Category Archives: Service

How Do You Respond to a Price Cut Request? Six Guidelines

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Situation: One client of a company represents a majority their revenue. They have multiple contracts with this client. A new purchasing agent in that company is on a mission to reduce purchasing costs and claims that other suppliers cost less. How do you respond to a price cut request?

Advice from the CEOs:

  • Spend time with your true client – the employees and managers who have chosen your product. These people stand to gain the most from an ongoing relationship with you and may be able to reduce the pressure from purchasing.
  • Assemble testimonials and metrics from the client to show that you produce a better result at lower cost than they can get from other suppliers.
  • Simultaneously, look for opportunities to reduce your overhead so that if you must cut prices to retain the business you can afford it.
  • There are other options. Reduce the cost of resources producing the product and service. Let your client contacts know that you are being forced to do this. This may prompt them to argue that they need more senior experience from your team at the higher rate.
  • Offer lower prices in exchange for higher volume and longer term purchasing commitments. This can lock out the competition by reducing the frequency of contract renewals.
  • Remember that the job of the purchasing agent is to reduce costs. The agent who is hounding you is hounding other suppliers as well. If the PA can negotiate savings from 30% of the suppliers, it’s a big win. Get your ducks in line so that you aren’t part of that 30%.

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How Do You Bring Different Teams Together? Seven Points

Situation: There are many opportunities to team with other companies, whether through partnerships, joint ventures or M&A. This is accompanied by the challenge of bringing together different teams to succeed in new roles and tasks. How do you bring different teams together?

Advice of the CEOs:

  • People are an investment. Just like the stock market is not up every day, neither will be the performance of your people. Bringing people into new relationships, roles and responsibilities takes patience, work and nurturing to build skills and to get the best out of people.
  • To optimize this, build an organizational chart of the new or revised organization that you will build. Fill in the spaces with the individual who currently holds responsibility for each role. This means that some people will have several different roles. This is OK. As you add additional people, they will fill many of these roles.
  • Build a set of company or project values to guide individuals through the decisions that will drive future growth. Involve the full team in this exercise so that ownership of the resulting chart is broad.
  • Develop and consistently express the roles and boundaries of the company or project.
  • Focus on systems and processes, not just on tasks. The core of any organization is people and relationships. These are best expressed through systems and processes, not tasks. Tasks express discrete roles. As sophisticated as these may be, they won’t encompass the richness or complexity of the systems, processes or the people involved.
  • When dealing with people always ask “What is my role?” and “What is their role?” In each situation, work to understand the other’s perspective and what opportunity or concern they are bringing to the table. Trying to transform an individual into someone that they are not doesn’t work.
  • Particularly in a company or venture that focuses on high levels of customer service, act urgently, but avoid emergencies. You want your response to customer needs to be swift, but you don’t want to destroy operational rhythm.

Thanks to Jennifer Choate for her contribution to this discussion.

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How do you Boost Value in a Commodity Market? Five Suggestions

Situation:  As a result of the technology revolution, products in established markets have become commoditized. For example, advances in medical technology has driven down price while increasing incidence and prevalence of diabetes has driven up demand. How do you boost value in a commodity market?

Advice:

  • Taking a broader view of the market is critical. Analyze the entire customer experience, not just your segment of the market. Assess markets and industries surrounding your primary offering and look for un-served opportunities and gaps. Where you find opportunity, elevate your offering to the next level by integrating your product as component. Create a compelling advantage but avoid unnecessary adaptation of your existing product or service. Can your technology become part of a broader service offering, or even part of a personalized solution? Are there opportunities to move higher up in the value chain?
  • Begin your transformation at the first signs of commoditization. Being first brings a huge advantage.
  • Once you identify an unmet need, consider working with related industry groups to create new standards addressing these gaps. Implementing the resulting standards will give you a new competitive advantage against your competitors.
  • Find other applications for your product or service. Consider new applications for the components used in your current offering. Find new customers outside of your historic customer base. Consider alliances with other companies experienced with the new opportunities you find.
  • Within your own organization begin a process that routinely analyzes the customer experience and general needs beyond your current offering. Working with an outside consultant can help by adding a new perspective.

Thanks to Dirk Boecker for his contribution to this discussion.

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What is the Best Way to Respond to a Request to Reduce Price? Six Thoughts

Situation: An important customer just asked for a price reduction. The company’s production and materials costs have increased and eroded their margins. What is the best way to respond to a request to reduce price?

Advice from the CEOs:

  • The first question is whether the company is selling a commodity or a unique and differentiated product? Commodities rarely command a premium above market unless it is possible to bundle with differentiated delivery. Unique or differentiated products justify a premium because the customer has only two choices: purchase at your price or try to develop an alternate source.
  • The customer may have valid reasons to request a lower price. Counter with a combination of lower price and a lower level product to retain your margins. If the sale involves service, assign less expensive resources in return for a lower price to preserve margins. Define the trade-off to the customer so that it becomes their decision, not yours.
  • Adjust terminology. Use “run rate” vs. “price”, and speak of balancing resources assigned. Avoid cheapening or commoditizing your offering to meet the customer’s price demand.
  • Don’t assume that there is any such thing as a “fair price” or “fair margin”. The price is whatever the customer is willing to pay for your offering. The price increases the more unique your product or offering is, and the more critical to the customer’s needs.
  • Do NOT share your cost and margin information – this should be company policy.
  • Consider combinations of pricing, terms and delivery that keep you whole while offering the customer different price points.

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How Do You Justify Differential Pricing for the Same Services? Three Approaches

Situation:  The CEO of a company struggles with differential pricing. They want to be fair to clients but realize that a one-price policy limits growth. What tiered pricing models work, and how are they rationalized? How do you justify differential pricing for the same service?

Advice from the CEOs:

  • Differential pricing by client demand. For high value services, you must have a compelling value proposition. Research comparative premium pricing for similar value propositions and set prices accordingly. For price sensitive clients offer two alternatives: senior staff services at one price or associate services under supervision for a lower price. Let the client choose between price and quality?
  • Differential pricing by market risk. Early stage clients want high service levels but may not be able to pay bills. This justifies a premium price, as you are not assured of collecting for services. The differential is a risk premium that covers non-payment risk. Well-established clients are less risky and support lower pricing due to a lower risk of non-payment and are assigned a lower risk premium.
  • Differential pricing for bundled vs. non- bundled services. If a client purchases individual services, then there is a set cost for each service. However, if a client wants to purchase a bundle of services, then it is reasonable to discount the bundle. You are not necessarily charging less for the bundle because you have now received additional business at a lower acquisition cost. Your “discount” reflects the savings that you have enjoyed in reduced marketing and sales cost.

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How Do You Outsource IT? Seven Suggestions

Situation: Fast growing companies often find it difficult to scale internal IT management to keep pace with database (dB) growth. There are typically 1-3 people in charge of dB management in a small to medium-sized business. Crisis hits when there is an abrupt system shutdown for up to 48 hours and a significant disruption to company operations. How can this be avoided? How do you outsource IT?

Advice from the CEOs:

  • The difficulty is that small infrastructure teams often don’t have the range of skills to diagnose dB issues. Calling Oracle, SAP, etc. for assistance gets expensive fast.
  • One option is to outsource business intelligence and dB management to a specialist. Quality offshore resources exist that can take over support of company business information (BI) and dB management, offering a full suite of services from anti-virus to preventative diagnosis of subtle misalignments.
  • For example, InstaDB replicates the dB in a remote data center so that they can monitor the system for errors, develop solutions, and remotely resolves errors with no interruption to users.
  • In addition, some outsourced specialists include calls to Oracle, SAP and so forth as necessary to resolve problems at no cost to the client.
  • In a pilot study in a company with 5 servers, the offshore outsource partner provided a full suite of services and was able to increase uptime from 95-97% on a daily basis to 99.97%. This level of performance should be the goal.
  • Your outsource provider should have 24/7/365 support services.
  • Your provider should provide you with a service-level agreement (SLA) prioritizing issues so that the most critical issues are resolved fastest.

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How Do You Differentiate Your Offering? Five Critical Steps

Situation:  A company has had success with a few large clients but wants to expand their customer base for long-term growth. The challenge is that their offering competes in what is commonly regarded as a commodity market. How do they avoid being perceived as a commodity? How do you differentiate your offering?

Advice of the CEOs:

  • One company created differentiation by getting to know everyone in the business. They built long-term relationships, based on reputation and trust. They took the time to understand the needs of customers that they wanted to develop. As opportunities arose, they built relationships and asked questions to clearly define and align with client needs. While this takes time and patience, the objective is to be able to say “We know your business” – with credibility. Here are the steps that they took:
  • Study the businesses, sector, and customers that you wish to serve.
  • Leverage your success with large customers. Talk about how you helped subunits within these large customers. This makes a big customer seem more like a collection of small customers similar to your prospects and makes your experience relevant.
  • Let prospective customers know that you are hungry and will go the extra mile for their business.
  • Learn who currently serves your prospective clientele. Study these competitors, their strengths and weaknesses. Talk to their customers – learn what they love about competitors’ service, and what they would like to see changed. Find the holes in what others provide and fill these holes with a better offer.
  • Look for and encourage repeat business and references to new business.

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How Do You Facilitate a Move to a New Space? Five Recommendations

Situation: A company has taken advantage of favorable lease rates to secure a larger space. How can they minimize work flow disruption during the move? How do you facilitate a move to a new space?

Advice from the CEOs:

  • Plan the move in detail: electrical, intranet and telephone needs; office space and facilities; design or production space and facilities. If you can’t move everything over a short period of time – like a 3-day weekend – consider moving in steps, a series of discrete moves over time, each with its own requirements and timetable.
  • If you carry inventory, pre-build inventory to see you through critical steps of the move. If you have a major customer with strict delivery deadlines, try to negotiate a delivery window during which you can conduct the move. Determine if there is seasonality to order delivery that makes a particular time of year more convenient to move critical operations. Custom work will require special planning.
  • If you plan to upgrade equipment, consider purchasing, installing and operating the new equipment in the new location instead of your existing location.
  • If you will be leasing the new facilities and possibly be even if you are purchasing the facility, ask the new lessor or seller to provide cash to: (1) finance delayed shipments at a price discount and (2) cover expenses of the move and outfitting the new location to your needs.
  • Consider converting to a wireless intranet and telephone system to avoid the expense of wiring the new facility. Look at plug and go options.

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What are Effective Metrics for a Service Company? Seven Suggestions

Situation: The CEO of a service company finds it challenging to measure project profitability and client satisfaction. What measures and metrics have other service companies found to be most useful? What are effective metrics for a service company?
Advice from the CEOs:
• For billable services one CEO measures utilization percent defined as (hours available for service delivery)÷(billable hours). Include in the denominator both billable hours and customer good-will or preventative maintenance hours. The latter, while not producing current income, are an investment in future income. Set up audits for service needs, especially future needs, when working with customers. This will help you to stay abreast of changes in the service environment and to plan accordingly.
• For fixed budget projects – another CEO measures budgeted vs. actual expenditures by project.
• For fixed-fee services a third CEO calculates a fraction expressed as: (income per customer company) ÷ (cost in hours for that customer).
• In a discussion on customer audits and surveys, options offered included: (1) An exit “pizza party” with the client. The challenge is that this may produce tainted results. While this builds customer good-will and may provide qualitative feedback, it should be supplemented by more objective measures. (2) A mailed survey – from a 3rd party with a prize for responding. (3) Email follow-up from a 3rd party that directs the customer to the 3rd party site to complete the survey.
• A final suggestion was ambassadorial CEO visits to the top contact person in key accounts. This provides an opportunity to learn about the customer’s present and future needs, staffing plans, business and strategic direction. Helps to anticipate changes in the competitive landscape. The more a business relies on recurring revenue, the more important these visits are.

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How Do You Maximize Customer Satisfaction? Six Suggestions

Situation: The CEO of a company wants to assure that his company is doing everything that it can to maximize customer satisfaction. What have others done to evaluate and measure whether their customers are satisfied with the service and/or products provided? How do you maximize customer satisfaction?
Advice from the CEOs:
• Ask customers what they like and don’t like about your services.
• Ask what other things they are struggling with and whether or not you can offer services to improve this situation.
• By asking these questions, other opportunities may arise. Act like a business partner not hired help.
• Set targets for the company and sales team. What do you want to measure? How will you know if the client will reuse your services? What are you looking for?
• In the case of a new installation or activating a new service, as CEO be there when the implementation is complete and ready for “live” time. You may see complementary products or services to suggest to build a partnership with the client.
• Look closely at what added value you are offering so clients want to keep you on retainer. Identify what retainer business looks like and look for options to offer retainer services. This will help to differentiate the offering.

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