Another article on Service Industry vs Manufacuring Industry. How to Sell Services More Profitably by Werner Reinartz and Wolfgang Ulaga, Harvard Business Review, May 2008, 91-96. Some points that I liked in the article. The topic here is: when manufacturing companies make an attempt to earn more revenues (and profits) from services, how they have succeeded or failed.

a) Uncover profitable existing service offerings simply by comparing billing practices across their operating units.

b) Services require longer sales cycles, and the sales process is often more complex and strategic, meaning that decisions are made high up in the customer's hierarchy

c) In a service scenario, people on the customer side might view a service offering as a threat to their jobs (IT services are outsourced these days. These result in job losses at times.)

d) Services are labour intensive (It is not that making a product does not involve labour. A number of activities can be automated. Human intervention can be minimized.)

e) Distinction between product and service salespeople exists. At GE Medical Services, for example, product salespeople are "hunters", expected to go out and get orders for new equipment. Service sales people are called "farmers". GE expects them to grow their relationships with customers and sell services over time. (Typically a service is done over a duration (period of time), unlike a product which is perhaps sold over the counter (point of time). This will result in human interaction between service prodiver and service receiver. It will result in a relationship over a longer time horizon. While buying a product over the counter, we don't insist on buying items from the same point of sale clerk. However, if we need a mechanic to repair our car or paint our house, we will have personal preferences.)

f) A shift is difficult when product revenues are much higher than service revenues. (Even when service revenues are much higher than product revenues, the shift is difficult. My view is that the value networks (The Innovator’s Dilemma by Clayton M Christensen) are different between product and service organizations. When one is higher than the other, the people on the smaller side (be it service or product) will have an uphill tak in their organization. IT services companies have taken many years to get to product offerings and earn revenues from there. It requires a mind set change. IBM has launched IBM Global services to remove the conflict between product teams and service teams. Thereby IBM services business grew faster than product business.)

g) Selling services requires that comapnies develop tools to document an communicate the value those services create for customers. These tools range from customer casestudies and white papers to sophisticated simulation software. (In a product industry, good documentation like product brochure, trouble shooting, user manual etc are important.)

h) Product oriented companies typically focus on input based indicators. (The idea there is to maximize profits and revenues from the capital invested. Products typically require large upfront investment and have higher gestation period.) When a company commits to solving a customer's problem, it assumes a much higher risk: The goal is to achieve a certain output, and the degree to which it is achieved is the basis for compensation. Clearly, pricing then becomes much more complex. (Pricing a product can be complex. A number of factors like capital invested, the premium features with the product, projected sales volume, availability of similar products in the marketplace etc. However, during sales process deciding the price may be easier. On the other hand, in a service situation, the solution and pricing are closely related.)

i) Services can be a powerful way to lock in customers and increase their switching costs.