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Selling services
(Microscope Via Thomson Dialog NewsEdge)
When it comes to selling IT, the market has reached a point, at least within the mainstream, where there is little advantage for either consumer or seller in selecting one product over any other. Vendors might have added features in response to competitive pressures, but the fact is that for most customers, most of the time, the mainstream is adequate for their demands. The trouble is that pricing to resellers is moving out of their control, and in such a competitive sector there is little opportunity to increase margins by raising prices without losing business.
"In such an environment, resellers have to find a way to stand out," says Alistair Forbes, CTO at HoundDog. "Having won the business, the customer's view of the supplier will ultimately be determined by the experience of doing business with them." And this, it has to be said, is becoming almost entirely a reflection of the quality and levels of reseller service delivery.
"Any reseller that thinks it is a technology business and prizes technical competence above all else is highly unlikely to succeed," Forbes maintains. "Resellers are in the customer service industry and technical skills are the price of entry, but the service orientation of the business is what will make it stand out."
This influences both new business and customer retention. Customers that receive outstanding service are usually more than happy to tell others about it.
"It cannot be regarded as a cheap form of marketing because it requires that the reputation for outstanding service is both earned and maintained, and that requires investment in people, tools and processes," insists Forbes. However, it is undoubtedly one of the most sustainable differentiators that can be achieved. "A competitor can undercut your price overnight, can introduce a new product earlier than you, or can throw a better corporate hospitality event at any time, but they can't overtake an outstanding reputation for customer service without sustained investment over a prolonged period of time," Forbes concludes.
Services commoditisation is coming
This is why the commoditisation of the services market is of such a worry to resellers. But although it is perhaps inevitable that some parts of the service market will commoditise over time, there is plenty of evidence to suggest that services submit to this change with a much gentler curve than, say, product distribution.
"The key to this," says David Ellis, director of e-security, professional services and training at Computerlinks, "is that service providers are able to put together unique offerings that differentiate themselves from competitors." Certainly if they can achieve this, it is far less likely that pricing will become a key factor in the procurement process.
"Obviously a relationship built upon selling services is different from that of pure product supply, both from an engagement and transactional perspective, but ultimately, the opportunity to sell services is huge, whether these are product sales led (support, installation) or totally independent (pure consultancy)," Ellis concludes.
Some argue that service can never truly be commoditised and even if two service offerings look the same, they will be differentiated by the way in which they are delivered and the people that deliver them.
One such protagonist is Kevin Markwick, business unit manager at Avnet Partner Solutions. "The nicest people to do business with will win the day," he insists. "If you get friendly, efficient service in one shop and a sullen grunt in the next, which one do you return to?"
Differentiation rules
Resellers are well positioned to get to know an end-customer's environment and therefore provide the depth and quality of service to further develop a partnership between customer and reseller.
"Service is all about listening and matching requirements and this is where value-added resellers can really excel," says Markwick. It is true that certain services once seen as exceptional are now regarded as run of the mill or simply a requirement however, customer-focused, friendly post-sale service can still be a profitable business. Markwick suggests that shrinking product-based profit margins are forcing companies to look towards services to drive growth, and to succeed in this way it is important for resellers to specialise and differentiate themselves.
To achieve this differentiation, he supports the following reseller strategy:
z Manage post-sales service business as a profit centre
z Be proactive in terms of service and consultancy delivery
z Provide multi-tiered service level agreements and contracts.
Darren Cassidy, director and general manager of the Office Group at Xerox UK, agrees that differentiation is the key when it comes to vendor services. "More than half of our business is now fulfilled through third-party vendors with whom customers have close relationships," he reports. "Xerox Business Transformation Services was built up to address this demand for services through our channel partners, ensuring the relationships between customer and reseller remain intact."
The result is that service commoditisation and the need to differentiate is now not just an issue for large enterprises, but also for SMEs and channel resellers alike.
Understanding the support opportunity
Yet whether a global corporate or a small local business, all users are now undeniably more dependent than ever on their IT systems, and convergence is set to further increase the dependencies.
"Users know the value of good services to their business and are willing to pay for them," says Peter Titmus, managing director at Networks First. "The same applies to switched-on resellers."
Resellers that don't understand this opportunity find themselves losing customers as they move toward resellers who do deliver quality converged service solutions to match the technological solution.
"Because of both convergence and dependence there is now a push back from the commoditisation brought about by service companies who promise much, charge very little and deliver even less," claims Titmus.
Increasing numbers of people are looking for a quality support service, particularly in the remedial support services market, where commoditisation is perhaps most apparent.
"I believe resellers should concentrate on where they can add value and outsource the lower margin activities to specialist channel organisations," says Adrian Cooper, business development director at a&o. "This lowers their own risk and financial exposure, and allows the incumbent to retain the all-important client relationship."
Certainly, in order to compete successfully, resellers must not underestimate the investment in resource, time and expertise it takes to fulfil its service requirements.
Gary Woodward, chief executive at managed service provider Pasporte, warns: "With everyone moving away from the one-stop solution of upselling hardware and toward services, the market is becoming diluted and the compelling recurring revenue opportunities up for grabs are not as easy as many first thought. SLAs are one thing, but delivering on the promise is another. Customer service, interaction and trust must be put ahead of expensive infrastructure components and then - and only then - will the customers come."
Or, as Marino Zini, head of managed services at Claranet, sagely observes: "Suggestions that services are a commodity come from companies that have no ability to offer a true service. True service can never be a commodity as true service sits with quality, and people will always pay for quality." </a>
Managed security services
According to a recent survey of companies that already buy in managed IT services, in 2007 the focus is on security. The study from the Computing Technology Industry Association found that 33 per cent planned to increase their spending on managed security services. If this suggests that the next five years will be a challenging but rewarding period for managed security services, it also means plenty of opportunities for the channel.
"Managed security services offer a quick entry into the lucrative IT services market because it doesn't require investment in development, infrastructure or hardware," says Eldar Tuvey, CEO at ScanSafe. It also provides a painless way for resellers to add security to their portfolio of solutions.
"Managed services also offer recurring revenue for channel partners," Tuvey reminds us, which is especially appealing given the declining margins of hardware and software products. For the reseller, offering security as a service means being able to differentiate their offering by providing customers with market-leading internet protection, accompanied with the skills to tailor it to the customer's needs.
"The right platform will provide a dashboard that gives a real-time view of the status of all the customer's end-point devices enabling the service provider to keep on top of the latest threats and potential security issues," adds Richard Hales, UK and Ireland country manager at F-Secure.
Instead of relying on a one-off or annual sale, resellers earn incremental revenue that expands as customers see the benefits of a security service that delivers skills as well as software.
Copyright 2007 Reed Business Information - UK. All Rights Reserved.
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