3 Reasons Why You Should Add Services To Your Product Portfolio

Christopher Koch

Ever since I was a kid I’ve been fascinated by what they call in the construction business heavy equipment: bulldozers, backhoes, and such. I’m always getting shooed away by those bored off-duty cops they hire to keep an eye on things at construction sites.

Case Construction understands that many rainbow colors painted on a blackboard(mostly) men are like me – especially those who actually purchase these things. That’s why Case built something called the Tomahawk Experience Center in rural Wisconsin. It’s a heavy equipment theme park where customers can play with the big toys and participate in contests, such as who can remove the most amount of dirt in the shortest amount of time.

Experience and service go hand in hand

But Tomahawk isn’t just a playground; it’s a carefully crafted service. Case salespeople and equipment experts are on hand to join in the fun and explain the capabilities of the equipment in ways not possible through other channels. By building a great experience – and service – around the products, Case is winning big. The conversion rate for customers who visit Tomahawk is 80%, vs. 20% for those who go through a dealer, says Joseph Pine, a management consultant and coauthor of The Experience Economy: Work Is Theatre and Every Business a Stage.

“Companies have to rethink the product and revenues from selling goods to selling services,” says David Landsman, senior manager with Ariba Discovery, an SAP Company. “That’s challenging for a lot of companies. But when it’s done successfully, it can be very interesting and open up a much larger market than originally anticipated.”

Research by my colleague Polly Traylor uncovered three convincing reasons for companies to go beyond products and begin offering services:

  1. Global competition and commoditization. There are few products that can’t be easily copied and improved upon, and then sold into new markets anywhere. The impact of the Internet, global supply chains, cheap offshore labor, and social media can help a company rise up out of nowhere and compete directly with yours. To combat rapid marketplace disruption, companies must branch out into unique services for customers.
  1. Create sticky revenue. Some products aren’t bought very often and cost a lot to replace. Central air conditioning systems, for example. If the AC manufacturer can deliver a service, say a monthly subscription, that monitors usage, alerts you when there’s a malfunction, and even suggests ways you can save money on cooling, customers get stickier and the company gains a repeat customer.
  1. Consumers want to share and reuse. There are a few reasons why car sharing services Zipcar and Uber are doing so well: convenience, affordability, and the mere fact that some people don’t want to own an expensive, environmentally-damaging product. High-end products such as machinery, vehicles, engines, and luxury goods are prime candidates for renting versus owning. This is not only great for consumers who may not have been able to afford using such a product otherwise, but for the manufacturer who may earn higher proceeds renting a product over and over again versus selling it once.

Adding services isn’t always easy

However, while there are compelling reasons to offer services to complement a product or in addition to your product line, adding services isn’t a slam dunk. Pricing, operational metrics, business processes, customer relationships, and human capital requirements must all change to deliver a service rather than manufacture and distribute a product. Adding services also requires careful consideration of product alignment, an entrepreneurial approach, new skills, and new ways of managing.

We interviewed services experts to find out how product companies can make the transition to services in the report Your New Product Strategy: Services.

About Christopher Koch

Christopher Koch is the Editorial Director of the SAP Center for Business Insight. He is an experienced publishing professional, researcher, editor, and writer in business, technology, and B2B marketing.