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.
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, there’s 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 there’s no such thing as a specialist anymore. There’s 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 you’ve 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 don’t 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 competitor’s 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 they’d 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 competitor’s prices. There’s a difference between saying “I’ll have a service tech there in four hours” and “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. There’s a lot of variation, so you are going to want your pricing, as compared to your competitors, to reflect those specifics.
It’s 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.