Service Contracts And The Business Unit

The Service Riddle

In one classic business unit, service work aimed to help customers adopt the automation product. The Business Unit Manager had to grow the aftermarket service business. Customers liked the product when they bought it after several cycles through the proposal phase and selecting the lowest bid. However, when it was time to apply and use it, customers realized the seller didn’t clearly give them the cost to put it to work. The Business Unit service and sales teams seized the moment to push forward for small contracts. Customers quickly thwarted the efforts to buy more such contracts and demanded a low cost choice. The service and sales teams approached the Business Unit Manager. What should he do? Should he help discount the contracts for core customers or should he reframe them?


The Problem With Labor

When a business unit approaches service as high cost labor, it falls back on the product’s ease of use. If the customer feels the product is difficult to use, they’ll start looking for a different seller. It's up to the business unit to understand the customer’s emotions. If the seller doesn’t listen, then customers will move on to the next seller. So the real task for the business unit manager is to reframe the solution. Customers clearly won’t pay for expensive labor – not for long.

Difference – Information Technology (IT) and Engineering Views

Each business unit has different ideas to solve problems. For an information technology group, the best way to solve comes from charging the best labor rates for the work. However, this makes customers uneasy. Such views are natural because of the internally focused work IT groups need to do. Now, the engineering groups look at changing the design so the business could delight the customers. It’s right but a bit late. The customer has already bought the product and now need a way to adopt it for maximum benefit. 

The Need For Long-term Contracts

Most businesses don’t look at long-term effects of losing customers. They are busy meeting the quarterly targets. When it comes to service contracts, the business needs to define a long-term contract to support customers. They need to have market-driven labor rates so the business delights the customer while solving problems quickly. This then defines a new service strategy for the business. The business unit manager now needs to recognize the function of service. It’s to allow the customer to adopt the automation product – not to stifle them. Once he sets this agenda, there is a better chance customers would decide to stay. It’s also necessary to have clear proposals, where the business packages service, support and upgrade contracts correctly. Once the customer trusts the seller’s proposal, the business unit is off to a great start.

Written by Suresh Iyengar, P.E., President, Business Unit Execution LLC––“Explosive Business Coaching Houston Results For Small Business”. Want even faster results? Are you ready to learn? Call 281.410.5375 and speak to your Profitability Coach Houston today!

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