A few years ago, whilst working for an OEM in the telecoms industry, I was tasked to develop an added value service portfolio that wrapped around the company’s core products. Our business driver behind this strategy was very simple. If you need £1m revenue per year to keep the factory lights on, then you need to sell £1m of product each year. At the start of each year the meter resets and the battle starts all over again. You are reliant on new product sales and as we know, so many things can happen to derail even the most carefully crafted sales plans. Our strategy was simply, remove that dependancy by introducing services that delivered a new regular monthly or quarterly revenue stream over a specific fixed contract term.
Today, it is becoming increasingly challenging for a business, in any industry sector, to rely solely on selling boxes. We continue to live in uncertain economic times, where there is no “business as usual”. For business survival, I believe there is a clear need to build services in to your company’s portfolio. Then you start the year with a visible revenue stream.
Wow, as I write this, it sounds so simple. Just launch new service ideas and increase your revenue. As a well known Meerkat in the UK would say – simples.
But hold on a minute. There are a number of other compelling reasons why moving to services could be the right strategy for your specific business and these include:
- Obsolescence of old services: you need to create new services to replace old ones that no longer appeal to customers.
- Commoditisation of services: if your customers have lost their sense of value due to bad pricing practices, services can be repositioned and re-launched with a new pricing regime and greater margins. Many modern managers seem to believe that the commoditisation of products and services is inevitable. It isn’t. You can learn to turn a commodity into a value proposition with healthy margins.
- The desire to take advantage of new opportunities: you may spot a gap in a market and seek to take advantage of the opportunity.
- Increased competition: services may be created to copy or stay ahead of your competitors’ offers.
- Spare capacity: services may be launched to use up your spare capacity due to troughs in demand.
- Seasonal effects: some services are subject to seasonal changes in demand so new ones might be created to compensate.
- Risk reduction: new services are launched to balance a portfolio reliant on one service.
A strategic move to services requires a significant investment and creating the business case can feel daunting but the rewards are also there.