Getting Started by Asking Questions

When considering what type of services to offer your customers the simplest way to proceed is to start by asking them. What particular difficulty are they experiencing with your product? What is its business impact? But just asking your customers isn't enough - you need to understand the demands that their customers are making, and how your products are being used to meet that demand. You must strive to provide service solutions that your customers need, not necessarily those they say they want.

Many years ago a major car manufacturer began to study the new car sales market. They were attempting to understand why so many people hated to buy a new car. They talked to the dealers (their "customers") and then began to interview their customer's customer (the car buyer). The result was a new program, offered in selected markets, of fixed price car selling combined with full disclosure. No more haggling or negotiating. There was one price, and it was listed. This new service increased car sales in those regions where studies showed that new car buyers were women. Studying your customer and your customer's customer will tell you what service will reduce "customer pain" and increase solution value. Many times, you can get a good idea of value pricing, based on your interviews.

For instance, an installation and configuration service for complicated lab equipment could get newly purchased equipment "producing" quickly, at measurable value to your customer, which will tell you the value of the service, and provide guidance for pricing.

Consider starting your process by having a conversation with your customer. Ask leading questions and explain what you are trying to do. Consider asking permission to talk to a few of their customers. At first, keep your questions general and open-ended. Remember you are tying to surface a new product idea. As an idea begins to take shape, and you have a straw dog to share, consider going back to the same group to get more specific feedback.

5 steps to getting started with Services

1. Talk to your customers.
2. Talk to their customers.
3. Identify the "pain" associated with existing product.
4. Explore possible service "Band-Aids" for that pain.
5. Create a "test" service proposal and share it with your feedback group.

Service - Product Symbiosis - building service into the product

There are lots of ways to look at service by categories, including by their relationship to “products”. Three categories include: 1) services added to existing products (last week’s issue), 2) services designed into products– this week’s topic), and 3) services independent of products. The “recipe” for successful service design, development, pricing, launch and promotion varies with the category of service.

Just as the old safety razors were useless without their disposable blades, services can supply an essential part of a total solution’s value proposition. How do you design a product and service in true symbiosis – with multiple yet interrelated value propositions?

Most of us have heard of TiVo but what about Teleworld Inc.? This Silicon Valley start-up can teach us a lot about how to accomplish this difficult service birth. According to Randy Komisar, in his book, The Monk and the Riddle, Teleworld was the brainchild of Mike Ramsay and Jim Barton: a home video server that would store incoming electronic information and be linked to a variety of output devices in the home such as Internet appliances and computers. But these innovators quickly realized that the key to success lay in the back-end service required to keep “home servers” working. Such services would include things like a smart program guide, customized viewing based on preferences, variety of services based on “learned” customer preferences. The team at this innovative company, renamed TiVo Inc., went on to revolutionize the home TV viewing market.

“We don’t make any of our set top boxes. Our partners, like Philips, do that. Instead, we focus on the services and programming upgrades, “explained Ted Malone, Director of Product and Service Marketing at TiVo. “The service we provide is not just the smart TV listings. It includes all the back-end technology: software updates, activation and authentication, and technical support logs. Eventually we will add things like Video on Demand or premium content.”

Although not the manufacturer, TiVo, depends on successful sale of set top boxes through retail distribution channels. Only when a customer has a box installed can he become a TiVo service customer. Unlike the hardware, the service is sold directly to the end user. That was one of the service marketing lessons that TiVo developed in its early planning. Another was starting off right with customers. “It was important from the start that we NEVER provide free service. We wanted to be certain to have a true business relationship with all of our customers from the start.” Says Malone.

5 Key ideas

1. Design your product with service in mind

2. Never provide the service for free.

3. Test your assumptions

4. If you can, sell your service directly to your end user

5. Avoid subsidizing the design, production or sale of “reusable” products in a product/service solution unless you can guarantee the viability of back-end service revenue.

Keeping a Low Service Profile

Positioning: what are you going to sell, and to whom? If you have decided that service is "context" for your firm, are you going to package services for sale, give them away with your products, or a little of both? Perhaps there is an opportunity to tier your service - provide a particular level of service free with your product, and allow customers who demand it to pay for enhanced service.

That's a decision that Network Appliance Inc. has made. "We've determined that service is not "Core" for us. Since our products are simple and reliable, we bundle as much as we can into the product, at no incremental cost," says Collette Anderson, Services Field Marketing Manager for Network Appliance Inc. "Our goal is to make service a non-issue for our customers - to remove any reason for low satisfaction with our products."

Firms like Network Appliance Inc. (http://www.netapp.com) invest heavily in service cost reduction to reduce the customer's total cost of ownership. "Our Mean time Between Failure is extremely high but when customers do need service, many prefer to contact us through our service and support web site (http://now.netapp.com/public/sitemap/sitemap.shtml)," says Anderson. Web technology allows customization, and puts the customer in control of the service interaction, especially for self-service items like software upgrades or usage questions.

Remote support, and significant "back office" investment in database profiling and monitoring, is perceived as a powerful differentiator by many customers. "Occasionally we call the customer about a problem that they didn't even know about, but our system has diagnosed the trend, and we've already dispatched the part and an onsite installer," says Anderson.

This kind of "tailor made to the customer needs" positioning can also lead to a lot of custom service business. "If our customer asks for some special service or process, we bend over backward to accommodate him," Anderson explained. Sometimes fair pricing for custom services can be complicated and hard to calculate but a willingness to meet a customer's custom needs allows you to keep up with changing customer requirements. "When we find that a significant number of customers have asked for a new feature, we make it a standard service product."

5 Key Ideas

1. Combining services critical to customer satisfaction with your product, and service tiering, offering additional services or higher service levels for those willing to pay, will allow you to keep fixed costs down, but keep your more demanding customers happy.

2. In service "context" situations, don't apologize for the lack of a human touch. Customers appreciate cost minimization, and they like to "drive."

3. If they ask for it, and you can,-- give it to them. Generally, services are a lot easier to customize than manufactured products. Offer them on demand, for a small premium over cost. (You'll also get a built in Market Research benefit!).

4. Don't be afraid to "partner" if your customers need services that aren't in your budget.

5. Partners are also a great way to reduce the cost of providing on-site service.

Services - "nice to have" or "must have?"

You know what they say in the real estate business: "Location, location, location. Location is everything!" In marketing, positioning, while not everything - the other P's are important, too - is the critical element that must be defined first by every business owner or service executive.

"Is service a core part of my business and revenue plan, or is it a necessary cost of selling my product?" This question marks a fork in the road on a well-made marketing map. Your answer determines how you'll position your business and, consequently, which fork you should take since; the choices faced and strategies called for are very different between businesses where service is core and businesses where it isn't. In both cases, however, achieving optimal outcomes calls for expert execution as well as financial investment. But because the roads diverge rapidly as alternative strategies are implemented, it's vital to determine at the out set the path that's right for you.

"Service is integral to our product and certainly core for us," said Ted Malone of TiVo. But if services are not "integral" to your product, can they still be considered part of its core? "Generally, if services account for more than 30% of gross revenue, I consider them a core element of a business," said Jorge Helmer, former SVP of SGI Global Services.

5 Key Questions

1. Is service a significant annuity revenue stream?

2. Is it integral to your product?

3. Do you use service to maintain customer relationships?

Yes = "Service at the Core of your Business Model"

1. Is service generally free or low cost?

2. Is it a "necessary evil," critical to keeping customers happy?

Yes = "Service in the Context of Customer Value"

Service-Core or Service-Context positioning dictate very different strategic planning and implementation. Some companies with multiple products employ both service models.

Answering the "core" vs. "context" question is only the first step in successful positioning.

Often, the easiest way to figure out whether service is a core part of your business is figuring out if it isn't. Among indicators that services are context is that they are a means to sell more product and generally maintain customer relationships. Many software companies fit this description. Service is a case number, a problem to be solved as quickly as possible, usually free or low cost, and usually not personalized.

The situation is quite different when service is seen as a core business component. Now, investment flows into increasing the value of service to the customer. Although call-avoidance technology may be employed in to contain the cost of service delivery, the focus is on selling services for profit. High-cost and high-value services are developed for customers that demand them. Service methodology is valuable IP, and services are closely bound into a company's brand..

Services with a "high touch," highly personalized delivery method will become key to maintaining and leveraging customer relationships. Over time, distinctions between service and product may blur as customers become habituated to purchasing personalized solutions to business problems. Service core companies often invest in field service personnel as well as significant logistics systems that assure timely access to parts. Finally, many service-core companies will invest in a specialized sales force to sell services directly to end-users.

Conversely, companies that conclude that service is "context" invest in service cost-reduction technology to drive customers to "low-touch" service. They offer little "branded" on-site, or high-touch services, focusing instead on services delivered through electronic means. The occasional high-touch customer interactions are centralized and managed to maximize customer satisfaction. Such companies often outsource support and logistics in order to focus on what they do best: make great products.

Professional Services: Golden Egg or Money Pit?

Offering product-independent Professional Services provides several benefits to the product-focused companies bold enough to invest in them. Profits, increased account control, and subtle product tie-in compel many firms to bring these services to market.

"If you are selling solutions, selling consulting can be the high-margin part of the solution sale," says Thomas Lah, Director of Solution Engineering for SGI Global Services. "But to do it right, you have to keep in mind the ultimate impact on product sales."

Doing it right, however, is kind of like juggling four balls in the air - you need to keep them all moving at the same speed.

First, don't stray too far from your firm's area of core expertise. When choosing a professional service niche, sell what you are known for. Kathy White Learning Systems, a small southern U.S. publisher of reference books for critical care nurses, sells on-site nursing education, delivered by the Founder, Kathy White, RN. SGI sells professional services in Visualization and Imaging. "We help our customers solve unique problems in areas that are aligned with our traditional markets," Lah says.

Services can't be stored, freeze-dried, or mass produced. High-level consulting is a people-intensive business, and its output is created fresh, on demand. This always costs more than management expects, especially at first.

Third, expect high-level service sales channels to be different than those serving the product side of the business. "SGI sells consulting at the 'Executive' level in its target accounts but will frequently successfully sell IT products at the department-head level," says Lah.

Finally, recognize that the consumer of a professional service (who benefits) and your target customer (who pays for the service) are not necessarily one and the same. "Although our educational services are produced for and delivered to nurses," says John Mitchell, Marketing Director for Kathy White Learning Systems, "our customers (buyers) for this service are drug companies and professional associations." That means that your marketing effort could be complicated. For example, you might need to sell to one target (drug companies) but satisfy the needs of a different target market (provide education that nurses value).

Professional services can provide the high road to market validation and niche dominance. But they can also become a money pit that drains needed profits from other business units. Success depends on expert execution and a willingness to adapt to the demands of a fundamentally different business dynamic.

5 Key ideas

1. Great way for a product company to establish leadership in a competitive niche

2. Although NOT about selling more products, it's still important to select services within your product area expertise

3. Be alert to opportunities to incorporate learning from consulting engagements into future product enhancements

4. Plan for complexity in selling and delivery: your customers may not be the consumers of your services, and neither of them may have an interest in your products

5. Be realistic in spending future professional service profits; prepare for some hiccups in the beginning.

To thine own self be true: a good Service Strategy

When entering a service market, positioning strategy takes on particular importance. The business solution, targeted potential clients, benefits, competitive advantages and business identity need to be firmly established. Seems reasonable, almost like Marketing 101. But as sales resistance is encountered, the biggest temptation is to tweak the positioning, since, unlike manufactured goods, services can be redefined and refocused pretty much at will. It is important to resist this temptation, at least according to John Bruce, EVP,Sales, Marketing, Business Development of Counterpane Internet Security.

"My most important lesson: stay fixed on long-term goals and vision, and avoid the temptation to be all things to all potential customers," says Bruce.

Counterpane's positioning statement is a great example of highly effective positioning of services (see box). In "service core" situations, companies typically follow 3 marketing strategies: service tiering, leveraging customer base, and brand extension through service packaging.

"We tier our service by offering more network sensor points," Bruce explained. "Much like you would alarm a home with 8, 18 or 38 different alarms." The trick in tiering is understanding what service elements are absolutely indispensable, and what are of variable value.

Happy customers equal a growing customer base. What is the best way to leverage those relationships? "As part of our trusted client relationships, we are asked to recommend complementary purchases and services that might improve the safety of their online environment, says Bruce. But since Counterpane is not in the hardware or ancillary service business, these fact-based recommendations provide an ideal partnering and brand extension opportunity.

"Our security experts devise, package and brand other ancillary services that some of our clients might find valuable. This intellectual property can then be licensed to our partners for delivery," says Bruce. By implementing a very narrow positioning, Counterpane can partner with others serving other complementary business niches, with each acting as a sales channel for each other to a positively impact their respective businesses. Most important, by selling Counterpane-branded services, each channel provides a separate sales and marketing engine.

Example of Effective Service Positioning Statement (excerpts)

* Counterpane's business is Managed Security Monitoring. In plain English, that means we watch over your network..(with).. real … expert security analysts who monitor your systems 24 hours a day. …

* And expert monitoring helps you manage the risks of being online…

* At Counterpane we believe that your firewalls, IDSs, routers, and servers are just the terrain you fight on.

* At the moment you're attacked, …what matters is the caliber of people defending you…

See full statement on Counterpane web site: www.counterpane.com Copyright - Counterpane Internet Security

5 Key Ideas when Service is "Core"

1. Stay the course: craft your service positioning statement and stick with it.

2. Focus on doing a few things well, or dominating one segment.

3. This creates barriers to entry for competitors and will spawn additional non-competitive channels for your service

4. Ask your satisfied customers how you can add value to the relationship. They will give you some great ideas!

5. Have more ideas for great services? Consider packaging them and licensing them to partners, rather than promoting them yourself and risk diluting your sales and marketing efforts.