Jun 15, 2007

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.

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