SaaB: The gentle art of funding Service as a Business

“Someone has to pay for it”?

In a previous article, I explored 3 ways of enhancing the overall customer value by using service to augment the product offering.?

In their book “Uncommon Service” Frances Frei and Anne Morriss say that “without a reliable funding source designed directly into the model, organisations risk delivering service that customers happily consume but never pay for”.

Customer value comes with a cost for the organisation and should be funded.?

Many companies in the past decade have initiated their “Service as a Business” evolution (from now on SaaB), especially traditional “product centric” companies in the energy industry have been successful at this transformation. This has often resulted in a x2 margin expansion and an overall overperformance in the equity market.

Avoiding a tough conversation

Some companies have delayed this transition and are now observing their margins reduce, as their products are at the end of their life cycles, the inflation is relentlessly increasing and very little price adjustments have been made.?

This situation would call for some difficult conversations with customers but who wants to do that? What possibilities exist, to generate additional revenue streams with Service to cover base and variable costs - and yet leave customers happy??

In this article I would like to explore a few ways to fund Service as a Business and make it profitable, and suggest what digital aids can support this effort.

#1 Customer peace of mind: Managing Customer Assets

One way to establish a SaaB and delight customers is to manage their assets, so they can thoroughly focus on their outcomes.?

Main customer benefits include:

• One single point of contact for all customer services
• Risk management is pushed to the vendor
• Inventories are managed by the vendor
• Base costs can be reduced

What is key for success: have joint objectives together with customers.?

Taking GE Vernova as a reference, Long Term Service Agreements (LTSA) offer performance guarantees, to ensure Customers objectives are met. I have linked an example from GE Vernova below.

Similar models can also be found in the MedTech industry.

Strong predictive maintenance capabilities are fundamental to keep costs at check and avoid disruptions in customer operations.

Main risks to be on the lookout for:?

• When customer assets pertain to more than one Original Equipment Manufacturer
• Unexpected costs overrun
• Complex financial reporting can cause some confusion, with sudden swings of contract margins - you can refer to the Pwc article linked below for more details

#2 Make Customers happy to pay more

Another way to fund SaaB is to increase asset prices but deliver additional value that competition is not offering. It is important though to review the service offering and decide where to invest and where to divest.

What is key for success: have a deep understanding of what customers value. Take the example of Starbucks: they can command a premium price for their coffees as they are giving their customers the ability to use WiFi and stick around in their premises as long as they want.

Digital tools offer many possibilities to enhance customer value, such as predictive maintenance, seamless omnichannel experience, data-driven insights into customer operations to optimise the outcome.

The risk here is to miss a complete understanding of customer perspective. And the bitterness of having raised prices for no valid reason can be very difficult to shake off.

#3 Reduce Costs while improving Service level

Having a deep understanding of what customers really value can also help focus on what matters the most and reduce efforts on what is not so important.

This could be achieved by introducing:

• Customer segmentation and service tier definition
• Tools to enable Customer self-help

Customer self-help could be aided by ChatBots and AI supported co-pilots, while using insights from customer use of their assets can support up-selling opportunities to enhance their experience.

The risk here is to be effectively able to balance cost reduction with customer satisfaction: keeping an eye on both indicators jointly is the way to go.?

Conclusion

How to fund a profitable SaaB? 3 possible ways are:

#1 Customer peace of mind: Assets Management Services

#2 Make Customers happy to pay more

#3 Reduce Costs while improving Service level

The foundational assumption for all 3 proposed methods is to have a deep and thorough understanding of what customers value and how can we make them more successful.?

If we provide this value and make customers more successful, customers will be happy to pay for an exceptional experience.

For further reading

Uncommon Service: How to Win by Putting Customers at the Core of Your Business

BCG - Profiting from Product Services in Medtech

GE - Partnering with GE Vernova for Long-Term Service Agreements

Pwc - Maintenance, including major maintenance (being updated at the time of this article)