Jim Baston, Principal Consultant at BBA Consulting asks if there really is a difference between selling to and serving out customers if the approach taken is both moral and methodical?

How do you view the efforts of your field service team when they make proactive recommendations to your customers to purchase products or services?  Do you view these activities as “selling” or “serving”?  How you answer this question will have a significant impact on the results of their efforts.

 

Perspective

Most service managers that I talk to tend to speak about the product and service recommendations by their field service teams in selling terms.  It is interesting to note that most of these service managers say they are disappointed with the results of their initiative. I suggest that a major cause of their lack of success is because of the self-limiting nature of their perspective.  Here are the five reasons why a “selling” perspective can significantly limit our success.

Opportunistic/Short-term Focus. 

When the proactive recommendations made by our field service team are seen as selling they become “add-on” activities and we tend to see them from an opportunistic perspective.  “While you’re there have a look for other things that we can sell to that customer.”  We miss the opportunity to see the service value in the activity and include it into our overall service strategy.

Skills Development is Focused on Selling. 

When we view the activity by our field team as selling in nature, then it is natural to look to sales training to upgrade their skills to handle the new expectations.  Although these are important skills and can be helpful in many cases, they aren’t the only skills or even the most important.  The field service professional’s ability to build trust and maintain credibility is more important. 

Our customers will not act on a recommendation if they don’t trust the field engineer, regardless of how skilled the field engineer is in selling.  And, unfortunately, if we simply teach our field service team to sell, they may come across more like salespeople and actually diminish the amount of trust they have with their customers.

The Field Team Does Not See Themselves as “Salespeople”

Most field service professionals that I have met do not see themselves as salespeople.  Many actually resent the term being applied to them.  If they do not see themselves as salespeople, how do they react when we ask them to “sell”?  Chances are they will feel that the request is outside of their core responsibilities and will either fail to act as requested or only do so “if they have time”.

Measurement is Limited to Selling Activities. 

When we regard the field team’s role as selling, then we will tend to limit our measurement of the success of the initiative to factors such as overall revenues, small project work vs. contract base, number of proposals by field engineer, etc. Although it is prudent to measure these things, this limited focus may cause us to miss key measures that will impact our long-term success – for example, customer satisfaction and customer attitudes.  Measuring only sales related activities may also cause us to reward behaviours that encourage unnecessary “selling” activities that may also erode trust.

Difficult to Promote as a Differentiating Service. 

Many service companies that view the field service team’s proactive efforts as “selling” fail to capture and communicate the value of this activity to their customers. These firms typically don’t mention to their customers that they are encouraging their field team to look for more opportunities. After all, how do you communicate the value from the customers’ perspective of the fact that your field engineers are actively looking for more ways to make more money from them?

Let’s go back to the question I asked earlier: How do you view the efforts of your field service team when they make proactive recommendations to your customers to purchase products or services? Here are some questions to help you evaluate your own perspective. Do you:

• Replace the words “selling” and “sales” with the words “serving” and “service” in your discussion of the proactive efforts of your field service team?
• Position your field team’s proactive efforts as a service and ensure that each member clearly understand that their efforts are an integral part of the service that they provide and why?
• Use your tools and employ processes and systems to support the field team’s proactive efforts in the same way that you have tools and systems to support the other services that they provide?
• Talk about work generated by the field on how it serves the needs of the customer (rather than how much revenue it has generated for the company)?
• Talk to your customers about the proactive efforts of your field service professionals and how it benefits them?
• Ask your customers about their level of satisfaction about the value of the recommendations they have been provided by your field service team?
• If you answered “no” to two or more of the questions, perhaps a little more self-reflection is in order.

Engaging the field service team in promoting products and services can provide a valuable service for our customers and create a significant and sustainable competitive advantage in an increasingly competitive service market.  We may be limiting our own success however, if we perceive these activities as selling rather than serving.

Jim Baston outlines some key considerations for companies looking to improve the service of their sales by fostering a proactive approach to selling service amongst their field service engineers.

Proactive Service® is a term I use to describe the proactive efforts by field service personnel to promote their company’s products in services to help their customers achieve their business goals. It is an excellent way to differentiate your service and stand out in today’s ultra-competitive environment.

If you encourage your field service team to look for opportunities to promote your services, here are seven questions to ask yourself to help you ensure that you are getting the most from your efforts.

1. Is opportunity identification part of your service deliverable?
This is the most important question and is the biggest determinate of overall success. When the subject of field service personnel promoting services comes up, it is often viewed as a selling activity that is in addition to regular service work. This is unfortunate since when our field team take steps to uncover opportunities that they feel will benefit the customer in some way, they are providing a valuable service – a service as valuable as their ability to maintain the equipment in top running condition.

As a service, the act of finding new opportunities is not an “add-on” activity for the field team to do “while they are there”, but an integral part of the field service person’s expected service deliverable. Our field teams have an obligation to bring forward ideas that will help the customer achieve results they may not have thought possible. When we take this perspective, it becomes easier to win enthusiastic support from our team of field service professionals. From this perspective, it is also easier for us to recognize the importance of implementing specific tools and processes to formalize this “opportunity identification” role. (See Question 4 below).
How well do you integrate business development by your field team as part of your service to your customers? 

2. Do your technicians recognize the valuable service they provide by making recommendations to help their customers be more successful?
Many of the service professionals that I have met do not see their role as a salesperson. They tend to leave sales activities to the people with the expense accounts and fancy cars. What these service professionals fail to see is that, with a service perspective, we are not asking them to sell at all.

By identifying and speaking with the customer about the actions that the customer can take that will help them improve operational performance, reduce costs, improve tenant satisfaction, etc. is a valuable part of the service.

This is important because, it will be difficult to get enthusiastic engagement from your team if they don’t see their proactive business development efforts as part of the service that they provide. They may give it lip service, but it is unlikely that they will put their hearts into the effort.

How about your service team? What do they think of your expectation for them to promote your services? Do they talk as if their efforts are a sale or a service?

3. Do you “talk the walk”?
Language is important. Your team will scrutinize what you say in an effort to understand what you mean. For example, if you tell everyone that their proactive efforts is a service but you talk about it as if it is a sale, then they will think that your service idea was just for show. Or if you reward individual team members for their “sales” efforts but do not put emphasis on the “service” they have provided to the customer, your words will not be consistent with your purpose.

How about you? How do you describe the proactive efforts of your field team? How well do you talk the walk?

"Many of the service professionals that I have met do not see their role as a salesperson..."

4. Do your processes support your business development strategy?
There are implications from this approach on the processes used to support business development activities by technicians in the field. Because lead handling becomes just as important as lead generation, the successful firm will have to ensure that they have a failsafe process for handling leads from the field and following up on them in a timely manner.

What processes do you have in place to help the field service professional uncover opportunities? What questions do you require them to ask when they arrive on sight that might reveal problems that you can address? What steps can they take before leaving?
Think about your processes around the proactive efforts of your team. Are they consistent in quality and scope with the processes and systems you have in place to support the other services you provide?

5. Does your field service team have the skills and knowledge to deliver on the strategy?
Skills development is an integral part of the strategy. Service technicians will have to become as good at interpersonal skills as they are with their technical ones. They will need to be comfortable in speaking with the customer about their ideas and the benefits of taking action. Service management will need to be skilled at coaching and in opportunity management. Training on these interpersonal and communication skills will drive improved learning and skills adoption.

Knowledge is also critical. How well does your team know about the various products and services you offer and how they benefit your customers? You might be surprised by the answer. In my experience, there are gaps in the field team’s knowledge about their company’s capabilities. If the field service person doesn’t know of a product or service or if they do not know enough about it to engage the customer in a high level conversation about it, they will not bring it up to the customer.
What about your team? Do you ensure they have at least a conversational knowledge about all of the ways you can help your customers?

6. Do you tell your customers what you are doing? If you were to add a new service to your portfolio, would you tell your customers about it? Of course you would. So, if your field team is providing an exceptional service by using their knowledge and expertise to identify ways to help your customers be more successful why not tell your customers?

We should tell our customers this, just like we would tell them about any other service that we offer that would benefit them. Perhaps the conversation might look like this:

“We have encouraged our field service team to use their knowledge and expertise to identify opportunities to help you achieve your business goals. If they identify an opportunity that will benefit your business, would you have any objection if they bring their ideas to your attention?”

Do your customers know what your field team is doing through their proactive efforts and how it benefits them?

7. Do you measure the effectiveness of your efforts beyond revenues? If you engage your field service team in the promotion of your products and services, chances are you measure the increase in revenues. What additional business have we won that can be attributed to the efforts of the field team? But, if these proactive efforts are a service, shouldn’t we expect more results than simply improved sales?

What about customer satisfaction and retention? If a customer sees value in the proactive efforts of our team, should we not expect to see improvements in these areas? How about the amount of unplanned emergency work as a percentage of the contract base? If we take proactive steps to help our customers avoid unexpected failures, would it be reasonable to expect to see a change in the relationship between unplanned and planned work? And what about our customers’ level of satisfaction with the proactive efforts of our field team? Are they comfortable with their proactive efforts?

When it comes to assessing the impact of the proactive efforts of your field service team, what do you measure? What do you manage?

There is a tremendous opportunity to differentiate our service from our competitors through the proactive efforts of our field service professionals but unfortunately, despite our best efforts, we may not be achieving the results we had hoped when we embarked on the initiative – either for ourselves or for our customers.

Asking questions to help us reflect on our efforts may give us some insight to improve our effectiveness and further increase the level of service we are providing our customers.

Jim Baston is President of the BBA Consulting Group Inc.

Jim Baston, outlines why companies with strong field service delivery have a huge opportunity to add both value to their customers whilst improving their bottom line by tapping into easy accessible revenue streams...

Ask your customers this question:

Which type of service provider do you prefer?

1. Reactive: Quietly goes about performing their service duties with a singular focus of completing the work correctly and efficiently.
2. Proactive: Performs their work correctly and efficiently while keeping their eyes open for opportunities that they believe will help them achieve their business goals.

If the majority of your customers choose “A”, there is no need to read further.

On the other hand, if most of your customers choose “B”, then read on.

What follows is intended to help you provide the highest level of service that you can.

Our field service professionals have a wealth of knowledge and expertise. They understand their services and the value that they can deliver. They are familiar with the equipment that their customer is using and what that customer is trying to achieve. And, hopefully, they have an insight into their customer’s goals and challenges. Like the pieces of a puzzle, this information provides the field service professional with a unique insight into the customer’s business.

They can see opportunities that will help the customer that others with less information cannot. By bringing these opportunities to the awareness of the customer they are providing a valuable service, which a proactive approach does not provide. This is the value ad in business development by field service. Their recommendations can help their customers achieve results they would never have thought possible.

 

"The challenge for service providers is to encourage their field team to see this proactive role as a critical component of the overall service that they provide..."

 

Of course, the field service professional must be proactive in both looking for opportunities and in presenting their recommendations to the customer in order to deliver on this value. The challenge for service providers is to encourage their field team to see this proactive role as a critical component of the overall service that they provide.

The following suggestions are intended to help you support your field teams efforts to incorporate these proactive steps as part of their everyday activities.

 

Remove the word “sales” from your vocabulary

Having proactive discussions with customers about products and services is often represented as selling. “If only we can get our field personnel to sell” is a common refrain. Unfortunately, words like “sales” and “selling” often brings up an image of a pushy salesman who will doing anything to meet quota and this is not what a service professional is all about. They don’t see themselves that way and may resist when asked to take on the “sales” mantle.

Instead, call it what it is – a service. A service designed to add value to the customer by capturing the expertise of the field service professional to recognize opportunities that improve business performance. This is a service as integral and as important as the field service professional’s ability to troubleshoot and repair the equipment.

 

Clarify the service role you want the field service professional to take to deliver this service

Ensure that everyone on the team recognizes the service value they are providing when they take these proactive steps and develop some approaches to help them to do so. For example, when arriving on site, consider providing questions for your field professional to ask that may uncover opportunities to help. Do the same for departing the site. Ensure that your team understands that the goal of these activities is not to generate more sales for the company (although it will), but to improve the service level delivered to the customer.

 

Train your field team to communicate opportunities effectively

If a field team member finds an opportunity that will truly help the customer, then it is likely in the best interest of the customer to take action. However, this will only happen if the customer sees the value in the recommendation.

Train your field team on how to engage in these conversations and how to communicate the value of the opportunity of moving the customer closer to achieving his/her goals.

 

Check your processes

Just like every other service you offer, you must have good processes if you want to ensure that the service is delivered efficiently and effectively.

There are several areas to consider here including opportunity capture, management and follow-up. You might also want to consider how information about the status of an opportunity is shared amongst the service team.

 

Coordinate with internal groups that are necessary to execute the recommendation

Your field team may uncover opportunities that may need to be executed by another area of your company. For example, if the field team finds an opportunity that could lead to a large project of some kind, then the pricing and execution of that project may be the responsibility of a separate operating division.

Ensure that you have the full support of the other division and that they will seamlessly respond to the opportunity. Any slip-ups in these handoffs will result in reluctance by the field service team to make recommendations that will involve others in the future.

 

Educate your customers

Let your customers know what you are doing and why. Show them how the proactive efforts of your techs will directly contribute to their success. Let them know what they can expect and how you will be measuring the success of the initiative. Get their permission to engage your field team in this way.

You may also wish to consider holding regular (annual?) meetings with your customers to review progress. What recommendations have been made?

Which ones are still outstanding and why? How have the recommendations acted on to date impacted the operational performance of the customer? What are the customer’s goals for the next 12 – 24 months? Etc.

 

Measure your success

As a service activity, the proactive efforts of your field service team can be measured. From a customer’s perspective, their measure of the value they see in the recommendations made by your field service professionals is a good indication of the field team’s ability to address the needs of your customers. This should also translate into improvements in customer satisfaction and retention.

 

"The proactive efforts of the field service team provides the service organization with an opportunity to deliver a higher level of service while generating more revenue, higher levels of customer satisfaction and retention..."

 

From a service operational perspective in addition to the increase in business, you can expect to see the percentage of unplanned emergency work go down since you will be proactively addressing pending problems through your team’s recommendations. This will make labour planning easier. You should also experience an improvement in employee satisfaction as their jobs become more interesting and rewarding.

The proactive efforts of the field service team provides the service organization with an opportunity to deliver a higher level of service while generating more revenue, higher levels of customer satisfaction and retention.

To ensure success, it is important to ensure that everyone understand the service we are providing and support that service through systems, processes and training. We should also engage the customer in our efforts by letting them know what we are doing and why.

Our efforts will be rewarded through higher revenues and more loyal customers.

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Jim Baston is President @ BBA Consulting

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Places for the upcoming Service Community event which is being hosted by GE Power, are now becoming very limited...

The event will be hosted at Ge's state-of-the-art facility at Stafford on the 16th October from 11.00 to 16.00.

As one of the most sophisticated Buyers of Advanced services, Keith Rushton from the MOD will give unprecedented insight in how performance related services are purchased, and why the MOD has been so influential in developing the new BSI standard for Services. We have one of the best presentations on Selling Service Value  I have seen from Leon Sijbers of GE Power and Ross Townsend from Ishida will be sharing their Service Transformation story. Phil Newton from BT will share his experience of rolling out an Augmented Reality Solution to one of the largest Field Service Organisations in the UK. And finally, Mark Homer from GE Digital will share some research on the importance of Service Data in industrial businesses.

The Service Community creates discussions and insights that are far deeper than most conferences, due to the informal and intimate nature of our events.  This is because we are a community in the true sense of the word, run by volunteers, with no sponsors, no exchange of money, no legal entity no hidden agenda's, just real people talking about real things motivated by a desire to learn.

Please feel free to forward this information to colleagues who you think would be interested.  We look forward to seeing you in October and remember to register by sending an email to info@service-community.uk . We will then contact you to confirm registration and will send out the joining instructions nearer to the event.

 

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In the final feature from our exclusive serialisation of Jim Baston’s excellent industry focused book Beyond Great Service we see the benefits that have resulted in Charlie’s efforts to establish a new sales-focused mentality amongst his service engineers that doesn’t compromise their trusted advisor status and even more importantly that they as service professionals are comfortable with...

In the penultimate feature from our exclusive serialisation of Jim Baston’s excellent industry focused book Beyond Great Service, we begin to see how our protagonist Charlie and his teams journey towards better understanding the balance of building revenue streams from the service department has begun to formulate into a clear and workable strategic approach...

You can catch up with earlier features from this series by clicking here

Based on the feedback from several customers, Charlie is ready to roll out the strategy of engaging his technicians in proactive business development.

He calls the initiative Intelligent Service. We join Charlie as he presents the concept details to his team.

The key components and actions/comments are summarized in the table below:

Charlie reminds the team that the focus is not to sell but to serve. He clarifies that serving means taking a proactive approach to speaking with the customer about the actions they can take to run their facilities more effectively.

Only if the technician feels there is a valid need that could be addressed by a particular service offered by Novus, should the tech promote that service.Only if the technician feels there is a valid need that could be addressed by a particular service offered by Novus, should the tech promote that service.

Charlie emphasizes that in no way do they want the techs to talk up Novus’ services just for the sake of sales.

Charlie is about to move on to the next slide showing the implementation steps and associated time frames when Peter stands up. Peter is a quiet, thoughtful technician and rarely speaks at the service meetings. When he does, he usually has something valuable to say. This was not to be an exception.

“Charlie, with all due respect,” opens Peter, as he pauses and looks down at the floor, “this is a good approach and I am all for the initiative. Frankly, it makes perfect sense to me. In fact, I think we all do this to some degree now...” Peter paused again, and Charlie waited in anticipation.

“But, if we do all the things that you point out here, we won’t have any time to do productive work. We’ll be spending all our time gabbing with the customer and I don’t think they’re going to like that, and neither will Novus.”

Charlie smiled. It was a good point and he was glad it came up, especially by someone as respected as Peter. It probably means that a number of techs feel the same way and it is important to clear the air on this.

“Thanks for that, Peter. You bring up a good point. I don’t think that this will have much of an impact on non-productive time if it has any at all. At the kick-off meeting, we will explain the program and ask the customer if they’re interested in participating. I expect that in most cases they will say yes, and by doing so, they will be giving us permission to discuss opportunities with them.

Also, as techs, you’re only going to be discussing items you feel are in their best interest, taking into consideration your experience and knowledge of the customer’s needs, so the time factor should be quite minimal.”

“Yeah, but what about this mid-year walkthrough stuff, and the time looking for opportunities. Won’t they take a lot of time?”

“It will take a bit of time,” conceded Charlie. “During the walkthrough, you can make the most of it by asking questions to get an even clearer idea of their needs and goals, along with pointing out areas where improvements can be made. I think it’s time well spent and I’m sure the customer will agree.”

Look and listen for evidence of problems as you walk to and from the work area. Be prepared to ask questions of the customers and their staff as you go about your normal routines“Remember too, that we will have already discussed the idea with the customer and gotten their buy-in at the kick-off meeting. As far as looking for opportunities, we only ask you to do that as you are doing your normal job.

Keep your eyes open for things that may not be right.”

“Look and listen for evidence of problems as you walk to and from the work area. Be prepared to ask questions of the customers and their staff as you go about your normal routines. Let’s see how things go. I suspect that the return on this effort will far exceed the time invested. Does that address your concerns, Peter?”

Thinking about your business:

• Is your business development strategy positioned as an integral part of the service you provide?
• Have you created a performance “dashboard” to monitor your progress?
• Do you have a plan in place to teach, coach and reinforce the skills development of your field team?

Next time Charlie reflects on the progress he has seen since implementing the Intelligent Service strategy.

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Leading Author and founder of Alexander Consulting, James ‘Alex’ Alexander puts forward a series of strong arguments for the reasons why product-focused companies can and must sell services. This is essential reading for the service director struggling to get their voice heard in a product-centric organisation...

Leading field services in a product company is not for the weak of heart. You must deal with executives who feel that products are the only ingredient in the recipe to organization success and that services are a bothersome, necessary seasoning like garlic in a casserole.

Like trying to convince a toddler that vegetables are good for them, you must constantly demonstrate your value internally, while confronting a product-thinking, product-is-everything culture.

Where to begin? I suggest that the best defence is a good offence. Research and review, prepare and practice, and then request individual or group sit-downs with your executive peers to address the question, why sell services anyway? Your future may depend upon your persuasion.

Why sell services anyway? Following are the benefits to articulate and motivate.

1. Sell More Initial Deals

Here is a bit of blasphemy to a product executive: Most customers view products as commodities! Regardless of how truly unique or elegant or innovative, your products are from your perspective, in most all buying situations, customers see no meaningful difference in the top two or three products in any category, across all industries, across all geographies.

Yes, I understand this may not be 100% factual, but from the perception of the customer, it is true. Hence, the old adage comes into play: Perception is reality. Kind of a sobering thought. 

Once customers have determined their shortlist of the two or three potential products or bundles of products that they will seriously consider buying, they almost always cast their product ballot based on what they believe are the best services that surround the productOnce customers have determined their shortlist of the two or three potential products or bundles of products that they will seriously consider buying, they almost always cast their product ballot based on what they believe are the best services that surround the product—services that will best ensure the product works as promised, keeps working, and does so with a minimum of hassle and added expense.

It is important to note that, in many cases, they will pay a premium for your offering if they understand the higher value your services bring to them. In essence, they vote with their pocketbook.

Furthermore, if your salespeople were strategic and sold an assessment early in the buying process—before needs were clear and products were specified—the probability of you getting the product business, later on, is greatly improved, giving you the chance to shape the final recommendations early while building relationships with people key to the final purchase.

GIST: Selling services effectively from the get-go will land you more initial deals.

2. Handle Fewer Train Wrecks

Sadly, sometimes products are positioned to the customer with these words coming out of the salesperson’s mouth: “Our products don’t break.

You don’t need any additional services,” or “It is so easy to implement our software. Just read the manual and you can do it, no worries.” This is all a bunch of baloney, especially if you are dealing with a fairly complex situation, an important customer process, and/or the customer has little if any familiarity with the implementation.

Rare is the product that will not need some type of service in its life cycle, whether a tailored implementation, ongoing maintenance, software updates, refurbishing, and on and on. Not positioning this reality of life with the customer upfront is negligent selling.

Services appropriately sold up front greatly improves the probability that:

[unordered_list style="bullet"]

• The product will work the way it is supposed to work the first time.
• Greater functionality of the product will be utilized.
• Irritated customers ringing the bell of the fire engine, escalating their concerns up your organization ladder, will be greatly minimized.

[/unordered_list]  

GIST: Selling services upfront saves your organization time, hassle, and money over the long term.

3. Sell More Products and Services Later

Experience also shows that when deals are sold with services up front, more products and services are sold later on.¹ Services greatly improve the chance that installation and implementation will be done correctly the first time, and services and support improve uptime and productivity.

Delivering services means dealing personally with customer personnel and, done properly, starts to build trust-based relationships. These customers are very likely to buy more of your products (and more services, of course) and are well on the way to being loyal, highly profitable customers for life. 

Figure 1 shows a real-world example of this revenue opportunity beyond the initial product sale. By selling services correctly early on along with the product, this company had a very realistic opportunity to add 2.7 times the original product revenue through incremental services. In this example, the product sold for approximately $100,000, so the potential for more services revenue was approximately $270,000. Plus, the customer was much more likely to buy this company’s product at the end of the equipment’s life.

GIST: Want to be a true total solutions provider? Services are the key.

4. Enjoy Predictable Revenue Streams

Want to see a CFO’s eyes light up?

Watch their face the first time they grasp an understanding of the predictable, repeatable sales that come from a services business built upon service and support contracts coupled with a finely tuned professional services capability.

This is pure joy to a bean counter. The services annuity stream makes life a whole lot easier for all of management, as it helps take the guesswork out of business financials and becomes an early warning, leading indicator of organization success or failure.

GIST: Strong services help you manage your business more effectively

5. Differentiate Yourself

Depending on the maturity of your industry, your competitor’s strategy, and your competitor’s dealings with distribution, services can differentiate you in a really big way. The more complex your products, the more they cost the customer; and the more mission critical they are to your customer’s business, the more the value-packing promise of services. Leading services researchers note from their studies that more and more companies in tough competitive markets are looking at services to yield competitive advantage.²

If your competitors don’t have full portfolios of strong service offerings, or if they don’t know how to sell them, this is a huge opportunity for you if you embrace the challenge. Give your customers what they need, want, and will pay for while locking out everyone else.

GIST: Services are the drivers of market dominance.

6. Create New Markets

Business consultants like to talk about adjacency strategy,³ the strategy of building upon an organization’s core competencies in one market to transport those capabilities to an adjacent, but different market space.

For example, a company with specialized battery technology designed for the automotive industry could potentially attempt to build upon that battery expertise to develop and sell to the marine market. The same possibilities hold true with services. For example, an energy utilization assessment developed for the automotive industry could be adapted for the marine market.

Taking advantage of your past experience and expertise can crack new markets and expand profitable revenue.

GIST: Services adjacency strategy can be a powerful component of any growth blueprint.

To summarize, services have proven themselves to be able to contribute significant value to many, many product companies through profitable growth of both products and services. Properly executed, strong services capabilities can increase customer satisfaction and generate customer loyalty. In addition, for some companies, having the right portfolio of services helps smooth the entry into new markets. Finally, in some cases, having an arsenal of new or better services can create competitive differentiation.

Question: But aren’t services less profitable?

Answer: Normally not.

Here are the core elements of a conversation I had with the CEO of a software company that I was interviewing as part of a services assessment for his company.

• Alexander: Tell me what role you’d like services to play in helping your company be successful.
• CEO: Frankly, I wish services was a much smaller part of the business. They negatively impact our overall profitability. Every time I talk to financial analysts, they beat me up on this issue. If you can tell me how to eliminate services altogether, I’d be extremely happy.

This perception is fairly common among executives at companies with high product profit margins. However, in most cases it is not entirely correct. 

On average, my research shows that there is no difference between the profit margins of products and those of services.⁴ In general, product profit margins have decreased as industries have matured, and services profit margins have increased as services management has learned how to optimize their organizations. For example, professional services organizations within product companies have improved their profitability by seven points over the last decade. In fact, top-performing services organizations have profit margins double that of their products. 

Adding a portfolio of services, even at lower margins than products, will increase the overall value to the customer.There are exceptions, of course. New products in new industries could have higher profit margins initially. However, experience shows that product margins will consistently drop. A few products, due to their innovation or patents or special circumstances, may be able to maintain very high product margins over time.

Yet, recalling the high value that customers place on services, adding a portfolio of services, even at lower margins than products, will increase the overall value to the customer. Hence, looking at blended margins is probably a much more realistic way to view and understand overall profitability. 

Finally, examining the financials of many services businesses inside product companies raises a few eyebrows, if not a few questions, about how profitability is calculated and the fairness of the calculations. Here are some issues to consider:

• Place your list items here

• If services consultants are spending 30% of their time in a pre-sales role, why isn’t that expense charged to sales?
• If you are a VAR (value-adding reseller) and your partner agreements require you to have a number of certified experts on staff, shouldn’t some of the costs of having these low-billable people on board be charged elsewhere?
• If a big customer has a blow-up, and company execs require a busload of top technical talent from the services business to do whatever it takes to fix the problem at no charge to the customer, should that cost be eaten by the services business?

My own biased experience says that if you sell the right services to the right customers in the right way, they will be very profitable and make the rest of your products look much better as well.

 

GIST: Re-look and re-think cost allocation, pricing strategies, and margin expectations versus customer value. There is a good chance that you don’t readily have this information, and it will take time to get the quality data you need.

 

So, there you have it—proactively communicate the value that your services deliver, help build a more profitable organization, and gain the respect you and your people deserve.

Endnotes

This article was adapted from Seriously Selling Services: How to Build a Profitable Services Business in Any Industry, by James “Alex” Alexander, and can be purchased from Amazon.com or the Alexander Consulting website.

References

1. Hahn, Al. 2007. The True Strategic Value of Services. Sandy, OR: Hahn Consulting.
2. Brown, Stephen W., Anders Gustafsson and Lars Witell. 2009. “Beyond Products.” New York, NY.: The Wall Street Journal.
3. Zook, Christopher. 2004. Beyond the Core: Expand Your Market without Abandoning Your Roots. Boston, MA: Harvard Business School Press.
4. Note that services margins are declining on average in some industries as more and more services appear alike to customers, are hence seen as commodities, and thus seem to have less value.

 

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Michael Blumberg, President, Blumberg Advisory Group and founder of Field Service Insights outlines how service organisations are overlooking the fundamental difference between a customer not seeing value in a service offering and a customer objecting to price and explains why understanding these are two very different things can open up a world of increased revenue streams...

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. 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.

Ultimately, FSOs must be able to help customers defend their purchase of service contracts. 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.

Of course, the best way win over customers is by being honest and letting them know exactly how service contracts enable you, the service provider, to provide a better level of service.

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 guaranty and exceptional service!

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As we begin to enter the final articles in our serialisation of Jim Baston’s excellent industry focused book Beyond Great Service we conclude the section on seeking feedback - an area that has become increasingly important today as field service companies en masse are putting the customer at the heart of their entire service strategies...

Before rolling out the strategy of engaging technicians in business development, Charlie wanted to seek feedback from customers. Last time he spoke with Joe Costello of East Side Property Management. Joe’s response encouraged Charlie that he was on the right track. Joe offered a suggestion for the initiative.“Way back when I first got into the industry, I ran into a bit of trouble that cost me my job, and almost my career. I was assigned as the building manager for a condominium for Chelsea Property Management. It’s still there, and it was at least 25 years old then. You may know it—829 Becket Avenue?”

“Yeah, I know it. My sister and brother-in-law used to live there.”

“Okay, so you will know it’s a pretty prestigious building. I am not sure why I got it, since it probably should have gone to someone more senior. Management must have been desperate. Anyway, I got it. I was pretty cocky back then and had no fear, so I guess I thought that I deserved it. Here I  was just out of college and managing a big building. That was in December. The next spring, I guess it was April, the service technician suggested that I consider changing out the boiler. It seemed to be running fine, but it was as old as the building and parts were almost impossible to come by. It might have continued to operate fine through the next winter, but maybe not. That would’ve been the time to make the decision so that a new boiler could’ve been installed during the cooling system when there is no demand for hot
water for heating.”

I would suggest you encourage your technicians to set up an informal meeting every six months or so, for them to go over any outstanding proposals that have not been responded to. “I told the tech that I wanted to mull it over. I was nervous about bringing this up with the Board at this time, since we were working on a number of capital improvements including a new roof, repaving the parking lot and repairing the pool, and these were seriously depleting the reserve fund. I thought I would wait until the June Board meeting to mention it. By then, the approvals for the major expenditures would be behind us and we’d be thinking about getting things in order to prepare for winter.”

“Well, as I said, I had a lot of things on my mind and I forgot about the boiler altogether—until October, when the heating season was upon us. It was at that point I remembered the boiler, but it was too late. Fortunately, the start-up went fine and I thought I was in the clear. In January, however, the boiler
went down. As luck would have it, it was the coldest day of the year and the forecast was for at least a week, maybe two, of the same. To complicate matters, the parts that were needed were not readily available. It took the service company three days to find the parts and another two days to get them installed and the boiler back in service. We were without full heat for almost a week, and you can imagine the uproar from the unit owners. Some threatened to not pay their maintenance fees. Others wanted to change the building management company. It was absolutely crazy, and all because of my carelessness. When the dust settled, it came out that the service company had actually recommended changing out the boiler way back in the spring. For my company, that was the last straw. I was gone within a week.”

“At first I was bitter about the situation. It was an honest mistake, albeit a careless one, but not one that I thought I should’ve lost my job over. And, it could have been avoided. Had the technician reminded me that I had not made a decision on the boiler, or had he simply asked what my intentions were with regards to replacement, it would have saved my job. Was it his job to remind me? As I reflect on it now, I don’t think it was in the truest sense of the word. However, it would have provided a valuable service to me.”

“Anyway, the reason I am telling you this story is that I would suggest you encourage your technicians to set up an informal meeting every six months or so, for them to go over any outstanding proposals that have not been responded to. The customer can then tell them if they have decided against the idea or if they are waiting for budget approval. They might also thank the tech for reminding them that they have not attended to the issue. If it makes sense, your technician could also use this time to take the customer on a tour of the facility to showcase work and discuss new opportunities.”

Thinking about your business:

• Is your business development strategy clearly tied to your overall plan to provide each customer with an exceptional customer experience?
• Does everyone know what they are expected to do to delivery on the strategy?
• What hurdles stand in the way of fully engaging your field service team?
• Do you include steps like reviewing existing recommendations with customers to ensure important ideas are not lost?
• Have you sought feedback from your customers on your initiative?

Next time Charlie seeks summarizes the components of the strategy to engage technicians in business development. He calls this new service “Intelligent Service”.

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