There is an interesting observation on a company trying to offer solutions, in the article Strategies to fight low-cost rivals, by Nirmalya Kumar, Harvard Business Review, December 2006.

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Switch to solutions. Since low-cost players turn incumbents’ basic products or services into commodities, existing companies may be able to succeed by selling solutions. By offering products and services as an integrated package, companies can expand the segment of the market that is willing to pay more for additional benefits. Solutions offer several advantages: They include a large service component, so it’s hard to evaluate the quality of the solutions various companies provide. Over time, the seller develops a deep understanding of the customer’s business processes, so the customer finds it difficult and costly to change suppliers. Furthermore, since low-cost players have limited product ranges and service capabilities, they cannot offer solutions.

Despite the popularity of this strategy, making the changeover is difficult. Many companies, such as Boots, Compaq, Xerox, and Unisys, didn’t succeed because they assumed that selling solutions required modifying their existing business models rather than transforming them. Most companies see selling solutions as a way to hawk more products at higher prices. They develop combinations of products and services that work more or less seamlessly, and call them solutions. Then they look for customers with problems to fit the solutions. That never works. A good solution provider starts by working with customers to understand their problems before designing solutions.

Selling solutions requires a company to manage customers’ processes and increase their revenues or lower their costs and risks. Take the case of Australian giant Orica’s mining services division (the erstwhile ICI Australia’s explosives business), which sells explosives to stone quarries.

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