The Reasons Customers Buy Products And Related Services

by | Oct 29, 2018 | Growth

Achieving a desired business outcome

Introduction

A corporate executive must understand why customers buy products and related services. Most capital equipment manufacturers have learned that equipment margin contributions are crucial, but aftermarket services margin contributions are at least twice as significant. When the aftermarket margins do not meet expectations, these executives are responsible for correcting the problem. And understanding the different reasons each purchase occurs is the first place to begin the problem-solving process.

The reasons customers buy services

In a previous post, The Criticality Of Knowing Your Customer’s Desired Business Outcomes, we discussed why B2B customers buy services; to obtain their desired business outcomes. We discussed:
The definition of desired business outcomes.

According to Forrester, a desired business outcome is:

  • An achieved end state
    • verified through measurable results
      • tied to a funded top-level initiative
        • defined through the lens of the person accountable for the end state
          • colored by the interests of related stakeholders
            • reached over time through a problem-solving lifecycle
  • Described the four potential reasons why a B2B customer makes a business purchase
  • Presented a table showing the typical services a capital equipment service group offers and maps each to one of the four potential reasons
The table is presented here for convenience and reference:
Service elements and desired business outcomes

The reasons customers buy products

This is a trick question because the answer is to obtain their desired business outcomes (the same reasons they buy services!). However, a fundamental difference exists between products and services regarding pain vs. pleasure.With intangible services, the purchase is designed to provide either present or future pleasure in addition to solving a problem. Purchasing tangible B2B products, i.e., capital equipment, is based on reducing or removing present or future pain. Here is an example:
Your company plans to introduce a new product with first customer ship in six months. You learn that each of your service engineers will need a new portable tester because their existing tester will not handle the new product’s capabilities. You have two choices:
  1. Buy a low-cost tester, which will handle the new product – eliminates present pain
  2. Buy a more expensive tester, which will handle all your company’s new products for the next four years – eliminates present and future pain.
Unless the price differential is enormous, you will have an expensive tester. And you will not get any pats on the back because this is what any competent service leader would do.

Attaching a contract to a product sale

This is where understanding the difference between products and service products becomes very important. In most companies, the sales force is responsible for selling the company’s services at the time of sale. This is called “attaching” and is different than “bundling.” In bundling, the products and services are offered as an inseparable package and are illegal. With attaching, the customer decides whether or not to buy the services, and the company usually provides some financial incentive to buy both. Customers who purchase a contract usually renew it for many years.

Causes of a low contract attach rate.

There are a few reasons for a low attach rate and the required corrective action:
  • The salesperson does not want to discuss the product breaking and causing downtime. Unfortunately, all end users have learned that stuff fails and are only concerned about how the repair will be handled.
    • I felt that way early in my career, but at least I knew I was wrong. I was lucky that our company’s in-house attorney was married to someone who would have been our ideal customer if his company had not purchased our competitor’s equipment. Our attorney arranged a conversation for me with her husband, and he smiled when I asked about this situation. He said, “We all know that what Man creates breaks.” If you run into this situation, you can talk with a customer who works near your meeting venue and ask her to talk about how important service is to their business. This should eliminate this issue.
  • The salespeople do not feel confident talking about the capabilities of the service and support team. They have been burned many times when the team failed to live up to his customer promises.
    • If your service organization is not helping your customers or salespeople, then do not try and sell contracts. Fix your problems!
    • Then talk at the next Sales meeting and publically tell everyone what changes have been made and how your team is now doing what everyone expects. Ask the salespeople to sell your products and volunteer to travel with each one of them for the first opportunity they have to present your case. It would be best to absorb all your costs, meals, and drinks for the salesperson. Showing you put your money where your mouth is will make them feel you must be telling the truth since you were confident enough to visit customers and pick up costs. You will quickly see changes in attitude and results.
  • The salesperson does not feel comfortable discussing the sale of an intangible product. They sell specs, speeds, and feeds and do not have their head wrapped around desirable business outcomes.
    • This is the opportunity for you or your Service Marketing person to train the sales force on the differences between selling tangible and intangible products. Also, teaching about negotiating intangibles since you do not want to offer discounts without getting something in return – a value exchange.
    • One of our salespeople once got pushback about paying for installation when he purchased added-on equipment. I visited him with the salesperson and the local service engineer. After hearing his story, I asked, “How many will you buy this year?” He replied, “Two.” I then asked, “And next year?” He again replied, “Another two.” I said, “How about if I do not charge you for the installations as long as you purchase two or more each year?” There was a giant smile on the faces of the three people in the office with me. And the word quickly spread in our sales team that I was on their side and not part of the Sales Prevention Squad.
Remember, selling products inherently differs from selling services, and the reasons customers buy services are not always understood. Today your primary salespeople must be skilled enough to sell both to the same customers.
Good selling!

About Middlesex Consulting

 

Middlesex Consulting is an experienced team of professionals with the primary goal of helping capital equipment companies create more value for their clients and stakeholders. Middlesex Consulting continues to provide superior solutions to meet the needs of its clients by focusing on our strengths in Services, Manufacturing,  Customer Experience, and Engineering. If you want to learn more about how we can help your organization create more value for your customers, please contact us or check out some of our free articles and white papers here.