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Unlock and add value in sales and service industries 1

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Peter Thompson
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In the many business discussions that I have on a regular basis with colleagues, I find that the companies they own or work for, often bundle their expertise into the price of the product they sell. It is as if the expertise is a value added, hidden customer benefit, that comes as a bonus for buying the product or service from their firm.

In complex sales it is hard to separate the tangible product from the expertise, because often the buyer must be educated as part of the sales engagement.  However, it is this business knowledge and expertise that separates one provider from another. Examples include pricing for websites or office furniture. This can also be applied to less complex sales. For example, consider hiring a bulldozer on an hourly rate and an operator to drive it. Do earth-moving companies promote the expertise of the driver whose skills must play a part in the time required or final outcome of the service?

One reason for this conundrum is because price transparency, due to the search ability of the Internet, is eroding the worth in value added reselling. From a marketing perspective, it’s far easier to communicate something tangible such as a product. However, with tangible product pricing ubiquitously available, the need to generate revenue from intangible know-how is becoming more important. The problem is that during complex sales the know-how should be transferred before the sale, but the question is- is the buyer prepared to pay for it?

In a perfect model, the expert would work for the buyer in order to determine the exact needs. In that case, the buyer would already incur costs of the time required to document the needs and prepare a specification. However, the experts tend to work with the seller. And, from the buyers perspective this is where a conflict of interest is generated. A valid question arises- how can advice be independent when it is provided by the same company that supplies the product? The major challenge for sellers is how to credibly separate the advice from the product and to be paid for the advice. 

Unbundling the advice from the tangible product

Some industries kind of get it. Take real estate for example. They earn a fee for the transaction but it’s only charged to the seller, which doesn’t entirely make sense. If the seller and buyer each paid half of the fees, then a genuine balance of matching of a buyer with a seller would exist, because the real estate agent would work for both parties. Perhaps this is why real estate agents are growing in popularity because in principle, they are acting in the buyer’s interest.

The real estate agent example shows that buyers are prepared to pay for intangible expertise when they are purchasing a product. Buyers are prepared to pay for know-how when it’s independently provided. It also occurs when consultants are engaged to advise.

Customers want to buy and not be sold

Today’s market suggests that customers like to buy and don’t want to be sold. They want to be in business with thought leading companies, self-educated and knowledgeable during the entire buying process. Smart buyers work backwards by first understanding what is the ideal business outcome. Secondly, they develop a requirements specification and thirdly, tender the product to the market to receive a quotation. The better the preparation in purchase, the better chance of a positive outcome.

The example of the printing company

A colleague of mine owns and operates a long time successful offset printing company. They are going through great challenges as the primary business of printing books and other collateral is moving at high-speed to digital tablets.  His grandfather founded the printing company 60 years ago. His father took over and operated the company for the last 30 years. Now my colleague has inherited the management, but he is faced with a vastly different market.

The business essentially comprises of expensive printing equipment and the know-how required to operate it. We have often debated the positioning of the company. We discussed where the real value in the final product is and how to communicate that message to the customer. His remarks were that the human aspect is the primary differentiator because the printing press is effectively a ton of steel and will only do what it’s told. It’s the consulting, understanding, and 30 years worth of experience that is the real value and what significantly contributes to the outcome.

Printing is charged per job and measured by a unit, for example, 5,000 books or 2,000 brochures. So, in principle the customer differentiates one provider from another by price. What we concluded from the discussions was that printing is actually a complex process and that the quality of the end result partly depends on technical factors ranging from the printing press, ink types, glue and paper. However, the primary differentiating factor is the knowledge and expertise before the production even starts including font types, layout and experience of printing hundreds of thousands of books. However, that expertise is built into the price of the unit and not even listed as a line item in a proposal. Does it mean that the printing company does not charge for the real expertise or is it that if they tried to charge for the expertise, the customer wouldn’t pay for it?

This is complex and sensitive

Some years ago we were trying to understand where the value in our own service lies. Value is tied to service, which in turn is reflected by price. Is that a fair reflection of service? What happens to the supplier who provides real, valuable, meaningful advice and is paid nothing? Is that fair? The buyer would suggest that it’s just the cost of doing business. Maybe that’s true but after some time, the supplier will stop providing too much advice as  they will fear being taken advantage of. In complex sales, something in the sales and buying process seems out of alignment. The question for value added resellers is how to unbundle the advice from the product?

The challenge

I am sure many businesses can connect with some of the thoughts in this article. A great deal of cost is generated through understanding the customer, their needs, writing reports and providing information only to get nothing in return. Often the decision on who would be the supplier is already made and the expertise provided only goes to enhance the competitor’s offer.

Some businesses are going to need to rethink how they sell and package their offer; otherwise they may struggle to compete. Clearly defining and separating the service from the product would be a great start to unlocking the true value of the entire proposition.

 

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About Peter Thompson

Peter Thompson
Peter Thompson founded GCOMM in 1996. He received his Bachelor’s degree in Software Engineering/Information Systems from Griffith University and his MBA from Nyenrode Business Universiteit in Holland. He believes in building great teams of people, both in business and socially.
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  • Matthew Thompson

    A very good article Pete and well written. I think you should charge for consulting and unbundle. This should be detailed up front as part of the proposal. There should be a commitment on both sides to work together otherwise a solution becomes very much about price. Now getting a client to see value that is a salespersons job. The value is in technically the right design, project managment and the services you wrap around the product. The product is simply a tool. The value is in the service. Good food for thought.