At a certain stage of business, business services companies often find themselves in a predicament. Commoditization of services.
Leaders face the harsh realities of competing solely on price because the market forces that to be so.
Sometimes commoditization is caused by too many competitors fighting for a piece of the pie and driving down the price.
New competitors coming into the market or new technologies give customers other alternatives than they had before. This can put extreme pressure on pricing your services and on your Operations teams.
Customers begin to force lowest price because either they see all vendors’ services as basically the same or they see your services as less valuable than the new alternatives.
Either way, it’s not pretty.
You begin to feel frustrated with your Sales team because the deals they’re bringing in aren’t profitable deals. Sometimes you don’t find out the deals aren’t profitable until the P&L on servicing the customer shakes out.
Operations often gets blamed in these scenarios for being inefficient or unproductive The solution becomes further cost-cutting in Operations or unrealistic productivity demands on your people. Or both.
The problem with an Operations-focused solution like this is that you can only cut costs so far before you diminish customer value.
This solution also negatively impacts culture and actually increases recruitment costs.
You can only work your people so hard for so long until you start losing good people. This erodes the culture of your company and increases recruitment costs because its harder to get people to work in those conditions (regardless of the unemployment rate).
Your market-facing business functions also suffer in such a price-driven environment. If you have an active Marketing function in your company, the only messaging they can put into the market is about low price. Leadership hasn’t given them anything else to talk about out there. This makes things exponentially harder for your sales team.
Morale in your Sales function is down because your salespeople are getting “beat up” out there in the market (figuratively speaking) every day on price. Their win rates are declining and they’re getting “beat up” (figuratively speaking) by management when they report back in. They’re literally getting it from both sides. To make matters worse leadership can’t give Sales any useful tools for their arsenal because the organization doesn’t have much else to compete on. Leadership feels somewhat trapped in a corner.
Everyone involved feels like their hands are tied. The internal mantra is, “we have to deal with it and try to make money where we can.”
It doesn’t have to be this way.
Go back to the basics. Why do customers buy? Because something is valuable to them. That’s it. It really isn’t more complicated than that.
The first thing to do is determine what is valuable to customers. Not what the company wants to sell to customers. What is valuable. To customers.
At The AxisPointe, we’ve often found that what a company believes to be valuable to customers is actually considered table stakes, the minimum requirement to be considered. What is valuable to customers is actually something completely different and sometimes not what the vendor company would prefer. This is a tough pill to swallow sometimes. As businesses, we have to operate in the market as the market is and not what we wish it to be. I realize this sounds obvious, but it is actually much easier said than done. Change is hard. It just is.
Depending on your internal operations to serve customers, you can spin out those operations as additional services that customers can buy either as optional add-ons or as stand-alone services.
You can actually spin out small things that your competitors aren’t doing well into your own services. Those small things then become big things. You become much more competitive. That can be really fun.
This does a few things for your company:
It allows you to reposition in the market. Your company can become something else other than the lowest priced vendor. This gives Marketing so much more to work with which, in turn, helps Sales sell and increases the value of your company to customers.[You can actually expand your potential through opportunities that are naturally created by default. That is another post for another day. We’re focusing on customers in this one.]
Your company plays a different role to the customer other than just a vendor. When structured correctly, you can actually choose the role you play for the customer rather than the customer telling you what it is.
It empowers your sales team. Sales has somewhere to go in the conversation besides, “this price for this thing.” Sales now has the tools in their arsenal to fight the competitive battles every day. Sales becomes a resource for the customer to help the customer solve problems or achieve objectives.
The deals become more profitable and Sales becomes more valuable to both the customer.
Sales also becomes more valuable to your company. Profitability can be directly attributed to the work of the Sales function.
This technique of spinning out operational capabilities and capacities is typically less expensive and less disruptive than other operational changes or innovations. You’re either already doing these things anyway in normal operations or you’re simply aligning with how the markets already work. You’re not introducing anything new, necessarily. You’re not having to come at it from a completely different direction. It’s natural in the market and for customers. Initially you won’t have to hire lots of additional staff or onboard a new technology. When the spin-off starts to scale, the process of on boarding any new hires is already built-in.
It serves customers and optimizes profitability at the same time. You may not win on the price battle for the commoditized service, but you can win on customer value. Sales naturally uncovers more opportunities while prioritizing customers at the same time, creating goodwill. We all can agree that profitability for a company is imperative and generally a good thing. But goodwill? That’s another thing altogether. When you have goodwill, as a company, it opens doors and creates levers of opportunity that further reduces costs. Goodwill can actually be a key driver of profitability.
These are a few of the many benefits for a company that occur when going to market in this way. This technique of spinning out operational capabilities is a fresh way to achieve short-term goals and long-term goals at the same time while getting over the price obstacle.