The Secret to Selling More Service Contracts

This article first appeared in Field Service News on May 28, 2018

Field service executives often face challenges when it comes to generating additional service revenue for their companies.

They often face resistance from customers as evidenced by low contract attachment rates. The natural tendency is to blame the price as the reasons why customers aren’t purchasing more services contracts.

After all, this is the feedback they received from their sales teams and from the customers.

Being logical and rational business people, field service executives try to solve the problem by lowering the price, after all, if the customer says that the price is too high, it must be the reason why they are not buying, right?

To quote, the popular song by George and Ira Gershwin, “It ain’t necessarily so!”. While price may be a factor in the purchase decision, seldom is price the only reason why customers don’t purchase service contracts.

In market research studies that I have conducted for clients in a wide array of technology service markets, I have found that price is often low on the list of criteria that end-users consider when selecting and evaluating service providers. Criteria such as quality of service, knowledge and skill of service personnel, breadth of service offering, and vendor’s knowledge of their business are perceived by customers to have higher importance than price alone.

The truth is “your price is too high” will always be an objection that customers provide when they cannot justify the value of a service contract.

This is because they have no way of logically defending the value of the service being purchased. Stated another way; they are not able to differentiate the benefits of service contracts from time and materials service. The problem is that Field Service Organizations (FSOs) often attempt to sell service contracts without providing justification about why a service contract is better than simply paying for service on a time and materials basis.

A common saying among sales professionals is that customers buy emotionally and then defend their purchases logically. All too often, FSOs provide little emotional reason why a customer should purchase as service contract as opposed to T & M and even less logical supporting evidence about why a service contract is more valuable.

To achieve high attachment rates, FSOs must be able to articulate the value of their service offerings to customers as well as to their own salespeople. The value proposition must impact customers’ emotionally by addressing their fears, worries, doubts, and concerns about the impact of service or the lack thereof on their operations.

For example, fear of excessive equipment downtime, lost revenue, low machine utilization levels, or the possibility of quality defects. Of course, the FSO needs to provide logical supporting evidence why their service offering will eliminate these issues.

FSOs achieve this results by articulating, either through a sales conversation or marketing collateral, what’s included in a service contract that is not included in time & materials. This requires they do an effective job in defining the coverage, entitlements and resources available to the customer through a service contract.

They must be able to answer the customer primary question “What’s in it for me?”. If the only difference between a service contract and time & materials is that the customer can prepay for service, then there is no emotional value or logical contrast. However, if the service contract provides a preferred level of service (e.g., 4-hour response time, 99.9% uptime guarantee, 7 by 24-hour coverage, parts, etc.) or preferred price structure then the customer is presented with some real value and contrast.

Ultimately, FSOs must be able to help customers defend their purchase of service contracts. They do this by offering more value in a service contract than the customer could possibly receive through time and materials services.

Fundamentally, FSOs can deliver better service to customers under contract.

This is because the contacts provide data about the installed base and service demand requirements. As a result, FSOS can anticipate service events and be more effective at planning and allocating service resources. This, in turn, makes it possible for FSOs to provide a guaranteed level of service to their customers.

Honesty is always the best policy especially when it is supported by a guarantee and exceptional service!

Do you have any comments or questions?  Let us know by posting below !!

The Role of Data in the Servitization Journey

Data is becoming more important as we consider one of the most significant trends impacting the technology industry, "Servitization".

Several years ago, Blumberg Advisory Group worked with a company that provided hardware maintenance on film based photo labs found in big box retail outlets. Their service revenues and profits were declining because digital photography was replacing the need for film based photo labs. Although the client offered a new digital based technology to replace film based photo-labs, these systems were not being installed at the same rate as the older systems were being phased out.   Digital systems didn’t require as much service and support. They were less complex and easier to maintain than their film-based cousins.

Our client required a new strategy to offset their declining revenues and profits.  They needed a solution urgently or the parent company would shut down this division.  If we did not know the importance of data or the concept of managing the capability to serve, we would have probably recommended that the client lay off some of its field service workforce to reduce costs and improve profits.  This could have led to a downward spiral of layoffs, company morale and growth.

So what steps did we take?  We analyzed their data.  We reviewed their field engineer utilization rates, customer response times, field engineer skill levels, and the equipment on customers’ premises.  In conclusion, we found that their field engineers were not being completely utilized.  We found out that these engineers had further knowledge and expertise in supporting other types of equipment found on the customer site.  They were typically able to respond to a customer request within four hours even though the guarantee was for eight.  

Based on our analysis, we recommended that they expand their service footprint to other types of equipment located on the customers’ premises, i.e. electronic cash registers and point of sale equipment.  We also recommended that they charge a premium price to customers who required faster (e.g., 4 hour) response time.  As a result, this client went from losing 20% of their profits per year to a 50% increase in new business within 24 months of implementing our recommendations.

Ultimately, the key to our client’s success lied within the data.  Data is becoming more important as we consider one of the most significant trends impacting the Technology Industry, “Servitization”.  This trend describes the transformation that many companies are undertaking as they move from primarily selling products to generating a sizable portion of revenue and profits from services.   Ultimately, the path toward Servitization leads companies toward offering anything as a service (XaaS).  In other words, their business has reached the stage of development where they are no longer selling products or solutions to their customers, but outcomes.   For example, instead of selling a copier machine they are selling their customer the right to use the machine to produce a certain number of copies over a specific period or time.

To deliver on this promise, the provider must not only have great people, process, and technology but access to data related in terms of machine condition and performance (e.g., alerts and notifications), parts availability, field engineer location and skill sets, diagnostics, etc.  With this data in hand, the provider can ensure resources are available when needed and that the customer receives the outcome it purchased.  The data is made available through technologies like the Internet of Things, Artificial Intelligence, Virtual Reality, etc.   Examples of companies that are along the servitization journey are Rolls Royce, ABB, Siemens, Kone, and General Electric. They have generated profitable income and know that a truly exceptional service business is built on four foundations – people, process, technology, and data.

Comments or questions? 

Please post below and we will respond as soon as possible!!