The ability to generate profitable revenue from the provision of services is one of the key underpinnings of the Servitization journey. This journey often begins with basic offerings such as parts sales and culminates in the provision of advanced services such as outcome-based solution or pay for use options. To arrive at this destination, manufactures must transform their focus from transactional based sales (e.g., selling a single part or parts) to a relational based sales model (i.e., service contracts).

Service contracts represent an initial step in this transformation. However, many companies face challenges when it comes to selling service contracts. This is often evidenced by low contact attachment rates. The natural tendency is to blame the price as the reasons why customers aren’t purchasing more services contracts. After all, this is the feedback they were receive from their sales teams and from the customers. Being logical and rationale business people, field service executives responsible for sales may try to solve the problem by lowering the price, after all, if the customer says that the price is too high, it must be the reason why they are not buying, right?

To quote, the popular song by George and Ira Gershwin, “It ain’t necessarily so!”. While price maybe a factor in the purchase decision, seldom is price the only reason why customers don’t purchase service contracts. In market research studies that I have conducted for clients in a wide array of technology service markets, I have found that price is often low on the list of criteria that end-users consider when selecting and evaluating service providers. Criteria such as quality of service, knowledge and skill of service personnel, breadth of service offering, and vendor’s knowledge of their business are perceived by customers to have higher importance than price alone.

The truth is “your price is too high” will always be an objection that customers provide when they cannot justify the value of a service contract. This is because they have no way of logically defending the value of the service being purchased. Stated another way; they are not able to differentiate the benefits of service contracts from transactional based offering such as spare parts, or time and materials service. The problem is that manufacturers often attempt to sell service contracts without providing justification about why a service contract is better than simply paying for service on a time and materials basis.

A common saying among sales professionals is that customers buy emotionally and then defend their purchases logically. All too often, manufacturers provide little emotional reason why a customer should purchase as service contract as opposed to T & M and why a service contract is more valuable.

To achieve high attachment rates, manufacturers must be able to articulate the value of their service offerings to customers as well as to their own sales people. The value proposition must impact customers’ emotionally by addressing their fears, worries, doubts, and concerns about the impact of service or the lack there of on their operations. For example, fear of excessive equipment downtime, lost revenue, low machine utilization levels, or the possibility of quality defects. Of course, the manufacturer needs to provide logical supporting evidence why their service offering will eliminate these issues.

Service sales people achieve this outcome or result by articulating, through a direct conversations and sales collateral, the features and benefits found within a service contract. This requires they do an effective job in defining the coverage, entitlements, and resources available to the customer through a service contract. They must be able to answer the customer primary question “What’s in it for me?”. If the only difference between a service contract and time & materials is that the customer can prepay for service, then there is no emotional value or logical contrast. However, if the service contract provides a preferred level of service (e.g., 4-hour response time, 99.9% uptime guarantee, 7 by 24-hour coverage, parts, etc.) or preferred price structure then the customer is presented with some real value and contrast.

Ultimately, manufacturers and their service organizations must be able to help customers defend their purchase of service contracts. They do this by offering more value in a service contract than the customer could possibly receive through transactional services. Of course, the best way win over customers is by being honest and letting them know exactly how service contracts enable them, the service provider, to provide a better level of service.

Fundamentally, Field Service Organizations (FSOs) can deliver better service to customers under contract. This is because the contract provides data about the installed base and service demand requirements. As a result, FSOs can anticipate service events and be more effective at planning and allocating service resources. This, in turn, makes it possible for FSOs to provide a guaranteed level of service to their customers. Ultimately, it’s this guarantee that the customer buys. Of course, service providers must be able to deliver on this process. FSOs who can effectively articulate value and deliver on the promise are best positioned to quickly progress along the Servitization journey and generate high margin revenue from the provision of advanced services.

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