You are not selling a single, tangible product in isolation. So many peripheral factors influence buyers in deciding their preferred ‘package’. UK manufacturers generate between 15% and 20% of their revenue from services.
The Augmented product
We talked in February about the importance of having a USP for a product. In developing the USP it must be seen to be desirable, distinctive and defensible. A marketing strategy should look for opportunities to augment the product (or service) in order to further distinguish the company from the competition, to find new revenue streams, and to cement relationships.
We like to say that there is no such thing as a commodity. A commodity is a product with uniform characteristics and is sold in conditions which result in the price for the product being the same, whatever its source. Many industrial products have strong affinities to commodities. They are made to a standard. They are basic elements used in the manufacture of other products. For example, natural materials or semi processed products such as aggregate, iron ore, copper, steel, cement and the like. No matter how standard these products are, in the customers eyes there will be some small perceived differences simply because they are sold by different companies.
Suppliers are differentiated in a variety of ways, sometimes subtle but nevertheless important in the eyes of customers. They are based in different locations, they offer different delivery times, they have different terms and conditions of payment, they are supported by different salespeople, and they have different attitudes to dealing with product failures and technical advice. The very name of a company that supplies a product brings with it different connotations. The supplier’s name (its brand) carries a reputation and this, in itself, can turn a commodity into an augmented product.
Traditionally, manufacturing companies have been weak in charging for their augmented product. Customer services, technical advice, flexible terms, guarantees and the like are often thrown in with the deal. In doing so, the opportunity is lost to charge for the augmented product.
The additional charge for the augmented product could be from a menu of prices which the customer is made aware of so that if they take advantage of the supplier’s technical service, they know they will have to pay for it. Equally, the charge could be built into the price. If the customer is known to have a high dependency on the supplier for services, they may be given an “all in price” which allows them to draw upon whatever services they require.
Modern manufacturing is no longer about selling products; it is about providing solutions to customers from which a supplier can generate revenues from those services to complement that from their goods.
Capturing value from the augmented product requires companies to have a different mindset. They need to be strict in ensuring that they achieve the right balance between keeping customers happy and charging appropriately for the demands that customers make. This may mean segmenting customers; grouping those that demand high levels of service (which they are prepared to pay for) and separating them from those who want a stripped down offer.
The proportion of revenue that manufacturing companies generate from their services is somewhere between 15% and 20% of total revenue and, as companies become more aware of the opportunities of marketing an augmented product, it is growing. The challenge is to build the augmented product into the marketing strategy by identifying services that are valued and ensuring that money is captured and is not left on the table.
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