Tuesday, November 13, 2012

Dollarizing a Service

I recently received an email from a commercial real estate broker inquiring about how dollarization can be applied when selling a service.  This is one of the more frequent themes I see in reader inquiries.  The real estate broker’s note concluded, “Given that I’m not selling widgets, but service, it seems a bit harder to quantify my ‘value’.” 

Dollarizing a service may present unique challenges, but there is no inherent reason why one could not dollarize a service as they would a product.

Marketers and sellers of any offering – product and service alike – must always remember that customers do not buy products or services. Instead, they buy the outcomes, the benefits that result from these products and services. And when a business buys a product or service, they are ultimately buying the dollarized value of those benefits.

To return to my interchange with the commercial real estate broker, here are a few excerpts from my response to his questions:

Whether you are selling widgets or services (we have successfully dollarized plenty of both), there are a couple stages to work through.  You need to first identify and carefully articulate the specific areas where you create value for customers.  Next, you need to figure out a way to quantify those values.  A critical step is that you also need to persuade the customer that the advantages you offer are indeed real and unique to you

This area can be tricky with services, as a service is often not perfectly reproducible or predictable the way a product might be.  In those cases, you need to discover ways to create evidence of repeatable past success, or a documented methodology that the customer can intuitively understand as unique and differentiated.  This may mean publishing case histories, or customer testimonials. 

A difficult reality that some service providers must face is that their service offering MAY NOT in fact be all that different from what is available from other service providers.  In those cases, it IS in fact difficult to dollarize, because there is little differentiation to build on. 

Those situations may call for a broader strategic view:  you may need to find related ways to differentiate yourself and create value outside your traditional realm.   

As an example, a few years back, I worked with GE Capital, helping dollarize their lending to commercial fleets (what is more of a commodity than money?).  In order to get the conversation away from interest rate and fees, they looked at other services.  In one example, they worked with a trash collection company to install GPS devices on the fleet of garbage trucks, and then analyzed the routes the trucks traveled.  They optimized the routes, even taking into account topography, so the fleets could save money on fuel, brake wear and other maintenance.  (The GPS devices were installed for tracking... the innovation was to use the data to create value.)  This approach not only allowed the seller to dollarize the value it created for the customer, but it made it crystal clear that the seller was looking for ways to improve the customer's business.... a powerful message for any seller.

So, the summary message to service sellers is:

1.     You can dollarize the service you provide.
2.     You must identify the outcomes and benefits you create for a customer, and then determine how those benefits result in financial gain for your customer.
3.     You must determine how to use your past record to create a reasonable predictor of future performance (“we average reducing client inventory by 23%, which in your case would mean $29,000 less capital tied up in the warehouse.”).  Case studies and other carefully crafted tools can help build this case in a believable way.
4.     If it turns out your service offering can be closely matched by others, change your focus.  Think about your customer’s business and how you might find other ways to create value that will differentiate you from the pack.

1 comment:

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