by Al Hahn
Don't you just love marketing? In the right hands, anything can be differentiated. Chicken ranchers slug it out in the media over the difference between fresh and fresh frozen.
Then the battle escalates to chickens that are better because they are grown locally and don't travel too far to market. Hey, I want one that flew first class directly to my kitchen.
No coach travel for my chickens, they might get dried out and wrinkled. I know I do. Restaurants have an even better approach: fresh, free-range chickens. No high class restaurant is dishing up plain old chickens today. Free-range is de rigeur in haute cuisine. At premium prices, of course.
Isn't it amazing what the human mind can rationalize? I'll bring a coupon to save 49 cents on dinner for four at Kentucky Fried Chicken and complain about the price.
Then, when Mrs. Hahn insists on date night at the local posh palace, I'll pop for Free-Range Chicken Cordon Bleu, at $22 for a quarter ounce breast and never bat an eye. The price difference is huge. Is the chicken that much better? I don't even compare them; not in the same league.
There are many other factors involved, including tangibles such as sit-down versus take-out, and intangibles such as atmosphere, class, etc.
This is very interesting marketing stuff, here. KFC chicken is compared to other fast foods like pizza and burgers. Free-range chicken is compared to similar dishes in other expensive restaurants.
Maybe we could influence our customers' comparisons of our service/support contracts in some way? Then we could sell free-range service & support at premium prices, and no one would complain.
How customers determine value
How do customers evaluate the value of your service & support contracts? Usually by comparison. They will compare features, performance specs, and price to whatever data is available to them. Sophisticated customers develop many complex ways to make their comparisons and evaluations.
Many customers are not so sophisticated, however. This is more true for service & support than for product.
Most customers just do not have the knowledge or the inclination to become service experts. They will make the obvious, easy comparisons and let it go at that. We can take advantage of that tendency in the pricing dimension.
Customers compare service/support contract prices to the following:
- Price of the product;
- Other service/support from the same vendor;
- Competitive service & support
- Comparable service/support.
They even tend to make their comparisons in the order shown. So, let's help them out. If we want to influence customer's evaluations of our service prices, we should make it easy for them to get favorable information.
Starting at the top of the list, we might be careful of the product/service comparison. Much software support is priced this way, as a percentage of the product license fee.
Falling software prices have taught us that this technique has its definite pitfalls, however, so we would be better off shifting to the second comparison, your other service & support.
The first comparison we will want to make is against Time and Materials (T&M) or Per-Call. If you want to sell service/support agreements, these should be strategically priced so that contracts are definitely a better way to go.
Typically, we find that Per-Call prices are 25 percent to 100 percent more expensive than the same services purchased through a contract.
New customers may not know this, however, so we should be sure to point it out. This can be accomplished directly by sales people, and supported by marketing documents that clearly show the costs of the alternatives.
Next, we might display comparisons among different levels of our own service & support offerings. Not everyone has or should have tiered services, but it is a popular technique - you know, the old precious metals continuum: bronze, silver, gold, platinum. Three levels is the most common way that service and support contracts are offered in the world today
One very good thing about this type of service portfolio is that we can try to contain the customers comparing eye within our own service alternatives. Hopefully we will exhaust their desire to make comparisons before they get to the competition.
In figure 1, we see a typical array of services. Price is in the vertical axis, with features and performance on the horizontal. Offerings like this typically have a 25 percent to 50 percent price difference between hardware service levels, with software support contracts more commonly doubling in price from one level to the next. Feature/performance differentiators are usually response time and hours of coverage for hardware. Software support packages commonly offer priority response, direct access to level-two support and assigned engineers.
Faced with this complex array of hardware and software packages to choose from, many customers are fully occupied and may not devote much effort to comparing
your services to competitors. If they do, they must find the comparable package in order to make a valid comparison.
This can work for or against you. We know of sales organizations that are extremely adept at comparing apples to oranges, to their advantage. Suffice to say that you and yours need a strategy to offer your customers comparative information that will be to your advantage.
Remember, you can sell your services or your chicken Kentucky Fried in style and price, or free range with gourmet accompaniments. The prices your services can command will be largely dependent upon the way they are presented and how the customer compares them. Personally, I'll have the free-range, organically grown skinless breast with the beurre blance sauce and the garlic mashed potatoes.
Oh, I forgot to tell you about the potatoes . . .