Friday, 7 September 2012

The Challenges of Selling Services During a Global Recession

A global recession need not mean firms have to contract.  Instead, they might like to consider what we at the Cambridge Service Alliance call ‘the challenges of selling services’. We know that in a global recession there is more demand for firms to be innovative. People are asking themselves: ‘How do we deliver the outcomes we want?’ They are not just going to continue carrying on with business as usual.  What we advise firms to do is to ask the question: ‘What is the outcome the client is trying to achieve and how can we innovate the service delivery model to achieve that outcome?’

The shift to services is about the tendency of firms not just to sell products, but instead to sell outcomes - the outcomes that are related to services. For instance, a train manufacturer might in the past have sold trains, and then decided to provide the through life service to look after that train for its entirelife.  But today they are now going further.  They are saying that customers don’t even need to buy the train, as they will guarantee the availability of the train. They will maintain it and they will look after its upkeep, so that customers can just use the train. Ultimately customers often don’t want to own products, they want the service the product delivers for them.

There is little doubt that the shift to services does open up the market place; it creates new opportunities to grow revenue. But we do understand that it’s also not a straightforward change for firms - some of the changes are around changing mind-sets, and changing the culture inside the organisation, particularly for manufacturing firms. If you have been really good at making products and then you decide to move into servicing products as well, throughout their life, then clearly you are going to need people with different skill sets. You will need closer relationships with customers. You will have to help the organisation evolve and start to change the culture so that your firm becomes much more service oriented.

We have devised a seven-point scale of ‘challenges for sales’, leading in turn to seven ‘opportunities for sales’. These are: ‘appetite’, ‘outcomes’, ‘delivering what you sell’, ‘identifying and managing risk’, ‘sealing the deal’, ‘killing your business’ and ‘the hidden service’.

Appetite’ is about making sure your customers pull for your services, and that the demand is in the market, making it a pull rather than a push sale. In terms of ‘outcomes’, it is all about being really clear what it is the customer wants to buy.  It’s not the product – for example it’s not the drill or even the quarter inch hole, but it is about the ability to hang the picture.  It is also about building your capabilities, which is what Vestas has done with its business model. Vestas are no longer just selling wind turbines, instead they are now advising customers where to put them, utilising their knowledge of wind flows around the World, finding much more effective solutions for its customers.  This is how ‘delivering what you sell’ becomes essential.

You need to ‘manage the risk’ in the short and long term so that you really understand the dynamics of the risk.  What risk are you taking on, and so therefore how do you price the risk? You need to ‘seal the deal’ to avoid giving away the service and this means ensuring the customer really understands the value in the service. Then you have to ensure complementarity, so that you don’t ‘kill the business’, ensuring that both product and sales work together. Finally, ‘the hidden service’ is about putting the ‘sizzle’ in the service. Where are you going to draw a line of visibility and what are you going to make visible to your customers so they understand the value of your service? 

For instance, a restaurant like Benihana cooks the meal at the table, so that you see the chef tossing ingredients around, like a theatre show they make a real experience for you. We have to help customers understand what is going on behind the scenes, so they can see the value of the service they are buying. Another example is Rolls Royce, who take their customers into their controlcentres, and the customers see what they are buying when they sign the service contract. It allows customers to see what they are paying for and what the ‘sizzle’ behind the service is.

The thing that people find most difficult is to change the mind-set of an organisation.  You need to get your sales teams to recognise the value of the service, focus on the outcomes and then to make sure the customer actually understands the value of the service, and is therefore willing to pay an appropriate price for it. Customers also need to understand the risk transfer that is taking place and that this is priced into the deal – to appreciate the value of the entire package.

At the Cambridge Service Alliance we can try to help prevent mistakes being made in this shift to services, by turning those seven challenges into seven opportunities. We find that the issues firms face are often about complementarities. For example, if there are two separate business units, one for services, one for products and they just look after themselves then it’s not as good as if they can be encouraged to work together and make both of them ‘hum’. I want the product part to design for service, and I want the service part to go back to the product part of the business and give them new opportunities to sell additional products.

By making this shift to services product based firms can take advantage of theopportunities that present themselves even in a global downturn like today. In a difficult market there is an appetite for change, there is an appetite for saying - ‘We can’t carry on delivering things as we have done in the past’.  For instance, public policy makers may be scratching their heads and admitting: ‘We can’t deliver healthcare and education as we have done in the past, we can’t afford to’. There is a need for the service delivery model to change and that is where the innovation comes.

Listen to Podcast on "The Challenges of Selling Services" by Professor Andy Neely