Strategy

Re-defining services value

Value creation forms the basis for customer retention, says Paras Rastogi

It was the end of the quarter, and Rohit, a young sales person was tense as nothing was clicking and he was under pressure to get an order to meet his quarterly numbers. Just two days before the end of the quarter, he gets a call from one of his customers who wants to place an order. Rohit rushes to the customer’s premises with the hope of closing the deal and winning the order. During negotiations, the customer asks for certain service commitments which Rohit happily agrees to without realising the long-term consequences.

We often make service commitments to a customer without realising the value attached to the same. In today’s fiercely competitive market, only value-added services act as differentiators. A customer may agree to pay a premium on the price of a product compared to what he is prepared to pay for a competitor’s product, if he recognises the inherent additional value embedded in services that come with the product. However, the onus of demonstrating the value rests with the supplier. Organisations should create integrated services to give clients maximum flexibility and returns according to the needs of their specific projects. They should help clients create value and achieve their objectives.

Service matters

While redefining the value that is inherent in any service, it is essential to do a evaluation from a holistic perspective by comprehensively capturing all value elements. Although an idea may superficially appear to increase customer costs, it may also have several not-so-obvious benefits, which can only be unearthed by delving deeper, based on a strong understanding of a customer’s domain. It may, for example, result in increasing availability or uptime of a customer’s plant, or deliver some less tangible benefits such as reduction in workload or employee headcount or even simplify procedures.

Today, the focus of most organisations is gradually shifting from acquiring customers to building long-term relationships. A customer who purchases large volumes brings a host of problems as well as benefits to a vendor. For example, large-volume customers are especially important because they keep a vendor’s production lines running and also act as referrals for other large deals .On the flip side, their purchase volume also makes them powerful enough to extract price reductions and services that could potentially negate the volume benefits to the vendor. These customers need to be managed differently from small or one-time customers by clearly defining the value of services offered and cost that has been incurred to retain them. Educating customers about the benefits of value-added services requires time. It is important that vendors recognise these distinct customer types, manage them differently and create their value offerings accordingly.

How to create value

Service offerings in the IT industry are restricted to equipment installation, training, and maintenance. Most packages and services that have been offered by IT companies revolve around these offerings. Some companies have also created an offering, which is a combination of two or more services bundled in such a form that it gives customers a price advantage. Value creation is about identifying business issues and finding a solution for those issues. For example if a client wants to buy a product ‘x’, the value-added package he gets is ‘x’ + ‘y’, ‘y’ being additional services other than basic installation or breakdown fixes. The aim of value creation is to maximise the value of a project by assisting it in its development and timely completion. This is achieved by taking a fresh approach to problem solving and by sharing knowledge. Most organisations are also looking at creating a specialist team for value creation services. The process has four simple stages:

• Value drivers—Establishing what the client perceives to be adding value.
• Brainstorm and generate potential ideas that can, in turn, generate value. Identifying the parameters that will help in creating a value proposition.
• Categorise ideas—All ideas are categorised into risk, design, management or strategic business issues.
• Identify champions and make individuals accountable for developing each idea. Ideas are qualified and presented to a client in a manner that will enable them to arrive at an informed decision.

For a supplier to sustain a position of leadership in the services business, the relationship requires to be continuously refreshed by generating innovative ideas and implementing them. This can only happen when the supplier has become the domain expert in the customer’s industry and can understand the criticality of the usage of IT in mission-critical applications.

One size doesn’t fit all

While the broad lessons large companies have learnt when dealing with multiple clients spread over different verticals would be useful to other mid-sized companies that seek to embark on a similar journey of creating value for services offered, other companies that wish to launch similar initiatives cannot directly copy a large company’s offerings. Each company has to find its own solution to migrate customers on the relationship spectrum, after unravelling and understanding the particular terrain in which it operates. Success in the journey of value creation depends upon a number of factors such as nature of industry, product or services characteristics, nature of competition, market realities, country-specific and culture-specific issues and many more. At the core of creating value for the services offered is identifying and understanding your customers. And critical to this intelligence is the ability to update information based on dynamics of the market environment.

Given the uniqueness of each industry, the task of gathering customer data and analysing the same becomes key to defining value to services offered. One thing however is clear—in today’s scenario when prices are plummeting and competition is cut-throat, the only way to protect your bottom line is by creating value for the services offered and articulating them to the customer in such a manner that it acts as a differentiator from other similar offerings in the market.

The author is working with an Indian IT major as a Strategic Account Manager. He can be reached on rastogiparas@yahoo.com