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Building new competitive Advantage with product-enhancing Services

Many producers of industrial products are facing increased price pressure. Competition is mainly coming from Asian low-price companies which aggressively enter European markets. To avoid a cutthroat price battle, an increasing number of companies offer services in addition to their physical products. This allows them to create added value for their customers and to differentiate themselves from low-price rivals. In addition, product-enhancing services help to build customer loyalty and to generate additional income.

However, services should not be considered a panacea: Not all customers need them and those who do need them are not always prepared to pay.

Basically, the higher a product´s complexity, the higher the chances that services may be offered. Thus, producers of simple components will find it difficult to identify service opportunities. By contrast, manufacturers of complex systems with an electronic ´intelligence´ like, e.g., medical equipment, have lots of opportunities to market high-value services.

To systematically develop and actively market product-enhancing services, we recommend the following steps:

• List all existing Services around the Product
  Make a list of all the services that you already offer your customers for free. Perhaps you advise them on how best to integrate your machine in their production process. Or you train customer personnel how to operate the machine in the most efficient way.
• Create Service Packages
  Bundle your services into packages. This can, e.g., result in a ´consulting package´, consisting of a telephone hotline and on-site consulting. Or you may produce a ´logistics package´ which includes fast product delivery and special packaging.
• Describe the Customer Benefits
  Describe the benefits that you offer your customers with each individual service, e.g. ´optimized processes´ or a ´reduction in machine downtime´. Ideally, you will be able to quantify the benefits you provide, e.g.: ´We reduce our customers´ machine downtime by 10% on average.´
• Name your Service Packages
  Unlike physical products, services are intangible – and what people cannot touch and see is difficult to sell. Thus, the first step towards active service marketing is to (brand) name your services, making them more tangible for the customer.
• Develop Service Brochures
  The next step to make your services more tangible consists of developing brochures and other sales aids which describe, in detail, what the individual services include as well as the customer benefits.
• Market Services actively
  Analyze your customer base (installed base) and identify those customers for which a particular service could be interesting. Offer this customer group the service with a compelling benefit argumentation at a defined price. If a customer has received the service for free in the past, it will be difficult suddenly to charge money without a convincing argumentation. One possibility to increase the customer´s willingness to pay is to put the service price on a pro forma invoice and to subtract it subsequently. This will increase the customer´s value perception and his willingness to pay. At a later stage, start charging for the service.
  As with price increases in general, this strategy will not work with all clients. Therefore, it´s always easier to develop new services with compelling benefits and to sell them for money right from the start.

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