issues, can seem like an intangible aspect of the service industry. Knowledge management has to do with information about different symptoms, causes, and corrections for various problems. Case-Based Reasoning (CBR), a commonly used Knowledge Management process, identifies problems and solutions based on the patterns of prior experience. But what if this situation has not arisen previously? And what if there’s a problem that might be the result of multiple symptoms, or multiple symptoms that are the result of multiple problems? How can we know what we do not yet know about? It’s a topic that seems better suited to a philosophy student’s term paper than typical business practices. But there is, in fact, a tangible way to grasp Knowledge Management and use it effectively. 

Most KM solutions utilize a linear problem-solving approach, which is not always effective. A+B = C, yes. But why? And based on why, how can we keep the issue from occurring again? Understanding the “why” comes only from a deeper knowledge of cause-and-effect relationships between faults and observations. The “why” is often overlooked in a linear system. 

Model Based Reasoning (MBR) is an approach designed to bridge the gap between cause and effect–a way to understand “why”. It’s a non-linear problem solving process that utilizes specific data about the issue and attempts to diagnose the root cause. There are many different reasons that a device may stop working, and MBR’s complex system of calculations is designed to identify each one and arrive at an optimal solution. MBR not only takes a device’s designs into consideration, but also its subsystems, operating conditions, and its components. Service providers who have implemented MBR have seen a significant decrease in their Mean Time to Repair (MTTR) and, consequently, have also seen an increase in their machine availability uptime. 

MBR has also been shown to decrease unscheduled downtime by 10-50% when applied to the following areas:

-Guided Troubleshooting (GTS)

-Diagnose Before Dispatch (DBD)

-Remote Diagnostics (RD)

-Design For Service (DFS)

These decreases positively impact not only the OEM but also the customer’s bottom line. Overall, MBR is a reliable new method of Knowledge Management from which the right type of business could reap considerable benefits. How do you know if your business is one of those “right” types? Is MBR for you? Here are a few key questions to ask when considering whether or not to implement the process:

-Do you often experience complex service failures?

-Is troubleshooting required to identify the root of these issues?

-Do many solutions exist?

-Does your company often roll out new, complex products?

-Do you encounter service issues for which there is no prior history?

-Do you often need to do remote/automated diagnostics for your client base?

If you answered “yes” to more than two of these questions, implementing MBR might be the right choice for you and your business. To find out more about MBR and the types of Service Lifecycle Management Solutions Blumberg Advisory Group has to offer, please visit our website’s Resource Center.