3: Create a Service-Savvy Sales Force
As long as a company considers services to be an add-on to existing products, its sales force—with some training, of course—will probably be able to handle both product and service sales. But if companies are to move away from straightforward product-related services into more complex customer solutions, managers must take a new look at sales management strategies. Services require longer sales cycles, and the sales process is often more complex and strategic, meaning that decisions are made high up in the customer’s hierarchy.
Failure to recognize this challenge got Heidelberg into trouble. In the early 2000s the company started offering its customers remote monitoring of their printing presses—to be sold as an add-on, because the service could save customers many hours of expensive machine downtime. On average, one hour of downtime in a print shop can cost several hundred euros; given that the lead time for delivering spare parts to a customer’s site is typically 24 hours, a single breakdown may cost thousands. Heidelberg priced its new offering significantly below this amount, but customers did not bite. The problem was that although the company’s sales force and field technicians were well equipped to promote standard service contracts, they weren’t up to explaining more complex customer solutions—largely because they were accustomed to discussing terms with people in procurement (who tend to focus on cost per part or per service) or people in charge of in-house maintenance (who might view a service offering as a threat to their jobs). What Heidelberg needed was a sales force that felt comfortable talking to production managers—people who would see the implications of the new service for the total cost picture.
Product salespeople are often actively inimical to change, as Air Liquide quickly discovered when it started offering services. Top salespeople argued that margins from the firm’s traditional product business were already high enough and that the company still had room for growth in its existing product markets. Services were labor-intensive, would tie up considerable financial resources, and could harm product sales if the company failed to deliver on its promises.
The successful manufacturers we studied all took pains to retrain their sales forces. In a major overhaul of its sales organization, Schneider Electric switched the focus of its salespeople from cost-plus pricing to value-based pricing when promoting its services. This involved educating them about how their customers’ managers justified decisions internally, so that the salespeople could help the managers they dealt with take more responsibility for shaping decisions. But even after extensive training, companies may find that they have little choice but to fire and hire; a few in our study replaced 80% of their existing sales forces. Even those that managed to retain a significant proportion of their people still needed some specialized newcomers. Air Liquide hired several agri-food engineers to develop sales expertise for services in food-processing industries across Europe. The French forklift manufacturer Fenwick recruited specialists at the corporate level and in each of its regional sales offices to promote services attached to tri-directional forklift trucks. A good place to find this talent internally is among service-support staff members.
Most of the successful companies we studied made some kind of distinction between product and service salespeople. At GE Medical Services, for example, product salespeople are “hunters,” expected to go out and get orders for new equipment. Service salespeople are called “farmers”; GE expects them to grow their relationships with customers and sell services over time. Splitting the sales force is not always a perfect solution, however. Xerox has been very successful in establishing a solutions business in which the focus is not on providing office equipment but, rather, on helping clients manage their document flow. The organization nevertheless continues to do considerable business the old way, by selling printers and copiers and slapping simple service contracts on them. The two units end up competing for midsize customers: Whichever unit is first to get a lead pursues the opportunity vigorously, not wanting the other to get involved—even if it might be more suitable from a companywide perspective.
It almost goes without saying that a move to services will fail unless salespeople are financially motivated to promote them instead of focusing solely on product sales. Such a shift is difficult when product revenues are much higher than service revenues. For example, if Air Liquide supplies 500,000 worth of gas to an individual customer, the related services may be invoiced at only a few thousand euros. If objectives for service and product sales are not properly coordinated, their sales forces may even compete. When Air Liquide started to promote inventory management services to assist customers in optimizing the number of gas cylinders they had on hand, the company’s product sales force resisted out of fear of losing its traditional revenues. Management had to explain that although the new offering would indeed enable customers to reduce their on-site inventories, it would also help to lock in customers over the long run and to grow Air Liquide’s share of their purchasing overall. To reduce conflict between the two sales forces, Air Liquide created a double credit system: For each closed deal, product and service salespeople would get the same commission.
Finally, selling services requires that companies develop tools to document and communicate the value those services create for customers. These tools range from customer case studies and white papers to sophisticated simulation software. A good example is Documented Solutions, a tool developed by SKF over the past 15 years. Conceived by the company’s U.S. subsidiary, it helps SKF salespeople worldwide to identify and explain to customers how much they can save by using the company’s services. The tool is linked to a database that compares the best practices of SKF customers around the globe. It also allows customers to calculate their return on investment.
4: Focus on Customers’ Processes
Once manufacturers have learned how to sell and deliver services in a cost-efficient way, they can move toward addressing customers’ problems and processes holistically. This means shifting focus from their own processes, incentives, and structures to those of the customer.
As long as a company considers services to be an add-on to existing products, its sales force—with some training, of course—will probably be able to handle both product and service sales. But if companies are to move away from straightforward product-related services into more complex customer solutions, managers must take a new look at sales management strategies. Services require longer sales cycles, and the sales process is often more complex and strategic, meaning that decisions are made high up in the customer’s hierarchy.
Failure to recognize this challenge got Heidelberg into trouble. In the early 2000s the company started offering its customers remote monitoring of their printing presses—to be sold as an add-on, because the service could save customers many hours of expensive machine downtime. On average, one hour of downtime in a print shop can cost several hundred euros; given that the lead time for delivering spare parts to a customer’s site is typically 24 hours, a single breakdown may cost thousands. Heidelberg priced its new offering significantly below this amount, but customers did not bite. The problem was that although the company’s sales force and field technicians were well equipped to promote standard service contracts, they weren’t up to explaining more complex customer solutions—largely because they were accustomed to discussing terms with people in procurement (who tend to focus on cost per part or per service) or people in charge of in-house maintenance (who might view a service offering as a threat to their jobs). What Heidelberg needed was a sales force that felt comfortable talking to production managers—people who would see the implications of the new service for the total cost picture.
Product salespeople are often actively inimical to change, as Air Liquide quickly discovered when it started offering services. Top salespeople argued that margins from the firm’s traditional product business were already high enough and that the company still had room for growth in its existing product markets. Services were labor-intensive, would tie up considerable financial resources, and could harm product sales if the company failed to deliver on its promises.
The successful manufacturers we studied all took pains to retrain their sales forces. In a major overhaul of its sales organization, Schneider Electric switched the focus of its salespeople from cost-plus pricing to value-based pricing when promoting its services. This involved educating them about how their customers’ managers justified decisions internally, so that the salespeople could help the managers they dealt with take more responsibility for shaping decisions. But even after extensive training, companies may find that they have little choice but to fire and hire; a few in our study replaced 80% of their existing sales forces. Even those that managed to retain a significant proportion of their people still needed some specialized newcomers. Air Liquide hired several agri-food engineers to develop sales expertise for services in food-processing industries across Europe. The French forklift manufacturer Fenwick recruited specialists at the corporate level and in each of its regional sales offices to promote services attached to tri-directional forklift trucks. A good place to find this talent internally is among service-support staff members.
Most of the successful companies we studied made some kind of distinction between product and service salespeople. At GE Medical Services, for example, product salespeople are “hunters,” expected to go out and get orders for new equipment. Service salespeople are called “farmers”; GE expects them to grow their relationships with customers and sell services over time. Splitting the sales force is not always a perfect solution, however. Xerox has been very successful in establishing a solutions business in which the focus is not on providing office equipment but, rather, on helping clients manage their document flow. The organization nevertheless continues to do considerable business the old way, by selling printers and copiers and slapping simple service contracts on them. The two units end up competing for midsize customers: Whichever unit is first to get a lead pursues the opportunity vigorously, not wanting the other to get involved—even if it might be more suitable from a companywide perspective.
It almost goes without saying that a move to services will fail unless salespeople are financially motivated to promote them instead of focusing solely on product sales. Such a shift is difficult when product revenues are much higher than service revenues. For example, if Air Liquide supplies 500,000 worth of gas to an individual customer, the related services may be invoiced at only a few thousand euros. If objectives for service and product sales are not properly coordinated, their sales forces may even compete. When Air Liquide started to promote inventory management services to assist customers in optimizing the number of gas cylinders they had on hand, the company’s product sales force resisted out of fear of losing its traditional revenues. Management had to explain that although the new offering would indeed enable customers to reduce their on-site inventories, it would also help to lock in customers over the long run and to grow Air Liquide’s share of their purchasing overall. To reduce conflict between the two sales forces, Air Liquide created a double credit system: For each closed deal, product and service salespeople would get the same commission.
Finally, selling services requires that companies develop tools to document and communicate the value those services create for customers. These tools range from customer case studies and white papers to sophisticated simulation software. A good example is Documented Solutions, a tool developed by SKF over the past 15 years. Conceived by the company’s U.S. subsidiary, it helps SKF salespeople worldwide to identify and explain to customers how much they can save by using the company’s services. The tool is linked to a database that compares the best practices of SKF customers around the globe. It also allows customers to calculate their return on investment.
4: Focus on Customers’ Processes
Once manufacturers have learned how to sell and deliver services in a cost-efficient way, they can move toward addressing customers’ problems and processes holistically. This means shifting focus from their own processes, incentives, and structures to those of the customer.