How to sell Services more profitably – Werner Reinartz & Wolfgang Ulaga

Need to understand service

• Across industries products are being commoditized, due to the sheer number of rivals

• To survive, businesses need to differentiate by providing ancillary services.

• Advantages- Services can overtake products on profitability

• Disadvantages – Huge costs that customers may not be willing to pay, Revenues may take a dip

Steps to achieve profitability

• Identification & marketing of customer solutions is a time consuming task. Sales cycles would always be longer.

• Avoid trying to achieve “too much too soon”

• Four steps suggested by Reinartz & Ulaga:

– Charge for simple services already being provided

– Streamline back office process

– Create service savvy Sales Team

– Focus on customer’s process

Charge for simple services already being provided

• Product companies fail to realize/ recognize that they already are a Service Company. Companies provide lot of services, but miss out on generating revenue, by not recharging.

• They need to cross the bridge from “Free to Fee”

• Transnational companies need to look at operations across the globe to indentify profitable services and implement best practices

• Ex – Schneider Electric adopted the strategy of building synergies over processes across the globe

Streamline back office process• Streamline unnecessary back-office processes to prevent delivery

costs from eroding margins.

• Businesses need to carry out the following to drive growth:– Outsource non core functions– Continuously monitor costs to identify profit drains– Exploit process innovations through use of technology

Ex – SKF Bearings allowed customers to access their electronic monitoring tool, thereby extending their service life. The tool alerted customers before hand about any potential failure

Create Service savvy Sales Team• Providing customers with solutions is a complex task. Sales cycles tend to stretch a lot

• By very nature these are strategic decisions and are always taken by the senior management

• This makes it imperative for the marketing team to be savvy of different Sales management strategies and able to comprehend the overall implications

• Invest in retraining people and educate them on communicating with Senior Management

• Reward people to promote services, considering the long sales cycle

• Ex - Schneider Electric switched the focus of its salespeople from cost-plus pricing to value-based pricing when promoting its services. This involved educating them about how their customers’ managers justified decisions internally, so salespeople could help the managers they dealt with take more responsibility for shaping decisions

Focus on customer’s process• Gather and analyse information on customers processes & structures

• Understand customer’s problems & provide value add services

• Ex - Forklift manufacturer Fenwick installed data-collecting sensors and radio-frequency identification technology in its forklifts, to amass valuable information about how customers used its equipment.

• It used the resulting knowledge to develop new service offerings, including remote monitoring, a customer-specific intranet, and a school for forklift drivers.

Recognize ThatYou Are Already aService Company

Industrializethe Back Office

Create aService-SavvySales Force

Focus onCustomers’Processes

KeyQuestions

How do we currently sellservices across businessunits and countries?

What are the bestpractices inside ourorganization?

Which services can bemoved from free to fee?

Which services areprofit drains orMoney makers?

How can we ensurecost-efficient serviceprocesses?

How can we tailorservices to customers’needs?

Is our sales force readyto promote servicesalong with products?

Can we explain thebenefits of our servicesto customers?

Are we willing to moveto longer sales cycles?

Are our offeringsaligned with ourcustomers’ goalsand processes?

Can we address theirproblems holistically?

What further expertisedo we need?

Recognize ThatYou Are Already aService Company

Industrializethe Back Office

Create aService-SavvySales Force

Focus onCustomers’Processes

KeyGoals

A list of servicescurrently provide to customers?

Generate Revenue from easilychargeable services

Appoint a senior executive to oversee thedevelopment of serviceCapabilities

Standardized serviceprocesses and controlmechanisms

Service platformsflexible enough to fit individual customerContexts

Sales force with Service-selling knowhow

Incentive systems thatpromote service sales

Tools for documentingvalue and communicatingit to customers

Detailed descriptionsof core customerconcerns and operatingprocesses

Shift from activity based to outcome oriented

Conclusion• Product companies need to realize the role & importance of services

• Service provided needs to move from the ancillary role to more value add role

• Customer’s problems should be kept at heart in every situation and solutions should be customized based on knowledge gathered about the company & business