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Winning Services Strategies


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Key steps for more effective pricing of services

Key steps for more effective pricing of services

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  • 1. Winning Services Strategies: How to Avoid the Commodity Trap
  • 2. Agenda Current challenges for services firms Foundations for services success Breaking out of the commodity trap © 2005 Holden Advisors Corp., Concord, MA 2
  • 3. The Current Service Environment For service outsourcing companies Financial performance is inconsistent Customers are very aggressive negotiators Third-party companies manage and negotiate the deal For traditional product-driven firms Service-product solutions seen as the future Can t get arms around complexity For both Costing systems are inadequate © 2005 Holden Advisors Corp., Concord, MA 3
  • 4. The Current Service Environment: Some Root Causes Cost-focused value propositions Drives high-value solutions to commodity status Future train wreck in on-demand solutions Complexity of solutions overwhelm the sellers Lose focus on important customer value drivers Poor targeting of the right opportunities Undermines pricing power © 2005 Holden Advisors Corp., Concord, MA 4
  • 5. The Service Profitability Trap Increased Price Erosion Services Competitive Added to Intensity Stem Increases Unprofitable Erosion Service Programs Customer Costs Expectations Increase Increase © 2005 Holden Advisors Corp., Concord, MA 5
  • 6. Creating a Winning Services Program By connecting to sources of customer value Compelling value propositions Define Activities in terms that are meaningful to customers Activities Cost Constrained resources that drive opportunity costs Differentiated / undifferentiated Categorize Expected / unique Bundle to create unique value for specific segments A la carte for commonly consumed services Package Fence to capture differences in value Based on value not cost-plus Price Manage customer behavior and purchasing patterns © 2005 Holden Advisors Corp., Concord, MA 6
  • 7. Need to Connect with Customer Value If senior leaders in a firm, can t agree on the value proposition , It is a big problem. Rick Kash, The New law of Demand and Supply Full Suite of Applications Less down time Lower training costs Customer Excellent Profits Integration Faster product roll-outs Customer cross-selling Usability © 2005 Holden Advisors Corp., Concord, MA 7
  • 8. Costing Key elements Specific activities and resources Identifies top candidates for process variation reduction Facilitates analysis of service deployment at the segment and customer level Watch out for Averages Bottlenecks Transfer pricing policies © 2005 Holden Advisors Corp., Concord, MA 8
  • 9. Categorization Drivers are costs, customer value, competitive offerings Key questions High incremental or opportunity costs associated with delivery? Is / is not required for an entire segment every time? Do some customers get more value than others? Do key competitors offer the service? Does competition charge for it? How? Is our performance differentiated from the competition? © 2005 Holden Advisors Corp., Concord, MA 9
  • 10. Packaging Driven by hierarchy Core Segment-specific base offerings High-value bundles and a la carte services Use bundling to capture difference in value between segments or customers High-value bundles Low-value bundles with restrictions to limit broad appeal © 2005 Holden Advisors Corp., Concord, MA 10
  • 11. Pricing Capture value Change customer behavior to reduce delivery costs Improves quality of delivery Improves management of constrained resources Must be driven to a menu With specific service level agreements Challenge is keeping it simple Pricing model may drive service definition © 2005 Holden Advisors Corp., Concord, MA 11
  • 12. Customer Negotiations Playing Better Poker Customers are terrific poker players Know how to get high value for low price Unless we provide salespeople with the tools and training, will always lose the pot (profits) Needs to be supported by systems and analysis And by senior managers © 2005 Holden Advisors Corp., Concord, MA 12
  • 13. Final Thoughts The Service Value Cycle Focus on Differentiated Services Increase Rationalize Value Unvalued Delivered Services Profitable Service Programs Improve Reduce Service Costs Quality © 2005 Holden Advisors Corp., Concord, MA 13
  • 14. Thank You! Mark Burton Vice President Holden Advisors 978-405-0022