Over the last month I’ve spoken to over two dozen Field Service Executives about challenges they are facing when it comes to generating additional service revenue for their companies. I observed several common themes. First, every executive I interviewed indicated that they would like to sell more service contracts. However, they were experiencing resistance from customers as evidenced by low contract attachment rates. Second, these executives were concerned about whether or not their prices were too high or if their customers really needed service contracts. After all, this was the feedback they were receiving from their sales teams and even first hand from the customers that had spoken to directly.
This is an all too familiar problem for me. I’ve encountered this for the last twenty five years as a management consultant. It is also a challenge that many field service executives face. Seldom is price the real issue why companies struggle to sell service contracts. In market research studies that I have completed for clients in a wide array of technology service industries, I have found that price is often low on the list of criteria that end-users consider when selecting and evaluating service providers. Indeed, criteria such as quality of service, knowledge and skill of service personnel, breadth of service offering, and vendor’s knowledge of their business are perceived by customers to have higher importance than price alone.
The truth is “your price is too high” will always be an objection that customers provide when they cannot justify the purchase of a product or service. In other words, they have no way of logically defending the value of the service being purchased. Stated another way; they are not able to differentiate the benefits of service contracts from time and materials service. The problem is that Field Service Organizations (FSOs) often attempt to sell service contracts without providing reasons why a contract is better than simply paying for service on a time and materials basis. In order for end-customers to rationalize their purchase of service contracts, FSOs must be able to demonstrate the contrast between service contracts and time and material/pay as you go service.
In order to achieve this outcome, FSOs must be able to articulate the value of service contracts to customers as well as to their own sales people. They need to describe what’s included in a service contract that is not included in time & materials. This requires they do an effective job in defining the service contract and answering the question “What’s in it for me (the customer)?” If the only difference between a service contract and time & materials is that the customer is able to prepay for service, then there is no value and no contrast. However, if the service contract provides a preferred level of service (e.g., 4 hour response time, 7 by 24 hour coverage, parts, etc.) or preferred price structure then the customer is presented with some real value and contrast.
Ultimately, FSOs must be able to help customers defend their purchase of service contracts. They do this by offering more value in a service contract than the customer could possibly receive through time and materials services. Another way that FSOs can help customers defend their purchase is by letting their customers know why they offer service contracts in the first place, and why they prefer customer purchase them. Usually, service contracts help FSOs do a better job at anticipating and managing service requests. It helps the FSO forecast and plan resources better. As a result, service contracts benefit the customer which is something customers will understand and appreciate.