It's rare to find a fast-food restaurant that doesn't offer a combo that's a better deal than each item purchased separately. Does it make sense for service businesses to offer their customers the same "deal"?
Packaging the invisible: services
I recently accepted a job with a company that offers professional services. My new employer wants me to package the services offered. I'm not sure if packaging services into product offerings is the right approach. How well (or not) does selling a service as a product work? If marketing services as a product does work, what is involved?
—Anne, Director of Marketing
Readers offer various ways to package services—each way dependent on several factors.
Make life easier for your customers by providing a few choices. Not so many that they become overwhelmed, but at least something to help them decide. A reader confirms that customers want options and provides several ways to do this:
If you bundle services, allow them to order a la carte. The purpose of bundling is to take the "thinking" out of ordering (think of the combo numbers at fast food places) and make it easier for the customer. Consider selling the service as a value-added model. Run some history reports and find out what your customers have historically purchased from you.
Call your customers and find out how they liked your services and ask them their thoughts about the service offerings you are considering adding. Your existing customers are a great source of information, and you will be surprised at how much they are willing to disclose to you. Can you sell the service as an insurance policy to the product? So, they would pay for it, yet not all of them would actually use it.
John Batch, director of Thinking, reminds us to ask what is best for the business and provides tips on bundling:
To me, there are three questions:
- What are the services? Functions or knowledge?
- What is the variable/fixed cost balance?
- Most importantly, what objective does your employer have in packaging the services?
Make them more accessible. In regard to the original dilemma: Are you making customers buy services they don't want? Is packaging the answer? Are you trying to improve your brand? This leads me to three comments:
- If the purpose is to bundle the items to establish price tiers and thus extract more value, then that's fair. Having price tiers, much like banks do for services available to business bank-account holders, can help to raise the perceived value and thus revenues. Bundling is often used for products where different customer groups value the various products differently. As a poor example, businesses selling grass seed might bundle in a set of hand shears and sell the package at a discount of 30 percent. So by selling the bundle, they cover variable costs and gather a greater contribution toward fixed costs and ultimately profit. This could work for functional services. However, most services have low fixed costs, and thus selling bundles isn't having much effect on the final profit.
If utilization is high, then selling at a discount will reduce profit. If utilization is low, then you've got too many people or you are doing the wrong thing. If the employer is worried that the services aren't selling, it's better to look at your market or your individual service pricing. To maximize profit in variable-cost services, look at them separately. All packaging will do is produce lower profit. Finally, what effect would bundling have on your current customers' purchasing?
- If you want to make them easier to use, then is packaging the answer? Do people want to commit to a whole set upfront? It may be that the services are complementary and can be offered at a low marginal cost, in which case bundling might work by getting a customer to buy more than they otherwise would. But if you're offering professional services, then you are just underselling yourself.
- If you want to bundle them for positioning and branding, then that's a different sort of packaging. I've seen it work for functional services, where it's like buying the output of a machine. But selling advice is very different, as the benefits are different for each purchaser.
Going the bundling route will take initial research in determining how to put a package together that the customer will use. Nithya A. Ruff, principal with Ruff and Associates, has worked with packaging services:
Are you a pro with direct mail marketing? Help a reader who asks how to make the most of a campaign.
How do you ensure maximum direct mail response rates?
The push to package services often comes because the sales team is good at selling products and not services and wants services to be packaged as well. It also comes from the need to cut sales-cycle time of selling services. Predictable and repeatable services work well to be packaged and priced like products. For example, if the deliverables and the length of the engagement are predictable and no customization and assessment of the customer environment is needed.
For more customized services, I would package the competencies, descriptions of the deliverables and the typical engagement price range or time range. The risk here is that this could be quoted as the price and locked in. So, you need to say that it depends on the customer environment and needs. I would also share standard deliverables vs. optional deliverables and explain how the pricing and engagement length depend on which deliverables are chosen.
I recommend a different engagement model for sales to contact professional services for repeatable vs. customized services. For repeatable, you want them to have a simple, product pricing tool and be self-service by a sales rep. In other words, have a short sales cycle and maximum attach rate with product sales. For custom services, provide sales with enough to include and position services with a customer, but they need to engage a professional services pre-sales consultant to get further quotes or deliverables. Packaging can be done, but for the right services and with caveats.
Packaging does work, but not without drawbacks. The feedback suggests reviewing past orders to determine what to put in the package, and still offer a la carte items. Look closely at the bundling approach to ensure you don't lose money and compare the repeatable and customization approaches. If you take the steps to ensure the bundled services benefit both you and your customers, then go for it and bundle your way to profit.
Next Marketing Challenge: Can You Help?
I am planning a direct marketing campaign to businesses for training and workshop-creation services. I have worked with my customer database to better understand their needs and how my services meet those needs. Now that I've done the analysis, I am preparing the direct mail contents, which include a letter, brochure, an article about the business and a reply envelope. What can I do to increase the response rate?
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