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.