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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