Recently I got asked this question by a pricing manager at a major electronics manufacturer:
“Hi Ed, Do you know of any articles, experiences around Value models for services? Hard to differentiate as most companies offer the same kind of services, at least on paper. The difference is often in the execution.”
Because we get this question often, I want to share my reply:
Your question about value pricing for services is a good one. It is an issue that comes up frequently, either in the form of standalone services or as services as part of an overall solution offer. Either way, in my experience the value modeling approach is the same as with products. Just like products, services need to provide unique customer benefits which can be mapped to value drivers.
I will say however, that service value drivers tend to be less tangible – you have to really think how the service affects the customer operations. Say for example you have a service that provides a 24-hour customer support hotline that competitors lack. One possible benefit (out of many we can brainstorm) could be to “answer urgent customer questions about storing or using the product.” Next we’d have to think about common customer situations like this and the possible costs and risks of a customer doing without.
Reflecting on this further, let me add a few additional points:
- Think Offer, not Product. An offer represents all the implicit/explicit services wrapped around your product. These value-added services provide reasons for customers to buy. Low cost competitors don’t have as many reasons, so they focus more aggressively on price comparisons. To counter that, you must focus on full-value comparisons.
- Know your Customer Well. As I said above, you really need to assess whether your “value-added” services actually provide value to the customer. This requires taking a close look at all the customer touch points in your organization and asking the hard question of whether they truly improve performance in the customer operations. Start by building a collection of your best customer success stories.
- Be Persistent. Validating your offer’s value drivers involves iteration. You may start with a dozen or more plausible value hypotheses before arriving at one or two that can be presented confidently in front of customers. Yet, it is an extremely useful skill for any product marketer to master.