Luciano Cunha
Servitization sales present many more opportunities, but require a more customer-centric approach
A key employee group in performing a successful transition from a product- to a service-based business is the sales team. But remember, your servitization sales reps are probably only a step or two ahead of customers and prospects in their familiarity and comfort level with the new delivery structure, so they may need your help. The sales reps fully need to embody the customer-centric, value-driven approach of the service mind set. Some of them may need to change their methods and conversational tactics. You might also want to think about updating their compensation structure.
Revising sales practices to emphasize the customer value experience
When it comes to selling services instead of traditional products, your market expands. You can approach and convert your existing customers and go after the types of businesses you like to pursue. However, because servitization can be more affordable, practical, and reassuring than the product-based business, you can also find open doors at many other organizations that were not ready to welcome you before.
At the same time, when servitization becomes your business model, the sales approach needs to adjust. Customers, of course, will immediately notice that they will end up paying more for your service offerings than if they would simply have bought product items with optional service add-ons. How will you deliver and communicate the value of servitization effectively so these customers will support you in the transition and for many years to come? That’s when the entire organization, but especially the sales team, needs to become more imaginative, resourceful, and customer-focused. The servitization sales approach needs to support the company in preparing and creating the best possible customer experience, and it has to emphasize addressing the concerns of individual customers in a style that fits their ways of working. Sales reps who do well in consultative selling, or who have successfully adopted the Challenger sales practice, will have high potential for performing well in a transforming service business. They already understand that authentic interactions and relationships play a much larger role in closing business than technical specifications and capabilities of products.
Adjusting servitization sales compensation
As the company’s sales strategy changes, you may also need to adjust rep compensation to make sure you encourage the right attitudes and priorities. In the beginning, when you introduce the new business model, you may want to pay higher commissions on service contracts than traditional sales, until you are close to the balance you wish to achieve between the two. To keep your margins and cash flow sound, it might be a good idea to pay commissions on profits rather than revenue.
You also need to strike the right balance between paying good reps well and not showering them so much with residual commissions that their motivation flags. Many service companies stop residual commission payments after the end of the initial customer agreement, or after the first year of services, and transfer renewals and account management to another team.
It helps if your sales reps have the flexibility and the right attitude to work through and drive the servitization journey with you, and are not overly attached to previous practices. If you did a good job in the early, strategic communications to them and have furnished them with a great new arsenal of high-value service offerings, customers and all other stakeholders will benefit.
Other posts in this series:
- The case for servitization: Improved revenue generation for manufacturers and a better experience for their customers
- Become a more valuable company by following a servitization strategy
- Transitioning to a service business: Meaningful servitization planning, healthy cash flow, and proven trajectories
If you’re interested in discussing servitization sales and any of the issues the transition to servitization brings up, or have questions and feedback, I would love to hear from you. Get in touch with me or contact STAEDEAN.
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Luciano Cunha