One of the single most important objectives that service executives pursue today is service revenue growth. However, many struggle with this aspect of their business. Perhaps the reason lies in the fact that they attempt to apply product marketing theories to service marketing strategy. For example, executives often apply the 4 P’s marketing mix to their service marketing programs. The 4P’s which represent the four principles of marketing is based on the theory that the success of a company’s marketing program depends on how well the company manages strategies and tactics related to 1) product design and form/factor, etc., 2) price of the product, 3) the promotional strategy (e.g., sales, advertising, etc.), and 4) the place where the product is sold and/or distributed.
The problem is that these 4 P’s do not always apply to services. Service products are intangible and difficult to describe, so they can be challenging to promote. Another problem is that place has a fuzzy connotation in service marketing because there are multiple entities involved in service distribution. Sometimes they cooperate, other times they collaborate, and still other times they compete. Services can be offered by one entity, ordered through another, and delivered by a third. Without well-defined product, promotion and place strategies, all that is left is price and that becomes a slippery slope for service marketing. Sales and marketing can never be just about price because customers will always find a way to negotiate price.
Service executives who achieve great results are able to master three fundamental or strategic concepts about service marketing. First, they understand that perception is just as important as reality. The perception a customer has about a service provider is what influences their decision to work with that service provider. Customers need to trust that their service provider has the capability to deliver service before it is actually delivered. Second, they recognize that customers pay more for services over the lifetime of a product than they do when purchasing the product itself. In fact, they may pay as much as 8-10 times more for services than what they originally pay for the product. Clearly the dollars can add up. Finally, they acknowledge the relationship between “value in use” and time. Value in use is the cost to your customer in absence of the service. Some services are mission critical. If they are not performed in a timely manner, the customer may lose money by not having the service available. Seeing this connection allows service marketers to effectively price their services and articulate the value of what they provide.
There are just a few more concepts that service providers need to learn if they are going to win at service marketing. First, they have to know their market. Service providers obtain this knowledge through market research. If they know who buys, what they buy, and why they buy then they can sell more service to customers, to more customers, and get them to buy more often.
Market research also provides the insight needed to communicate effectively with current and prospective customers. It helps determine what messages, what images, what ideas will resonate with them and make them want to buy. Marketing is about taking a need and converting it into a want. You may need a watch to tell time but you want a Rolex because of the status and prestige associated with owning one. So when you have really good market research of who buys, what they buy and why they buy, you can construct your message in such a way that you turn a need to a want.
Good market research not only helps in creating a service portfolio customers want but supports in developing an optimal pricing strategy for that portfolio. Many companies price their services on the basis of either cost-plus or competitive pricing strategies. With cost-plus pricing, you calculate what it costs to deliver service and then mark up that amount to cover your profit. With competitive pricing strategies, you conduct market research to find out what your competitors are charging and then price your services accrdingly.
A third type of pricing strategy is called value-in-use pricing. It involves measuring the economic value or loss to the customer of not having the service available in a timely manner. This can be significant. For example, a manufacturing facility may lose millions of dollars every hour if its machines are down. Therefore, it may be willing to pay a premium for faster service. Market research can help determine whether a service provider should pursue a cost-plus, competitive, or value-in-use pricing strategy.
The final aspect to winning service marketing is called “invisible selling”. This is based on the premise that companies win service business not by pushing their offers onto prospects, but by pulling customers towards them. One way is through indirect marketing as opposed to direct selling. Indirect marketing includes publishing articles or white papers that demonstrate that the service provider understands the problems companies in their market are experiencing and that they have solutions. Other forms of indirect marketing involve using social media and public speaking opportunities to influence others to seek out the service providers’ expertise.
When companies put all the elements of a Successful Service Marketing™ program together, when they fully understand the strategic concepts of service marketing, when they learn how to optimally price their services, and when they use market research effectively, they achieve phenomenal results. Their service-marketing program becomes successful, their sales take off, and their profits skyrocket.
Michael Blumberg is part of the management team at Si2 Partners, where a Si2 ON-Demand provides a fresh new approach for clients wanting to leverage services to win in industrial markets. He is a Field Service, Service Marketing and Reverse Logistics expert as well as President of Blumberg Advisory Group
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