Research

Selling services: A brave new world

Selling and providing services is not what it used to be. Thanks to an ultra-competitive B2B services market and an increase in the number of companies contracting core functions to outsourced providers, purchasing departments have reinvented their services buying process. For salespeople, that means learning a whole new approach. In the end, sealing the deal for service providers today is less about savvy salesmanship and a product packed with bells and whistles, and more about demonstrating the ability to understand customer needs and correctly align the sales process with the purchasing process.

2005-09-14

Manufacturers and retailers in today's business climate face a constant struggle in their search for profitability. Battling increasing production costs, decreasing profit margins, heightened supply chain complexities, and a proliferation of business process outsourcing has companies hard-pressed for innovative ways to stay ahead. In response, many businesses have turned to the services market in hopes of finding new revenue streams and gaining a strategic edge. Companies in a diverse range of industries are enhancing their product lines with B2B services and/or bundled goods and services offerings that serve as a competitive differentiator.

"It is difficult today to compete on goods -- product margins are slim, and the competitive landscape is so difficult. Many companies are adding services to the mix of their offerings, and finding it a profitable growth strategy in many cases," says Mary Jo Bitner, professor of marketing and academic director in the Center for Services Leadership at the W. P. Carey School of Business.

IBM, for example, used this goods-to-services strategy to shift from a manufacturing mindset and become a cutting-edge services and solutions provider, spawning the "on-demand world" in the process. PetsMart, which boosted its industry dominance by adding grooming, training, and dog-sitting services to its mix of Puppy Chow and kitty litter, is another success story, says Bitner.

But many companies jump into the services game with unrealistic expectations and, as a result, achieve less-than-stellar outcomes. Being unprepared for the complexities of services sales is the biggest culprit for failure. "The concept [of adding services to a company's product offerings] is definitely working, but execution is much more difficult. Oftentimes, buyers and sellers don't fully understand the process and costs involved with services," explains Lisa Ellram, professor of business and supply chain management at the W. P. Carey School of Business.

At the same time, a shift in the services-buying process -- from an emotional, relationship-based sale to a fact-based, analytical purchasing decision -- has caught sellers in the services industry off-guard, compounding the problem. This buying trend has spawned new selling models for services companies, centered around getting buyers and sellers on the same page. Firms that successfully align their services selling process with potential clients' purchasing process have more success winning contracts and delivering service excellence, say Bitner and Ellram. The two will partner with their colleagues, marketing professor Stephen Brown and supply chain management professor Joseph Carter, to present "Becoming a Superior Services Provider," Jan. 10-12, 2006 through Executive Education at the W. P. Carey School of Business.

A 21^st-century buying process

Services companies are getting a new message from their clients and potential clients -- one that is all about measuring effectiveness and holding providers to their promises. With firms placing increased importance on services buying, purchasing professionals who used to focus solely on goods are now also tasked with services-buying responsibility.

"Services companies used to be able to sell directly to end-users or to the person holding budgetary responsibility. They no longer are able to do that because the purchasing department is involved as part of the team and they bring different goals and objectives to the table," explains Ellram.

The old-school services buying approach consisted largely of turning to existing suppliers to see if they offered what a company needed. Competitive bidding was a rarity, and most companies didn't spend a lot of time investigating options.

"The buying process for certain services was always considered untouchable, a 'sacred cow,' but that's not the case as much now," Ellram says. Today's services buying process more closely mirrors the traditional fact-based goods buying process, where salespeople meet with a team that includes clients and purchasing professionals searching for quantifiable elements such as a statement of work, service-level guarantees, and solid ways of measuring outcomes.

The increased trend of business process outsourcing is one major contributor to this need for a more detailed buying process. A company handing over its entire customer service or technical support operations to a call center, for example, is trusting a service provider to be the voice and face of the company -- clearly not something to dish out casually to the lowest bidder. Purchasing teams responsible for buying such services must consider up front what the company really needs from a service provider, and how to be sure they are getting it.

This convergence of marketing/sales professionals and purchasing/supply chain executives can require a reorientation of thinking on the part of service providers -- a task often easier said than done. For companies new to services selling, "the sales force is often resistant initially because services are harder and more complex to sell," says Bitner. "Mindset changes and cultural changes have to occur."

"This purchasing shift has caused an initial discomfort for services sellers. They are faced with a completely different negotiating environment, and are being asked questions they haven't been asked before," adds Ellram.

Tackling the new environment

How do service providers succeed in this new environment of more rigorous services buying decisions? Increasingly, they are turning their focus to better understanding their potential customers' services buying processes. By adapting sales models to align with buyers' purchasing models, the new leaders in the services industry make -- and keep -- the promises customers look for.

"Services marketing demands a very cross-functional approach versus the traditional view of marketing," says Bitner. "Service providers must be successful at delivering processes, being flexible, dealing with customers, and handling inevitable service failures."

Sellers must also understand where their service stands on potential clients' priority lists, says Ellram. Suppliers selling auto components to a car manufacturer, for example, are clearly negotiating a contract for a product that is essential to producing the car, and thus, has a direct impact on the company's bottom line. Services can have bottom-line impact as well, but many companies are slower to realize and accept this. Sellers must be able to evaluate whether a buyer is looking at purchasing the service as a long-term alliance or as a purely transactional relationship.

"There are some things companies buy that will never be viewed as strategic items," explains Ellram. "Sellers will waste time positioning them as strategic, or as providing value-added benefits, and the customer just doesn't care enough to pay for additional features."

Because services can be a gray area to buyers, moving beyond pricing basics and using a total-cost-of-ownership approach is more effective for both sellers and buyers, says Ellram. When evaluating services, purchasing teams today look at the total scenario -- not just at the contract price, but also at how the service can help lower their company's costs, meet strategic goals, and increase efficiencies. They will also examine value drivers within the price such as the service provider's response times and technical support capabilities, among other things.

For sellers, "understanding the customer better and being able to sell to them using the total-cost-of-ownership idea is very important -- and very effective," notes Ellram. Moving away from the price-reduction mentality and adopting a big-picture outlook is key for thriving in the face of these new sales pressures. Approaching the selling process by asking, "How can we improve the way we work with this company so our costs are lower, their costs are lower, and they are still getting what they want?" is key to winning the bid, says Ellram.

Delivering on promises 

But winning a bid is often only the first step for service providers today. With an ever-increasing number of companies entering the service market, competition is fierce, and a signed contract is no longer a safe guarantee of continued business.

Purchasing teams look for service companies that follow through on what they offer during the sales cycle, and can be counted on to fix problems and adapt processes to keep up with customers' changing needs.  

"Being a superior service provider is all about keeping promises," says Bitner. "FedEx, for example, has a goal of 100-percent satisfaction, which is almost impossible, but makes it clear to customers that they won't accept 98 percent. They also have a plan for service failure recovery, make clear promises, set clear service-level agreements, and have internal systems to match," says Bitner.

Continually evaluating process improvements and process efficiency is also imperative for a solid provider/customer relationship, says Ellram. Service providers need to constantly communicate with customers to make sure they still understand what the customer wants, and show a willingness to change in order to support their needs, she explains.

In the end, sealing the deal for service providers today is less about savvy salesmanship and a product packed with bells and whistles, and more about demonstrating the ability to understand customer needs and correctly align the sales process with the purchasing process.

Management