Seven Ways to Win at Service Marketing

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Revenue growth is probably the single most important objective for executives who are responsible for managing service as a profit center or strategic line of business.  “I want to double my service revenue in the next 3-5 years” is an incantation that I hear constantly from business owners and executives.  That equates to a 20% or more growth rate per year.  Sure, this type of growth is easily achievable if the market is growing at this rate or faster.  I’ve found that these high growth targets are often triggered by management’s desire to take back market share from competitors or increase the share of service revenue contribution to overall corporate revenue.

While high revenue growth in a low growth market is difficult, it’s not impossible. A little hard work is usually required to achieve this type of performance.  To understand where the emphasis is needed, let’s look at where service market programs may fall short:

  1. Service Portfolio not meeting customer needs: Quite often service providers fail to meet their revenue objectives because their service portfolio is no longer meeting customer requirements. In other words, they have failed to offer services tailored to their customer needs. For example, offering only next day response when customers require same day.
  2. Pricing not optimal: If your revenue is flat or declining, you might want to look at how you price your services. Perhaps you service prices are no longer competitive. On the other hand, you may be underpricing your services in relation to the value you provide.
  3. Failure to understand competitive threats:   Many service providers, particularly those that are divisions of manufacturers, fail to understand the competitive threat of “mom & pop” third party maintenance (TPM) companies and/or in-house service providers.  For example, they often under estimate the value that TPMs provide to their customer and/or fail to develop an effective value proposition to compete against them.
  4. Failure to articulate value: How well have you articulated the value of your service offering to current and prospective customers? Do they understand the cost of downtime or the pain points that your services help solve? It is important that you not only articulate value to your customers but make sure that your sales people understand it and provide them with the appropriate sale aides and marketing collateral to support it. 
  5. Lack of communication & follow-up: One way to increase service revenue is by improving contract renewal rates. These rates often decline though lack of consistent communication and persistent follow-up about the value of services provided, when contracts are up for renewal, special incentives for renewing, and information on when they are about to expire. 
  6. Not asking for referrals: Referrals are the best and least expensive source of qualified prospects. The problem is most service providers forget to ask for them. Remember your customers speak to each other. They may be involved in the same networks and trade associations, or call on each other for advice and guidance. Why not enlist them in your business development efforts? 
  7. Lack of customer appreciation:    Your customers will remain loyal to you and purchase more from you when you let them know how much you value and appreciate them. It’s the simple things like a courtesy phone call/visit, thank you card, small gift (i.e., rewards program), or special offer that let them know you value their business.

 

These seven areas have one thing in common, they all benefit from market research.  Whether its information that will help you redesign your service portfolio or modify pricing, market research provides you with an unbiased and unfiltered perspective on what your customers are actually thinking and saying. You will learn things that you may not otherwise from a sale’s call or courtesy call made by a company executive.

Before you conduct research or make any changes, it is important that you have a baseline assessment of how well you service marketing program is working. You may want to consider an audit from an independent and objective industry consultant.     Schedule a free consultation today to learn more.

Strategic Value Drivers of High-Tech Service

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In order for a business to succeed it must have a clearly defined strategic value that it provides to shareholders, stakeholders (e.g., customers, suppliers, employees,) and the market place at large.  It is important to clearly define strategic value since it is the precursor to developing a value proposition and mission statement.  Furthermore, it forms the basis for the strategies, tactics, and programs that a business puts into place.

Nowhere is strategic value more important than in the High-Tech Service Industry.  All too often, service providers, especially those that are divisions of product companies (e.g., OEMs, VARs, Distributors) fail to clearly define their strategic value.  As a result, they fail to make any impact in reaching their business goals and objectives.   They are like a ship on an ocean without a sail, drifting aimlessly in whatever direction the winds blow.

We have found that there are at least three (3) common strategic values that High Tech  Service  & Support organization might chose to pursue/adopt. These include:

  1. Directly influencing the sale and adding value – A company who adopts this strategic value recognizes that service is very critical to the customer in their final selection to purchase a product.   In other words, it’s a value-added feature influencing the purchase decision. Dell is a great example of a company who uses service as a way of directly influencing the sale of products.
  2. Generating revenue and profits directly – This applies to any company that operates their service business as a profit center or strategic line of business. These companies recognize that customers are willing to pay for service independently from purchasing equipment. More importantly, their willingness to pay is based on the value-in-use of the service not it terms of the perceived cost. Much of IBM’s success in the 1990s was due to their ability to generate revenue and profits from directly selling services.
  3. Providing market control – Companies who embrace this value driver provide a broad array of services in order to gain account control. In essence, they engulf their customers with an extensive portfolio of basic and value added services in attempt to establish a trusted advisor position and influence future sales. GE is a prime example of a company that has achieved this result by offering its customers technology assessments, strategic planning, and other types of professional and value added services.

 

When establishing your strategic value it is important to select one and only one value driver.  Otherwise, it will lead to inconsistent performance and confusion in the market place. Strategic value cannot be defined in a vacuum, it must take into account the needs and requirements of your key stakeholders and align with your overall corporate strategy. For example, a company focused on generating services revenues and profits directly may find this goal at odds with its objective to increase market share in its product market.  Basically, the service division would be competing with the products line of business for resources and investments.   More importantly, your definition of strategic value will determine where you focus in terms of Key Performance Indicators (KPIs), such as investment considerations, business constraints you must optimize, and possible market outcomes.

Strategic value when set into motion is difficult to alter since your entire service program and corporate objectives are based on this.  It often takes a commitment from the C-suite and/or board of directors as well as persistent and consistent follow through from management to successfully redefine your strategic value in terms of measurable outcomes.   This change should not be pursued lightly.  Those who succeed at redefining their strategic value often do so after very serious consideration, typically involving strategic market analysis, risk assessment, and scenario planning.

Strategic value is the DNA of your service business. If defined poorly, your strategic value maybe a liability and bankrupt your company.  If designed optimally and implemented effectively it can lead to unlimited upside potential.

Strategic Market Analysis – The Foundation for Smarter Business Decisions

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Strategic market analysis is the solid foundation from which to build your business intelligence. Having careful, objective and professional analysis of the market place, competition, internal resources and capabilities and assessing future trends built on hard data and evidence is paramount.

All Companies have a critical need for strategic market analysis. Strategic market analysis provides an understanding of the market in which you are competing. Here are a few of the questions where you can achieve insights:

  1. What’s the total market opportunity?
  2. What is our current market share?
  3. Who are our main competitors?
  4. Is this a market we should be investing in or planning to exit?
  5. Should we consider merging, acquiring or selling?
  6. What market trends can we take advantage of, or do we need to address to grow?
  7. Does our business plan reflect market wants?
  8. Are there market niches we are missing, or should be growing?
  9. What are the market segments that are growing, or declining?
  10. Are we missing any important market segment opportunities?
  11. Do we have a deep understanding of our competitors which will allow us to exploit their weaknesses?

 

Planning and Allocating Market Analysis Resources
Planning and allocating resources for strategic market analysis is essential whether your needs are for proprietary or off-the-shelf research. The value proposition in making a sound purchase decision should come down to the strategic value of the information vs. the cost. When trying to make decisions, the place to start is with the most accurate and up-to-date information you can get . Outdated or bad information will result in a cascading effect of bad decisions. Because of this, allocating sufficient resources for strategic market analysis and business intelligence is absolutely necessary. These costs are insignificant compared to the capital, assets, and business failure you risk by making bad decisions based on flawed or obsolete data.

One note of caution, you should be of aware is that lower cost off-the-shelf research when not used for its intended purpose of broad view and general trend information will in the end cost more than proprietary research.

Proprietary Research or Off-the-Shelf Research
The important key to whether proprietary custom or off-the-shelf research is best for you depends. It depends upon answers to questions like these:

  1. Why do you need the data?
  2. Are you simply in need of broad trend data?
  3. Do you need it to plan and allocate operational resources?
  4. Do you need specific information on sub-segments of the market?
  5. Is having a deep dive on the competition required?
  6. Will you need data to enhance buying & decision making processes?
  7. Do you need strategic and market analysis?

 

Bottom line proprietary market research is the choice for comprehensive and specific information that allows you to make informed operational and tactical decisions. Also when you need more data points like:

  1. Market size and forecasts by product or region
  2. Deep dive competitive information
  3. Understanding market behavior, needs and wants
  4. Analyzing your capabilities to deliver against market needs
  5. The help of a market expert to leverage industry data from a proprietary databases

 

Off-the-Shelf market research is best for a broad view of the market without a lot of specifics. This type of market research attempts to satisfy the needs of most people wanting to gain a high level view of a market or industry.

When off-the-shelf or Internet research is used as the method for obtaining market data it is often referred to as a “Swiss cheese” approach. However, the problem, as we know with Swiss cheese, is that it has holes in it. This method is fraught with issues like:

  1. quality of the data
  2. old data, freshness of the data
  3. not getting the whole picture
  4. comparing apples to oranges

 

This approach is like trying to build a jig saw puzzle with pieces from different puzzles. Is this what you want as the foundation for your decision making?

Take Away

No matter the type of market research, the important point to remember is that no successful business goes to market without all the market research it can obtain and continues to utilize market research on a consistent basis to remain successful.

The building blocks to Servitization

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The “Servitization” of Manufacturing is taking the High-Tech Industry by storm!  By definition, Servitization is a transformation from selling products to delivering services.  It typically involves two components:

  1. The idea of a product-service system – an integrated product and service offering that delivers value in use.
  2. A “Servitized” organization which designs, builds and delivers an integrated product and service offering that delivers value in use

In more practical terms Servitization turns the product–service offering into a “utility” that the customer pays for on a subscription basis.   Under this model, the customer pays a monthly or annual fee equal to the amortized cost of the equipment plus the value of services provided for a specified period of time.

The concept of Servitization is nothing new. As early as the 1950’s, manufacturers provided their customers with the option to lease equipment with services attached to the lease agreement.  In the late 1990s and early 2000s, companies like ABB and GE begin to offer tperformance based service contracts to their customers.

Servitization is more than just a pricing strategy.  It is an overall business model that attempts to maximize and monetize value in use to the end-customer. This requires a manufacturer to proactively identify all the services that an end-customer may require over the lifecycle of equipment operation, understand the value that the customer assigns to these services, build this value into the subscription pricing model, and then deliver on that promise.

The trend toward Servitization has picked up steam in recent years for a number of reasons. First, market participants (i.e., OEMs and End-customers) have a greater appreciation of the strategic value of service to their overall business models.  Second, manufacturers recognize that service can generate more revenue over the lifecycle of the equipment than the actual purchase price of the equipment itself.  Third, the Great Recession forced many manufacturers to rethink the economics associated with how their customers justify the acquisition of new equipment.  Fourth, service tools and technology are now available that facilitates the design and operation of an integrated product-service system in a cost effective and real-time basis.

Ultimately, it’s the technology that is having the greatest impact on advancing Servitization business models.  There are some basic building blocks that any company will need to implement in order to deliver on the promise of Servitization. First, they’ll need a state-of-the-art service management system. It needs to perform the basic activities involved in managing a service organization (e.g., dispatch, scheduling, parts management, etc.). Second, they’ll need to have a way to connect with and monitor the condition of equipment within their serviceable installed base.  They will also need to integrate this information into to their back-end service management system. The third step is a mobility solution to communicate with people in the field. Finally, analytics are needed to evaluate what’s happening. Most companies will probably benefit by using a big data solution, as well, so they can look at unstructured data from their installed base and the customer’s environment at large, and start to analyze, predict and forecast.

In summary, Servitization is a transformational process that requires manufacturers to rethink all aspects of their business from marketing and sales, to pricing and financial management, to service delivery infrastructure.  The benefits of Servitization are great including the ability to build a multiyear annuity stream, gain account control, and create deeper and longer lasting relationships with customers.

I’d love to get your thoughts on Servitization.  Let me know if your company is pursuing Servitization.  What benefits do you expect to achieve? What obstacles remain in the way to realizing these benefits?   Last but not least, if feel free to schedule a strategy session with me if you want to discuss how Servitization could impact your business.