The Wall Street Journal just announced that Apple, one of the most successful trend leaders in product development, is planning to grow through the offer of services—entertainment apps, credit cards, news, and gaming. It is a notable shift for this product leadership company. Of course, these services will integrate with and help further differentiate their products. The move is driven by the desire to maintain growth momentum recently slowed by softening of iPhone sales. It also gives this tech giant the opportunity to leverage loyal followers into new solutions that increase their reliance on all things Apple.
Shifts to a Service Economy
Many manufacturers have begun to realize that we are shifting to a service economy. Product differentiation is getting harder to achieve. In the information age, it is not hard for competitors to mimic even patented product, driving more and more similarity which puts pressure on margins. A client of mine, a quality leader in their industry, has held substantial and empirically proven product performance advantages over its competitors for years. It has allowed them to sustain a premium price position. But the differences in performance are growing smaller and pressures on pricing larger. They are responding by emphasizing services. Not as add-ons, but as the way to develop relationships with customers at a higher level in the organization, and to add more value. Services are no longer just the tip of the tail of your offering, but they have the potential to become the primary driver.
Leading with Solutions
Why the shift? Customers are continuing to raise the high bar on performance and hold employees accountable for delivering it. As a result, they are putting more pressure on suppliers to provide greater value to help them accomplish it. Those that step up, that go beyond selling the product to selling solutions, typically a combination of products and services, have the advantage.
This entry into services will also put competitive pressure on traditional services model. If your organization has been selling services hoping product companies stay on their side of the competitive “fence”, that is changing—permanently. Selling solutions is too valuable of a win-win with benefits for not just the customer but the provider too:
- Solutions have a larger impact on the customers’ outcomes so it promotes the discussion to a higher level in the organization allowing relationships to be developed with decision makers that have broader scope. That helps organizations escape some of the price pressure usually brought to bear by dealing with purchasing departments buying off of spec.
- It increases loyalty when it is clear you have the customer’s back, helping them meet their goals and making them look good to the people upstairs.
- Often, solutions are much more integrated into operational planning and involve longer term systems, increasing longevity of the relationship. Systems aren’t replaced as often as products within them.
- If in charge of the system or solution, you have more control over the other parts or equipment used in the system, and can add in more of your offering.
- If you sell the solution, the orders for the product come with it.
Apple will earn many of these advantages with its new products. Their customer knowledge will go from knowing what music you play to what you buy and when. They will be more fully integrated with the entertainment and music industries earning even more negotiating influence. Inventing solutions puts them in the driver’s seat as they write the specs for how things work across entire industries ensuring others must conform and are limited to following.
Hallmark Cards has had to replace much of its greeting card volume with other revenue streams. They diversified into managing content that focuses on relationships and have done very well with their TV channel, keeping their customer relationships with baby boomers and high visibility for their brand. As they have grown, a smaller percentage of revenue is from manufacturing.
Solutions for Print
The printing business in general is struggling as more is done digitally. A printing client came to me a few years ago uncertain what direction to take their organization. Fortunately for them, they had purchased a small tech company out of personal interest a few years prior and had developed some unique software for a client. Because the software was designed to collect information from the client’s customers to be used by the printer for completing customer orders, it never flowed through the client company. This valuable data would improve the client company’s market insights and aid in investment decisions. It was not difficult for this printer to develop a business model that created custom portals for their client’s customers and then sell information and solutions to their client that help them make better business decisions.
Services Manufacturers Can Offer
There are obvious services for most manufacturers to offer:
- Training: As baby boomers retire, sellers are losing relationships and customers are losing institutional knowledge. Providing training helps develop new advocates for a brand while providing a needed service to the customer.
- Consulting: Having engineers or experienced tech help that can interact with customers is valuable as it not only provides valuable insights to customers on how to maximize efficiencies or value from a product, it is a data collection engine for the company to use in understanding customers’ needs even better. This can be done as a reactive request to a customers’ problem but even better when proactive, offering support to prevent problems.
- Solutions development: This goes beyond offering advice to offering answers. If the client’s fundamental objective is greater productivity, how could they re-design their use of products, change their systems or behavior to get a better result. Most great new products are born from this kind of thinking—identify a problem then solve it. The answer is rarely just tweaking an existing product; it usually means developing a new approach. And in this world of instant data and real time expectations, it usually involves services combined with products. For example, instead of just selling equipment in response to a customer’s need for greater productivity, what if you also addressed floor layout of equipment, set-up process speed, inventory availability? In so doing, you might offer to provide additional equipment to help improve flow, function, and speed. You are not selling the product you are selling the result.
The days of answering the phone and picking up sales from loyal customers who want to buy what they bought last year and the year before are moving into the rear-view mirror. We need to get in front of where our customers want to go and help them get there with new and creative solutions to their problems that may use existing products in new ways or new products with more integrated service features.
One key area to consider in solutions development is artificial intelligence. The smarter we make devices the more we are connected to our customers. We both get better data and data forms a bond that makes customers “sticky”. If you make repair equipment and capture real time data such as how many repairs customers make in a certain time frame, how fast they make them, how the equipment was used during the repair, the performance of the equipment’s functions and similar information, you might know before they do when their equipment needs to be recalibrated, if it is being used in an unsafe manner or other valuable information. You just moved from being a vendor to a partner. And you can aggregate that data for an industry and leverage that proprietary knowledge into the development of new products and new relationships.
How much of your revenue stream is coming from services in the next few years? And if you are in the service business, which competitors are gearing up to come into your space? These are key strategic questions that can have a significant impact on your growth (or demise) in the next few years. Which growth path would you like to be on?