Service Pricing Best Practices

Price imageWhen was the last time you took a serious look at your company’s service pricing strategy? I worked with a client last year who hadn’t many any significant changes to their pricing in almost 20 years. While they made minor adjustments over the years to reflect competitive pressures, they never re-evaluated the basic assumptions and core calculations around their published price list. They realized they might have a pricing problem when they noticed that they weren’t wining as many competitive bids. In addition, the bids they did win were not very profitable.

It might be time for your company to re-examine its pricing strategy if you find yourself in a similar situation. Before you rush into a complete overhaul of your price book, it is important to have a clear objective of what you are trying to achieve with your pricing. Remember, pricing is a marketing function and marketing is all about perception so how you price your services will influence your outcomes in the market. For example, your objective might be to take market share from a well-entrenched competitor. Alternatively, it might be to avoid leaving money on the table. It might be to accelerate penetration into a new market or it might be to simply cover your costs and/or subsidize another part of your business. It is very likely that the pricing will be different depending on which objective you choose. Once you have determined your objective you can start work on establishing your pricing strategy. There are three (3) perspectives you need to consider when determining your optimal price.

Competitive Price: This is the price that your competitors charge. It is best if you can build or get access to a database on competitive pricing. This will help you understand what the highest, lowest, mean and median price points are within your market.

Market Perceptions: It is important that you have a good grasp of market price sensitivity. You’ll want to understand at what point the price is perceived to be too cheap that quality is questionable, a bargain, getting expensive, or too expensive to afford. The answer will help you understand the optimal range at which you can price your services. One of the best ways to obtain this information is through survey research.

Your price & cost structure: It is important that you consider your current cost when re-evaluating your price strategy. Obviously, you must know this if you are going to set prices high enough to cover your cost if that’s your objective. You’ll also have a better understanding of how much margin you can achieve under different price scenarios when you have this information at hand.

These perspectives provide the constraints you need to optimize your objective. For example, if your objective is to take market share from a competitor through a more aggressive price strategy, than you need to not only know where your current price is in relation to your competitor(s) but you’ll also need to know what price range the market (i.e., customers, prospects) perceives as optimal. You may run the risk of pricing your service too low that the market perceives the price as too cheap to be of any value. On the other hand, it may be difficult to win business by raising your price if the market already perceives your price as too expensive and your price point is already significantly higher than your closest competitor. However, you can justify an increase if you are perceived as a bargain even if your price is higher than your closest competitor.

Hopefully, it is becoming clear to you why these perspectives are so important in establishing your pricing strategy. Let’s get back to the client that I mentioned at the beginning of this post. I took them through a similar analysis and we were able to establish a new pricing strategy that has resulted in them winning more business at a higher margin. It was surprising to learn that they didn’t have to lower prices across the board to remain competitive. In fact, they could rationalize a price increase for some of their services and still remain competitive.

In summary, the key takeaways when it comes to developing an optimal price strategy are 1) get clear about your desired outcome, 2) make sure you have the relevant data points you need to evaluate pricing alternatives, and 3) adopt an analytical approach. Think you might need to overhaul your pricing strategy? Feel free to schedule a free consultation to discuss how we might be able to help.

5 Ideas to Successfully on-board Millennials

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This week’s blog post is from Dave Palmer. Dave is president of Incyte Strategies LLC, a consulting firm specializing in marketing strategy, brand awareness, sales growth and market expansion for technology, manufacturing, software, and professional services organizations. To learn more visit Dave at www.incytestrategies.com

As your youngest workers begin with your company, have you given thought as to how best to integrate them into your organization? Millennials, on the whole, do have a different way of perceiving themselves and their place in the world, Capitalizing, not complaining, about those differences will help you avoid costly turnover in the ranks of your youngest employees.

Below are 5 solid approaches to consider as you connect with and channel these new workers into your corporate culture and workflow. You’ll see an emphasis on inclusion, impact, communication, growth, and fulfillment. All things that matter to Millennials.

1. Think through and deliver a thoughtful, multi-day onboarding process. Invest up to the first two weeks, not just a few hours, introducing the new hire to the workings of the company (all departments), the processes and theories that go into efficient workflow and team collaboration, and the culture of your facility.

2. Consider providing the new hire with a mentor. Someone who will take a special interest in the person’s success and serve as a resource and “translator” for what’s happening at your organization.

NOTE: If you do this, you should also build a “How to Be an Effective Mentor” program. People with good intentions still need good training to mentor well.

3. Have programs in place that will combat the communication differences between the 25-year-olds and the 55-year-olds. The two groups will frustrate one another, though never meaning to. Here are a few of the perception challenges they’ll have of one another –

a. “Youngers” don’t want to “pay their dues”
b. “Olders” feel disrespected by a perceived lack of work ethic or attention to detail
c. “Youngers” want to “make a difference” right away
d. “Olders” prefer face-to-face communication, not texts

NOTE: You may want to hire an outside expert to help your team understand these communications differences and to help you build your program. You may even consider hiring this person to run the program quarterly. Ongoing training & progress monitoring is critical to ensuring these advances will take hold over the long run.

4. Once your new hires have been around, you’ll want to keep them engaged and not jumping ship in 9 months. Consider investing in job cross-training, production theory seminars, and going to school for various certifications. This generation is “self-centered” – they want to be happy, fulfilled, and do what they want. To keep them engaged, offer opportunities to grow.

5. Keep them informed of company plans, vision, milestones, quarterly progress, new initiatives, ideas being pondered – they want to know what’s happening or they feel cut off. Remember, this is the generation that believes they should be involved in EVERYTHING!

Whether you agree with their perspectives or not, it makes sense to acknowledge and deal with how Millennials think and what their perceptions are. That’s how you’ll best understand how to make them involved and productive members of your team.

Using Customer Insights to Generate New Service Revenue

It Pays to Listen

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An Original Equipment Manufacturer (OEM) of medical devices that I worked with a few years ago was experiencing flat revenue growth in their service division. The truth was that all their service competitors were experiencing flat line growth. Conventional wisdom was that these troubles were due to the economy. Fortunately, forward thinking service executives in this OEM were willing to test this assumption. They conducted market research to determine how well they were meeting customer requirements and identify new opportunities to better serve them.

Their research efforts uncovered some remarkable findings. First, they learned that customers required longer hours of coverage and faster response time than they were currently offered. Second, they learned that a segment of their customer base needed additional training on how to properly operate and use the equipment. Third, the findings revealed that another segment of  their customer base were self-maintainers and required additional technical support when it came to troubleshooting and replacing parts. Fourth, a large segment of their customer base was receptive to purchasing a managed service contract that covered similar devices operating on their premise. Most importantly, the survey results revealed that customers were willing to a pay a premium over and above what they were currently paying for their basic coverage to receive managed services.  The net result was this company was able to able achieve a 20% per year service revenue growth rate by offering these new services to customers.

Obviously, the key to revenue growth rests in listening to want your customers want and need. However, some companies face challenges when it comes to implementing a formal, structured process for converting customer insights into new service offerings and revenue streams. Here is a framework that many companies have used to garner new insights and perspective about new service offerings:
Evaluate demand for the current service portfolio: It is important to understand which offerings are selling well within your customer base and which are not. Service offerings that have stalled in the market maybe just the area you need to tweak and refine in order for customers to purchase more.

Analyze your competitors’ service offerings: How does your service portfolio align to those of your competitors? Are there any service offerings that you are lacking or that you competitor doesn’t offer? These insights will help you understand where there may be opportunities to develop new offerings or eliminate those that are no longer needed. You still need to test these assumptions with your customers to determine the best course of action.

Consider the customers’ perspective: A great way to brainstorm new ideas for service offerings is by considering the customers’ perspective. You may want to consider customer usage patterns, the environment in which they operate, typical problems they encounter or try to solve. For example, customer usage patterns may identify opportunities to expand hours of coverage. Problems with inter-operability or with the quality of production output may provide opportunities to offer new services associated with technical assistance and application support.

This framework will help in identify the right questions to ask your customers about they want or don’t want it terms of service offerings. Knowing what questions to ask is just the first step in designing or refining your service portfolio. You still need to answer the questions and model the results.

Big Data and Analytics provide a powerful and robust solution for achieving this outcome. An alternative is to rely on more traditional approaches like surveys and focus groups. No matter which approach you choose, periodically validating your customer preferences will have great long term pay-offs for your company.

Now it’s your turn. I’d love to hear back from you. Please share with me your results. What did you learn when you listened to your customers? What actions or decisions did you take based on this information? How did it help your business? Thanks in advance for sharing and continuing this conversation with others who can benefit from your experience.

Go Wide and Go Deep

Tips for beating your competition

Go deep - Go wide

Your service revenues have remained flat for the last three (3) years and nothing seems to move the needle on the revenue dial. You’ve stayed in touch with customers and provided them with all sorts of incentives to contract with you yet attachment rates have remained low. Why aren’t customers buying from you? Your field organization believes it because of competition. Others voices in your company think that your service organization is no match for the competition in terms of its capabilities. So why aren’t  you winning your share of business?

Let’s assume for a minute that your field organization is correct in asserting that competition is a threat to service revenue growth. How well do you really know your competition?  It is important to  answer this question in terms of direct and indirect competitors. A direct competitor is a company that offers the same primary services to the same customer base. In the OEM service world, this could be a Third Party Maintainer (TPM) or another OEM with multi-vendor service (MVS) capabilities. An indirect competitor is a company that offers the same or similar services as part of a wider service offering or that offers a good or service that can serve as a viable substitute. Depending on the industry, this may be a Systems Integrator, Consulting firm, Facilities Management, or Business Process Outsourcing Company.

Now that you know who your competitors are you can start to analyze how these companies compete with you. Once you do this you can develop a strategy to win back business. All too often, service providers especially OEMs think that competition is only on the basis of price. They believe that their competitors are under cutting them on price or giving service away for free. The knee jerk response is to play the quality card. In other words, the service provider who is losing market share makes the claim that the lower priced competitor provides inferior service and/or their work is more prone to defects because they are so cheap. For example, they may point to the level of training the techs receive (e.g., factory trained versus on the job training) or workmanship of spare parts (e.g., genuine versus generic). This tactic seldom works because it is difficult to back this up. Unless customers experience a defect in service, the argument carriers little weight in getting customers to switch.

The truth is that your customers will want to do business with you if you add more value than anyone else. Rather than compete on the basis of price or quality, you must find and exploit gaps in your competitors’ service capabilities or service portfolio. The ability to deliver a better, more comprehensive solution is often the true test of quality. A great example about how this works in action is the service division of a major manufacturer of Graphic Imaging technology that was experiencing intense competition from local TPMs. Rather than play the quality card; the service division analyzed the service portfolio and service delivery capabilities of their competitors. They learned their competitors where limited in terms of the geography they covered, their hours of operation, their response time, and parts availability levels.

This analysis led the service division to offer a far superior service portfolio in terms response time, coverage hours, and SLA compliance levels. More importantly, the service division had the systems and processes in place to ensure consistent delivery of these services; something that their local TPM competitors lacked. As a result, the service division was able to significantly increase service market share and improve contract attachment rates.

The takeaway here is that knowing who your competitors are and what they do well is not always obvious. You have to look broadly and deeply at the market. Broadly in terms of understanding both direct and indirect competitors and deeply in terms of how well they meet customer expectations.