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A Services Marketing FAQ

We're beginning to put together a new half-day ASP workshop on "Services Marketing for Software Companies" (schedule to be announced), and as part of the "listening to customers" phase we recently invited ASP members to describe their most challenging services and support marketing problems.

Well, the floodgates opened. So far, we've heard from more than a hundred people, all of whom are struggling with some aspect of the problem. It was a terrific reality test for the focus of the seminar (the original version has already been sent to the trash…), because we've run into many marketing problems that are surprisingly common throughout the software support world.

We're now working on incorporating these "frequently asked questions" into the seminar. As a kind of interim progress report, we've drafted the following Q&A. Comments and advice will be most welcome:



ON WINNING INTERNAL SUPPORT FOR SERVICES

Before I can plan a major campaign to market our services, I need to get a commitment from management that they'll fund the effort. Suggestions?

Chances are, your management has already noticed how much revenue other software companies are getting from their services portfolio. If not, you can point out that a statistically typical company now generates slightly over half of its total sales from maintenance and professional services, and you might add that services as a whole are growing faster than license or product sales. (The details can be found in the ASP's 2004 Maintenance & Services Ratios report.)

If the revenue numbers alone don't make your case, you might mention profitability (the overall margin on services is about 58%), customer loyalty (a strong services presence tends to open the door for follow-on license sales), and the relative lack of competition (installed base customers almost always prefer to buy support services from the same vendor who sold the software itself).

But don't be surprised if top management is still skeptical.

Bear in mind that the senior decision-makers in your company probably came up through the ranks of product marketing and development. They don't have much faith in services, and their instinct is to "test the waters" with an under-funded, poorly-executed services campaign that will almost certainly fail.

Your best strategy may be to start with small but dramatic successes—for instance, by proving you can raise the renewal rate on maintenance contracts by 10%, or by doubling the number of training seats you sell. Once you can point to a few wins like these, you'll have a much easier time getting money for projects that will have a bigger impact on the company's business.

My sales organization has been giving away customization and training from the earliest days of the company, and they insist freebies are necessary to close deals. How can I make services profitable with this behavior?

Easy (well, maybe not that easy...). Every time a sales rep gives away services, make sure the customer gets an invoice that says something like "$5,000 training package—no charge." Putting a price tag on a giveaway is always more impressive to the customer than just saying "free training," so your sales guys certainly won't object.

Then tally up the dollar value of the free services your team has provided and show the number to top management. At very least, ask for credit for the lost services revenue on your internal P&L (which means it will probably be deducted from the sales group's P&L). Even better, point out that your numbers show that the company is giving up serious money when it treats services as a Cracker Jack toy.

We have five different groups—support, consulting, training, engineering, and field services—that each provide support-related services. I'd like to get everyone together on unified marketing themes, pricing, cross-selling, etc., but so far I keep running into turf wars. Advice?

It helps if you can get the various groups to work together on a shared, tangible project—for instance, a Web-based portal for all support-related services, or even a common services contract and billing process. If you can pull together a small team to make the company's services at least look relatively seamless to the outside world, you'll have a mechanism in place for addressing the deeper divisions between your different services groups. But it's almost certain to be a painfully slow process.


ON BUILDING A CUSTOMER VALUE PROPOSITION

How can we convince our customers about the value of our support and maintenance services?

Sadly, support and maintenance are like lima beans—your mother may have insisted that her lima bean casserole was good for you, but she probably never convinced you to ask for seconds. The same holds true for your support customers: You can argue all you want that support contracts are full of benefits, but support will still be a hard service to sell. Lima beans are lima beans.

A more productive approach, I believe, is to figure out what your customers do value highly, and then show clearly how your support services deliver on those values. That's your core value proposition and sales message.

Often, a little probing will uncover a real pain issue that your support services can address. If your users face a severe shortage of third-party consultants and integrators, for example, you might emphasize your support team's role as "the world's leading experts on Product X." With that value proposition, you're not selling support any more—you're offering a backup service that protects customers from potentially serious business interruptions.

Will it really make a difference if you identify the right value proposition? Consider the price difference between the U.S. Postal Service and Federal Express for essentially the same service-delivering a letter. The post office gets 37 cents for this service; FedEx, about $18. The reason we pay a 50x premium is summed up in the FedEx sales message: "When it Absolutely, Positively Has To Be There Overnight." In other words, FedEx has figured out that the hot button for its customers is reliable, timely delivery. And those customers don't hesitate to pay a price that's appropriate for the FedEx value proposition.

Is there a good way to quantify the "return on investment" for support?

You may be able to calculate a lower total cost of ownership (TCO) for products that are well-supported compared to those that aren't. But don't expect customers to be easily won over by your numbers. Unlike products, services are almost never sold by presenting a financial case. Would you pick a lawyer or doctor based on the ROI of their billing rates?

In fact, we all tend to buy services by considering relatively intangible qualities, such as trustworthiness, competence, personal chemistry, and professionalism. That's actually a very rational approach: In the end, the value proposition of any service is embodied in the people who deliver that service. You'll make your strongest business case for support services by letting customers see your people in action (as speakers, forum participants, and expert advisors) and by encouraging one-on-one "account manager" relationships.

So how do we discover what's important to our customers?

Just ask. Once it's clear that you're genuinely interested in their opinions, you'll hear lots of helpful advice. Be sure to keep the conversation focused on their needs, not on your specific programs. The best way to kill an open conversation about customer needs is to show up with an hour-long PowerPoint show. You don't want customers to "validate" your approach—you want a wide-open brainstorming session where you do most of the listening.

When you have large companies as customers, it may be hard to figure out who really speaks for the "customer." You may end up dealing with a whole cast of characters—help desk staff, IT managers, developers, end users, and purchasing agents. Each will have a personal list of priorities for what they want in your support plan. That's okay: Keep asking, and eventually you'll start to see a few common threads.

If you find you're uncomfortable or defensive about what your customers tell you, don't give up. Your customers want you to succeed—because then you'll do a much better job for them. Worst case, you can always hire an outside marketing consultant to conduct your interviews for you. But the bottom line is that you can only do a good job of serving customers when you know what's going on in their heads.

Okay, but what if we find that our customers value something we really don't do well?

It happens all the time. Customers want rapid response, but you're routinely backlogged.They want simple support plans, but your program looks like the federal tax code. They want support reps who know their unique applications, but you're routing all calls through a low-bid outsourcer in Arkansas. Ouch.

If that's the case, then your problem isn't the sales message—it's the basic focus of your services programs. And before you go any further with services marketing, you need to redesign your services offerings (and perhaps your whole organizational structure) to match what your customers really want to buy from you. There's absolutely no other way to solve this problem.

We've surveyed our customers, and it's clear that their top priority for support is "accurate answers." Should that be our sales message?

Probably not. (The one exception might be if all other sources of support information are notoriously untrustworthy.) Usually, customers take for granted that anyone who offers a service has some basic level of competence. We assume lawyers give adequate legal advice, coffee shops serve decent coffee, and tech support departments provide reasonably accurate answers. "We do what you expect" doesn't tell customers anything that sets you apart from the pack.

So how do you distinguish yourself from other "accurate" sources of support?

One good tactic is to suggest that you deliver services in a more personal and caring way—the "Avis tries harder" approach. The marketing folks at Avis clearly recognized that car rental services are pretty much a commodity—same cars, same prices, similar locations. So Avis defined itself as the one rental company whose employees care more about customers. In effect, Avis promises that its employees will be extra helpful if something in the rental process goes wrong—an especially compelling message if a customer has recently encountered a "not-my-problem" attitude from a competitor.

(Of course, you need a corporate culture that supports this kind of promise. United Airlines makes a similar pitch when it invites you to "fly the friendly skies," but its stressed-out employees are often far from friendly.)

In fact, personal qualities—trust, friendliness, empathy--are remarkably powerful elements of any good services message, even if there's no direct competition. That should be no surprise, since human beings ultimately deliver (and embody) most services. It's okay for product brands to be impersonal; in the services world, however, people literally are the brand, and we tend to have far stronger relationships with live human beings than with faceless institutions.

Here, for instance, is a ranking of services attributes that Alexander Consulting found were most important to buyers of professional services:
    1.  Competence
    2.  Credibility
    3.  Trustworthiness
    4.  Likeability
    5.  Business savvy
    6.  Responsiveness
    7.  Empathy
    8.  Communications
Unfortunately, most support marketing never gets past "Competence." Too often, support organizations hide the real faces and personalities of their services people behind a wall of corporate anonymity, and then management wonders why customers feel the company's support people don't really care. Develop a more personal support message and most of your customers will love you for it.

In our market, price really is a sensitive issue for many customers. Our sales guys are getting tremendous pressure to give discounts on maintenance.

The sales experts insist that you can always bamboozle customers into paying a high price. I'm not sure that's true: Sometimes price is a genuinely compelling value proposition that outweighs most others. The airlines have found, for example, that more than half of their passengers will endure cattle-car conditions--no leg room, bad food, screaming infants--in the coach section to fly as cheaply as possible.

If you're convinced that you have a lot of price-sensitive customers, then you might want to think about creating a bare-bones "Economy" or "Basic" maintenance plan that you can deliver at a significantly lower cost to yourself. Start by finding out what concessions your customers are willing to make to get the savings you offer. Slower response time? Fewer hours of availability? Fewer contact people?

Bear in mind that your goal is not to punish customers for being cheap, but to develop a reasonably attractive plan that satisfies their needs and preserves your margins. (And be sure there's a clear upgrade path to the next level of support--budget dollars have a way of miraculously appearing once customers have to make sacrifices for their company's benefit.)

What about bundling several services together—maybe some training classes and development hours—to add value to our maintenance plan?

Bundling is a good strategy when you're selling products (witness the phenomenal success of Microsoft Office), but it doesn't help much with services. In fact, bundling makes the core services package look more complicated, and complex services are almost invariably hard to sell.

Instead of bundling a lot of services together during the initial sale, you might want to try an incremental sales process. Every month or so, have your telesales reps invite maintenance customers to add another useful service (such as certification courses, special reporting, or "tuneups") to their basic support plan. Each new service becomes an impulse purchase; over time, the revenue from these incremental services can add significantly to the support group's profitability.

I have several sales reps who like to put together customized support plans, which usually involve discounts based on eliminating services the customer doesn't want. That seems reasonable, but how do we manage all the variations?

It's a lost cause to even try. When you let customers subtract services from a support plan, you almost always end up losing your profit margin and you create a logistical mess. The right way to structure support is to create a series of standard configurations or tiers, each of which adds services to the previous configuration-for instance, "premium" 7x24 coverage instead of the "basic" 5x12 plan. That way, customers are encouraged to move up the price ladder to get what they want, instead of cherry-picking the plan for discounts.

Of course, you need to make sure that the number of tiers you offer isn't confusing (three tiers seems to be about right). And the services you add to each tier should be things that customers really value. If you toss in services that are just window-dressing to make a premium service look more impressive, you're inviting exactly the kind of discounting that your sales reps are currently practicing.

My sales force doesn't like to mention services because they feel we're implying that our software is buggy and hard to learn.

Your sales reps may have spotted a real issue here. Many support plans and support Web sites do offer little more than bug fixes and entry-level training, so it's reasonable for customers to conclude that the vendor's value proposition is equally limited.

You'll make a far more favorable impression if you showcase a richer portfolio of services. Demonstrate how you'll help your customers extend the product (custom engineering), enhance their skills (advanced training and career development), network with each other (forums and user groups), and solve business problems (strategic consulting).


COMMUNICATING THE VALUE PROPOSITION

Okay, I think we know what to say about ourselves. Now what?

The good news is that you don't need a fat advertising and public relations budget, because most of the people you want to reach are already part of your installed base. The bad news, of course, is that there probably aren't a lot of channels that reach just your customers (at least not efficiently).

So what channels do you have? Your Web site is certainly important (in fact, support pages often generate about half of all software company site traffic). Start by making sure your value proposition is clearly stated throughout your support pages, and not just with a cute tagline. Test the site itself on a sample of customers to see if they feel you're delivering on what your marketing copy promises.

Then look at your alerts and newsletters. Again, avoid empty bragging and "success" stories. Offer a generous serving of content that your readers will find compelling. If your value proposition is that you help customers throughout their lifetime of ownership, mention advanced training and career enhancement tips. If your customers see you as a hub for social networking, stress your online forums and user group conferences. (Politicians call this "staying on message," by the way.)

Finally, get your best speakers in front of live audiences of users whenever possible. And make sure they stick around to schmooze afterwards. Even if you have thousands of customers, the percentage of people you've met face-to-face adds up very quickly if you keep plugging away at it. And face-to-face meetings are always an important part of establishing trust and personal chemistry.

Do we need an "elevator speech" version of our value proposition?

With services, you need something even shorter—ideally, a single phrase that describes what's really special about you. When you think of car rental companies, for example, Avis's "We try harder" slogan instantly positions the company against all its competitors. Because services are so intangible, your prospects tend to rely heavily on what they conclude from their first impression of what you do. You can add to their mental picture later, but if they draw the wrong conclusion or are confused, you're probably dead in the water.

There's a related reason for developing what I sometimes call an "idiot-proof" message: Referrals. Word of mouth is by far the most influential source of referrals for virtually any service offering, so you want to make sure your value proposition doesn't get garbled as it passes through the gossip network.

In fact, referrals are likely to be boiled down to a simple formula—"the best ______ I've ever found." If your customers routinely talk about "the best training class I ever took," or "the best tech support we've ever experienced," then your referral message is secure.

We spent a lot of money printing brochures about our services, but a don't see much evidence that anyone reads them. What's your feeling?

You're probably right. It's hard to write compelling sales copy about intangible services, and in any case the buying decision for services usually relies more on personal chemistry and referrals than on the kind of features-and-benefits discussion that's effective with product marketing. If you must have a brochure, load it up with testimonials and include a very personal pitch signed by a senior services executive.

Of course, there are some services-related documents that customers do read very, very carefully—your contracts and invoices. And chances are, these documents were written by the least customer-friendly people in your company. Make sure your contracts are written in the friendliest possible, clearest language that your lawyers will accept, and then review the invoices and other correspondence that your billing department sends out to make sure there are no surprises or ambiguities. If customers even suspect you're cheating on their bills, you'll never be a trusted partner again.


[Still to come: Maintenance renewals, professional services, training, and more tactical tips.]