Capturing the Value of Supplementary Services

Virtually all managers are aware that the key to winning in market after market today is tailoring one's offerings to the needs of each customer while maintaining low costs and prices. But most manufacturers have focused only on the products themselves, largely ignoring another element that differentiates a company's offerings and has a huge impact on costs and profits: services. Instead of tailoring their packages of services to customers' individual needs, many suppliers simply add layers of services to their offerings. The authors have found that suppliers usually give customers more services than they want at prices that reflect neither their value to customers nor the cost of providing them. Many companies don't know which services customers with similar needs really want, nor do they understand which services should be part of a standard package and which can be offered as options. Most companies don't even know the cost of providing many of their services. And all too many let salespeople give away services to land a deal, even it those freebies reduce profitability. But some companies are realizing that they can lower the cost of providing services and use them more effectively to meet customers' needs, gain more business, and enhance profits. From the authors' study of the best practices of those companies, they have developed a model for providing flexible service offerings, which they believe will help a wide range of manufacturing and service companies figure out how to reduce the number and cost of services they use to augment their core products, how to charge more for those services on average, and how to provide greater value to customers.