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Capturing The Value of Supplementary Services

This document discusses supplementary services that companies provide in addition to their core services or products. It defines supplementary services and explores how companies can develop a flexible service offering model to optimize these services. The model involves identifying standard minimum services, optional specialized services, discontinuing unnecessary services, innovating new services, and customizing packages to match customer needs. This allows companies to reduce costs while retaining and expanding their most valuable customers. The document provides steps and examples for implementing a flexible service offering successfully.

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Revanth Kumar
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0% found this document useful (0 votes)
274 views4 pages

Capturing The Value of Supplementary Services

This document discusses supplementary services that companies provide in addition to their core services or products. It defines supplementary services and explores how companies can develop a flexible service offering model to optimize these services. The model involves identifying standard minimum services, optional specialized services, discontinuing unnecessary services, innovating new services, and customizing packages to match customer needs. This allows companies to reduce costs while retaining and expanding their most valuable customers. The document provides steps and examples for implementing a flexible service offering successfully.

Uploaded by

Revanth Kumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Capturing the Value of Supplementary Services

James C. Anderson and James A. Narus

Supplementary service
The service as a product is essentially described as a package or bundle of different services,
tangibles and intangibles, which all together form the total product. The package is divided
into two main categories: the first one is the main service, which is called the 'core service' or
'substantive service'. The other one is 'auxiliary services' or 'extras', which are often referred
to as 'peripherals' or 'peripheral services'. These are also known as supplementary services.
The core service is the basic value provided by the service product. It is the reason to
purchase or consume services. This is the reason for which any company is in business too.
Supplementary services are those that facilitate and enhance use of the core services. These
are services other than core that companies offer to their customers to give additional value to
their products or to encourage customer loyalty.
Augmenting the core product
 Are supplementary services needed to facilitate use of core product or simply to add
extra appeal?
 Should customers be charged separately for each service element?
 Or should all elements be bundled at a single price?
 Which supplementary services should be offered as a standard package accompanying
the core?
 Which supplementary elements could be offered as options for an extra charge?
Addons and giveaways do not increase profits instead they only offer flexibility to a service
portfolio
 Customization is the key to wining
 To achieve customization manufacturers have
a) installed flexible manufacturing systems.
b) created modular components that can be assembled in a variety of
ways/configurations.
Flexible Services Offering:
It has been observed through research that most suppliers typically provide customers with
more services than they want or need at prices that often reflect neither the value of those
services to customers nor the cost of providing them. Too many times the manufactures
continue to let salespeople give away whatever services they think it will take to land a deal,
even if those freebies dramatically reduce the profitability of business.
To overcome the cost associated with the above issues, the author has suggested the ‘flexible
service offering’ model to enable manufacturing and service companies reduce the number
and cost of services they use to augment their core products. This approach enables the
company to identify a naked solution or a naked system (which is the bare-bones-minimum
number of services uniformly valued by all customers in a given segment at the lowest
possible price that yield a profit). These naked solutions are then wrapped with options –
particular services valued by individual customers within the segment.
The steps to achieve flexible service offering are,
 Understand the supplementary services portfolio. If the company compiles the
complete inventory of supplementary service, then it can assess the value of each
service and the cost of providing it.
 Assess the value of the service rather than just measuring the customer satisfaction.
Results indicate that while customers determine their re-purchase intention based on
both core and supplementary service quality, mediated by value and satisfaction there
is a direct and positive relationship of involvement between customer satisfaction and
value of supplementary service provided.
 Extend the activity-based-costing technique to supplementary services as well. If the
manufacture can break down costs on segment-to-segment and customer-to-customer
basis, then it is viable to determine the value/price of the service being offered. This
helps industries to target those market segments where their products or services
provided the greatest value to customers and thus held the greatest potential for profit.
 Identify the existing standard services that can be done away with or specialized
services that can be part of standardized services. Identify the existing optional
services that can be discontinued. The benchmark here is simple: if the cost of the
optional service exceeds the customers’ willingness to pay for it, the service should be
discontinued.
 Apart from identifying the standard or optional services, to stay ahead in competition
a manufacture has to continually innovate and produce new value-added services.
Existing standard services
 Limiting the standard package to just the services which are valued by all customers.
 Reduce the cost of providing services at a level below the competitions without
perceiving the value to the customers.
 Suppliers are far more reluctant to eliminate existing services than to add new ones.
 If the buyer buys minimum amount of Cos products, it receives basic level of
services. If higher the buyer wants a higher level of services, it can pay extra.
Existing Optional Services
 Cost of an optional service exceeds customers willingness to pay for it, the service
should be discontinued.
 Changes in technology, required expertise or insurance risks can eliminate the value
of optional services.
 Suppliers can help the customers that still need those services to obtain them from
other companies.
 Certain companies chose to retain services as options and had interesting reasons to
do so.
Add New Services
 Shrewd customers add new services to standard offerings to thwart the competition
Example: Baxter Scientific Products
Customers have to choose from two options:
1. If the competitors do not offer the service, Baxter offered extra unique services
2. If the competitors provide the same service then they had to bear the pain of trial and
tribulations. Sometimes adding new optional services involve offering new levels of an
existing standard service.
Pricing the Offerings
 Flexible service offerings enable managers to be more adaptive and responsive in
their pricing.
 When enhancing the standard offerings with additional services managers have
several choices:
1. Raise the price by an amount equal to the cost of providing the service
2. Raise it less than the cost of providing service
3. Raise it slightly higher to camouflage a price increase
Creating Value Merchants
Company requires the costs like training, support and application assistance to be obtained
from someone else’s pocket in the following ways:
1. Charging customers for problem solving provided that the customers are guilty
2. Functional areas within the Automation group
3. Against substantial warranty work
 Work towards training salespeople in being more persuasive.
 Sales representatives can assemble tailored packages of products and services.
Benefits:
When the supplementary services are offered with all the above attributes discussed in the
flexible services offering section, there are lot many benefits the service providers gain and it
also establishes the fact that trimming the supplementary services to what is required and
beneficial to the manufacturer has benefits that far outweigh the benefits of keeping all the
supplementary services just so as to satisfy the customer and keep the market share.
 Flexible service offering provides suppliers with a powerful means of retaining and
expanding business with their most valuable customers.
 Helps customize the packages of products and services to meet more precisely the
requirements of its spectrum of customers.
 Enables managers to be more adaptive and responsive in their pricing.
 Flexible service offering helps companies to revamp their sales force philosophies and
practices. More control is given in the hands of the sales team there by enabling sales
team to be more persuasive in explaining the value of services to the customers.
Criticism
 Following this Model might require developing the ability to say no to
customers wanting full-service packages at no frills prices.
 If practiced deftly the implementation of flexible service offerings will give a
company the reputation of being firm, consistent and fair over a period.

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