Manufacturers are getting used to the idea that they no longer just sell products. For many, there’s a need—and very lucrative reasons—to sell services, as well. But that’s not to say it’s a simple transition, which makes it just the type of challenge that Thomas Hollmann, a clinical associate professor of marketing at Arizona State University, craves.
“I like messy problems,” says Hollmann, who also serves as executive director of ASU’s Center for Services Leadership. “In business, there isn’t a more messy problem than figuring out how to do well in services.”
It’s a huge challenge to reorient a business from making things to selling services, but one often overlooked pitfall is how to market those new services. Field Service Digital caught up with Hollmann to untangle the difficulties that manufacturers face when marketing services—both internally to employees and externally to customers.
What pitfalls do companies need to avoid as they make the shift to selling services in addition to products?
Hollmann: There is often customer resistance to pay for things that they received for free in the past. That resistance comes in three facets. First, there is economic resistance. If the company does a poor job of explaining the value of these services, customer might perceive it as greed, as a betrayal, as a bait and switch.
Then there is functional challenge. How does the new service work, and what’s the fee structure? If companies do a poor job of communicating the change, there’s bound to be resistance from customers that just don’t understand. Lastly, there’s the psychological aspect to how customers perceive the value that they will receive. It’s human nature, after all, to resist change.
Is there one facet of resistance that you see companies struggling with more than the others to overcome?
Hollmann: The one that seems to be a key cog in making it work is the notion of perceived value. Companies need to understand the value of the services they offer, whether old or new, and communicate that value well.
Everything else starts to fall into place if the customers see the value of services. It helps to ease the economic resistance and it tends to make customers more willing to put in the work to understand how the services work—and why the price is fair. Overcoming the psychological barrier is a big aspect of change management.
Servitization certainly presents technical challenges for companies. But it’s also a marketing challenge. Any successful strategies that you’ve seen companies use to overcome that communication challenge?
Hollmann: The first thing that is important to understand for the firms that are moving into servitization is that they have always been a service company. Most, if not all, companies have provided break-fix service, at the very least. They’ve always had a call center, or a way for customers to get in touch with questions and problems. It’s interesting, I think, that companies struggle with the notion that they have to become a totally different company to sell services. That’s just not true. Chances are the company has always provided service, but now they just need to embrace it a bit more.
The first thing that is important to understand for the firms that are moving into servitization is that they have always been a service company.
So, companies’ self-perception is another hurdle?
Hollmann: Manufacturers today are so in tune with techniques to manage their production value, whether Six Sigma or Lean or another strategy. There’s a great understanding of the workflow within the production system, but a complete lack of understanding about the same problem within the service system. That’s a problem because once a company charges for a service, they must do a good job at providing it. They can’t just start charging for a service and try to plow along as they’ve always done. They need to see service as a business and approach it with all of the management tools that they’re already using.
What advice do you have for companies eager to come out the other end of the servitization shift successfully?
Hollmann: First, focus on customers’ expectations, needs, and business realities. Really understand what the customer is trying to accomplish, and how you can help. Second, change your sales force. People that are good at selling boxes are not often good at selling services. It’s a different animal to sell—very different. Companies need to think closely about what its services sales force should look like. Once you have a deep understanding of customers and a revamped sales force, you need to figure out a pricing strategy for the service—and then show the value of those services to customers.
How important is it to ‘sell’ new services internally to other employees? Should companies do that before turning their focus outward and selling to customers?
Hollmann: Absolutely. It’s a big leap for companies to go from selling boxes to providing solutions to customers that come partly in the form of boxes and partly in the form of services. That is one of the biggest transformations a company can go through; it’s a big change management problem. Companies should spend at least as much time internally on the shift to servitization as they do externally.
Any examples that have successfully navigated the servitization transition and implemented a service marketing strategy? What lessons can they offer companies that are beginning this journey?
Hollmann: One of the best-known examples is IBM. In the early ‘90s, IBM was close to going bankrupt and discovered that services were an area with particularly high margins. Today, IBM is very much a service company with some associated “box selling” going on. Another example is Xerox, where I worked early during my career. During the early ‘90s, Xerox went through a management transition and a service-based transition. Both companies realized—and this is an important lesson—that once they made the shift to services, they couldn’t lift the foot off of the accelerator. They had to keep going with it. Similar to every other part of a business, it’s a mistake to set it and forget it.
Any advice on what not to do when adopting servitization, or charging for services that previously were free?
Hollmann: The worst possible strategy is to say, It was free until today, but as of tomorrow it has a price. That’s terrible. Don’t just slap a price on the service and say, Well, that’s just how it is. Out of all the ways companies can handle the transition, that’s the worst option. Instead, find a way to talk to customers about the value, about the reasoning behind the changes. Some companies do that by explaining the new services and why they aren’t free. As customers get used to paying for services, companies will often backtrack the old—free—services, as well. Another strategy is to form a partnership with another organization and explain that the partner can’t simply give away services, so there will be a charge. There are many ways to successfully do this, but the worst way is to slap a price on a service and expect everybody to fall in line.