Value Vs Price - How To Sell More Service Contracts

Tuesday, 04 May 2021

Why aren’t people buying your service contracts? Is it that they’re too expensive? Or is the real reason that they’re not valuable enough?

In theory, attaching a service contract to a product sale is the lowest-hanging fruit for an organisation. What better time to sell a service contract than when they’re already buying from you? And what’s great about these agreements is that they’re better for everybody. Customers get more reliability, more uptime and more profitability from their equipment. Providers get recurring revenue and continual opportunities to nurture and strengthen their relationship with the customer.

That’s the theory, anyway. The reality is, in many cases, quite different. Field service providers are meeting resistance from customers, as evidenced by low contract attach rates, i.e. the number of product sales that include a service contract. But why?

The Price Is Too High - Or Is It?

The easiest, most obvious answer is: the price is too high. A notion that is often reinforced by feedback from the provider’s sales teams, and from the customers themselves.

Business-minded field service executives try and solve the problem by lowering the price of their service contracts. They assume that if their customers are saying they’re too expensive, that’s the reason they’re not buying.

The truth is a bit more complicated. Market research by Blumberg Advisory Group and Field Service Insights suggests that when customers are evaluating potential service providers, price is not high on their list of criteria. Ahead of price are quality of service, the knowledge and skills of the service teams, breath of services offered, and the provider’s knowledge of their industry.

What this means is that when a customer says, “your price is too high,” they’re not really talking about the price of the service contract. They’re talking about the value of it. What they’re really saying is, “It’s not worth buying.” And that’s because you haven’t told them why it’s worth buying. You haven’t justified the value of your service contract by properly communicating the benefits of it.

In other words, your customers don’t know why it’s better to buy a service contract than simply pay for service and maintenance on a transactional, time-and-materials basis (T&M).

So tell them.

Sell Emotionally And Logically

Neuroscience proves that customers buy emotionally, then justify their purchases with logic. Your sales and marketing conversations need to cover both. The emotional bit means addressing customers’ fears of equipment downtime, lost revenues, quality defects and wasted machine costs, and feeding their enthusiasm for greater profits as a result of more reliable and cost-effective machinery.

The logical bit means breaking this down and describing the coverage, entitlements and resources available to customers when they purchase a service contract rather than T&M. These could include:

  • Faster response times
  • 99.9% guaranteed uptime
  • All parts included
  • More support
  • Different pricing levels
  • Access to additional perks and benefits

These kinds of benefits are evidence of real value and contrast. They provide your customers with tangible reasons why they will get more from a service contract than they would from T&M.

Of course, you also need to explain the overarching benefit of a service contract over T&M: that a contract allows you to provide a better level of service because you can anticipate service events and more effectively plan and allocate resources.

It’s simply a matter of communicating. The price tag won’t look so high if you tell customers why it’s worth it. And if you pitch your contract as a facilitator of greater profits, the price tag won’t seem so important either.

Make Sure Your Contracts Work

Remember that your ability to promise a high level of service in a service contract depends on the strength and efficiency of your service management system. If your system is beset with slow, paper-driven processes, disparate bits of software and data that’s all over the place, then you won’t be able to offer the kind of service your customers need. As a result, your contracts won’t look as appealing as your competitors’ and you’ll find yourself with another reason why your customers aren’t buying.

So, to make sure your contracts work, look at how effective your service management is and whether it could be improved. A fast, efficient and accurate system that keeps costs low and productivity high will enable you to offer superior levels of service to your customers. Think about whether your system might benefit from more automation, more flexibility and more cohesion. And consider implementing a comprehensive service management platform that fully optimises all the different stages of your service chain.