Product vs. Service.
A tale as old as time, both with their benefits and own way of doing things. If you're providing one, you can't in turn provide the other can you?
Welcome to the world of productization and servitization. Many businesses out there have one or the other and it often pays for them to sell it as if it's the other. It’s more realistic than you think.
So below you’ll discover how products can be sold as services, and services can be sold as products at a time where it pays to cover as many bases as possible to appease the growing demand of customers.
Ready to learn more? In this guide, we’ll dig deeper into:
Use the links above to skip ahead to the sections you’re most interested in.
WHAT IS PRODUCTIZATION?
When it comes to professional services, we can define productization as the process of turning a service into something that can be bought and sold exactly like a product. This has become the go-to business model for organizations that are beginning to see that the billable hours model for client services might not be the most efficient method.
Picture going to the grocery store to buy a bag of chips: You choose your favorite type, assess the pricing and put it in your shopping cart.
The idea of productized services is exactly the same as this (conceptually that is). Services, while typically unique to each customer, with productizing can be simple as this bag of chips. You choose the service you want from a predetermined selection, choose the one you want and purchase it there and then.
Productized services will have a fixed price, clearly defined scope, customer testimonials, and a buy button to complete the purchase, just as any normal product would.
WHAT IS SERVITIZATION?
On the other side of the coin, servitization is where customers would instead pay for a service where they would usually purchase this as a product. It means you can offer more than just products to your customers by way of added-value services, to diversify your offerings.
This means you need to integrate your products with services and, much like with productizing, to adapt your business strategy so you can offer additional value on top of what you already produce.
Servitization occurs commonly within manufacturing firms that go from offering products alone to a varied range of innovative services to go alongside their established products. Quite the contrary of productization, servitization ensures an ongoing engagement between the company and its customers rather than a one-off sale.
WHAT ARE THE BENEFITS OF TURNING A SERVICE INTO A PRODUCT?
Receive faster, upfront payments
Productizing a service makes the payment process much more simple. There are no more worries about tracking hours and invoicing because the price and scope of the project have already been clearly defined right at the start.
Getting paid upfront is the dream of nearly every business owner. That dream is a reality with productized services! Create your packages, define your pricing, and receive upfront payments for your services.
Easier to sell
A productized service is much easier to sell, and that should be all you need to know to convince of its worth. A packaged service with a fixed price means there’s no toing and froing when it comes to negotiating the project scope. Customers effectively purchase the service straight off the shelf, and you and your team simply execute this service.
Develop a scalable business
If a business is able to offer a well-defined service, they have a higher chance of reducing potential scope creep and you can create more efficient systems to delegate service delivery. The target of any professional services business owner looking to expand is to identify ways in which you can develop a scalable business that can run well without you.
Enhanced customer experience
Instead of having to wait on calls and emails about bespoke services with negotiable prices, customers can instead opt for the much simpler option of ordering a service from your website as they would if they were purchasing any tangible product online. This offers clients a much smoother experience and ensures the journey is near frictionless.
And the benefits of turning a product into a service?
Financial stability
The very nature of servitization dictates that the connection with customers when it comes to a sale will be more long-term than productization. Instead of purchasing a product once and that being that, there’s more of a back-and-forth as customers will likely be making monthly payments to maintain the service.
This means there is a more consistent revenue stream due to the nature of the relationship. The longer you build customer relationships, the more likely customers will become loyal to the business, ensuring more profits.
High customer retention rate
We’ve just spoken a little on the benefit of developing loyal customers and what that does to your profits. There’s another reason this is so important - customer retention. Happy customers will bring you more money, for the simple fact that they will likely stay with you for longer. Customers rarely leave you if they are happy, despite the noise your competitors make. If they like your service, and can clearly see the value from it, then they’re much less likely to walk away, and in some cases can become brand ambassadors.
Another reason that servitization can breed a high retention rate is with experience that it requires. If you’re dealing with the same service each month and not just selling a product and moving on, businesses can develop more expertise about the equipment they use and the constant tracking and monitoring that comes with servitization. It’s simple, if you can offer a better service, you’ll keep more customers.
Selling a product and its solution
Nowadays customers don’t just want a product, they want the product and the solution to their problem. If you’re just selling the product, yes you’re generating revenue, but you’re missing a trick. If you can sell customers the product you manufacture (the tool to fix the problem), and the service (the guide on how to fix the problem), you’re effectively monopolizing the issues your customers have. What this means for you is that you can make two sales to each customer, the product and the service.
HOW TO TURN PRODUCTS INTO SERVICES
Establish your pricing model
It stands to reason that the pricing strategy will change significantly between a one-time product, and the recurring payment of a service. When it comes to the latter, we highly recommend adopting a subscription model.
This is the ultimate way to transform your existing products and shift the financial model from selling a “good” to selling a service. The big change is that you now focus on selling “time” instead of a good. This encompasses a number of time-based factors including:
Speed of delivery
Time-to-value
Time savings
Uptime
One of the big benefits of adopting a subscription model is that you can attract potential customers and turn them into lifelong customers. When this happens, you have secured recurring revenue and have a means to ensure reliable income every month. With subscriptions, you can focus much more time on the subscribers you have currently, and spend less time on trying to bring in new customers, which is notoriously much more expensive.
Compliment your current offering
It’s vital when starting on the long path that is servitization, to compliment what you’re already doing well. This allows you to extend the value you’re providing.
You must ask yourself what you can do that adds to what you’re already selling, and work out how to enhance that experience. For example, you could add interactive or educational experiences that reinforce the heart of what you do currently while addressing further customer needs that you previously did not target.
Ideally, you’re looking to develop a more holistic combination of services and products. This is done by taking a broader view of your customers’ needs, identifying pain points and what you can do with your current expertise to address that, while also considering if there’s anything worth branching into to be a one-stop shop for every customer. A key thing to consider is how you price and finance the offering. Thorough research needs to be conducted to get relevant figures. If this is unrealistic, you’ll fall at the first hurdle if no customers can see that the value justifies the price.
Test, test, and test again!
The most harmful thing you can do is to jump into a service-based product before you fully understand how it works or if users will even buy it. The solution to this is to rapidly prototype so you can test your service. The key to this is to lay the foundations by building the product’s key features and then let customers tweak it.
These customer reactions will inform your decisions on whether or not it's a good idea to move forward with an idea, thus enabling you to build what your customers want rather than a shot in the dark at what you think they’re looking for.
When it comes to servitization, you’ll likely have to test different packages, user interfaces and service tiers. You must immerse yourself in this prototyping lifestyle so you can learn from the start what users will be expecting from your service, any other services that could compliment it, and how much they would be willing to pay for it. You can never do too much testing, and the more you do, the more you will understand your customers and the more chance you will have of driving revenue.
HOW TO TURN SERVICES INTO PRODUCTS
Identify your niche
Focusing on a niche gives you a distinct and unique advantage. That advantage? Standing out from the competition.
There are several factors that make a great niche for a productized service:
Easily reachable - If you can find a consistently successful method of reaching out to your clients in the niche, (SEO, LinkedIn, ads, etc.) then you’ll ensure they receive all of your communications, giving them an opportunity to act on any call to actions you include.
Readily available to purchase your service - By definition, any niche service will not likely have lots of competition in the market. As a result, many businesses in this sector can risk charging a premium rate if they are not facing stiff competition. While this can be a plus, it’s important to consider if your customers have the budget to be able to afford purchasing your service.
Defined - If you are unable to clearly define the service you offer, how will you expect your prospects to understand what you do? If you can articulate what you do and the type of customer you’re targeting, that’s the first step to winning over customers.
Define your ideal customer
Once you’ve picked out a niche, it’s then time to determine your ideal clients. When you know this, you’ll have a much better understanding of their pain points to put your service in a position to solve them. This allows you to define your service and tailor it to your customers’ needs, and make your core offerings much more appealing. It makes it much clearer for marketing purposes as well, an important part being where to find and acquire them.
Once pain points have been identified, the next step is to create an ideal customer profile.
Why?
Although your service is great, there’s a chance it may only fit a small subset of customers. A focus on the wrong type of customer can result in higher churn and clients that are always unsatisfied regardless of your efforts.
Below are some examples of factors to consider when coming up with your ideal customer profile when it comes to productizing services:
What industry do they operate in?
What is their revenue?
What is their average marketing spend?
What technology do they use to run their business?
Establish the format you will deliver your productized service
Establishing how you deliver your service will determine the price you charge, and the relationship you will have with your customers. Now you have a better understanding of the type of customers you will look to attain, you can go forward more confidently in choosing which method of packaging your service will work best for them.
There are two types of productized service structures: one-time and recurring.
One-time
A one-time productized offer is one-and-done. You provide a client with your service, and they are left to their own devices.
Consultations, audits, and reviews are all examples of the one-time delivery method, all of which are extremely structured, and offer no customization if they are a genuine productized service.
Recurring
A recurring productized offer is ongoing. You provide your service to the customer for as long as they need it.
Coaching and group sessions are two examples that fall under the bracket of recurring delivery. The aim of productized offers is to provide ongoing value for your customers, so they keep renewing with you.
The best way forward is to create a synergy between these two types of productized service structures. A common method would be to win over the customer with an initial one-time productized service, which then leads to a larger, subscription-based agreement when they’re sure of the value you can deliver to their business.
Productization or servitization?
After all of that information, the big question now of course is which is better?
Although there’s no definitive answer to that question, there will likely be one to the question, which is better for you? It’s likely that the need for both productization and servitization will be driven by a potential lack of either products or services, and the aim will be to open up the market to appeal to more customers.
Whether you focus on one or the other, it’s worth noting that both of these can be used in unison to provide your customers with a better overall experience. Creating product and service packages is an immensely valuable strategy with the aim of providing the solution to multiple customer problems.
Every business is different, with different customers, aims and objectives, so you must do your own research both internally and externally to determine if you could benefit from expanding your portfolio and if so, how you begin.
What next?
As companies reinvent themselves by adopting productization and servitization, there will be as many failures as successes as they attempt to navigate a new way of selling their products and services. Here at Precursive, we’re excited to be right in the middle of it and we can help you with our helpful and informative content.
Discover our new playbook, How to Productize Services Delivery, the free, detailed guide to what you need to do.
Visit our resource management page to discover how we can help you deliver a great productized service to your customers. Alternatively, book a demo today to see it in action for yourself.
