At Your Service: How Equipment Vendors Compete for Services Revenues - A Frost & Sullivan Market Analysis.

Business Editors/High-Tech Writers

PALO ALTO, Calif.--(BUSINESS WIRE)--Jan. 12, 2004

Appropriate Service Portfolio and Value Proposition Key to Equipment

Vendors Building A Successful Service Competency 

The transition from being fully-fledged suppliers of hardware to incorporating a services component to combat falling hardware profit margins is a challenging one for equipment providers. In most cases, there is a lack of understanding of the market's need for services and the value that the vendor is perceived to bring to the market.

Explains Frost & Sullivan (http://www.frost.com) Senior Industry Analyst Andrew Tanner-Smith: "Although vendors may believe that they understand their prospective clients' business, they may not fully understand how to offer them services. Such shortfalls in understanding often mean that vendors are blind to the perception of their value as held by their prospective clients."

Therefore, understanding the buying process and the worth of a particular service to a client is of paramount importance in building credible and viable services businesses.

At the same time, equipment vendors assume that end-to-end services from low-value break/fix and maintenance contracts to professional consulting offerings are required to add credibility to their presence in the market. However, such an end-to-end approach is often misplaced.

"By offering a full set of services, the vendor risks diluting its brand and diverting marketing and sales resources from services and products that it has strong opportunities to sell," says Mr. Tanner-Smith. Thus, focussing and specializing on a small set of service offerings is more likely to enable the vendor to strengthen its reputation and service capabilities.

"In addition, in many cases, these customers have strong perceptions of the vendor, its capabilities and the value it can add to their business. Very rarely will they seek services outside these perceived value points from vendors," notes Mr. Tanner-Smith.

Challenging the client's perception will first require an understanding of the decision-making process adopted by end-users when selecting a service provider. This is likely to include conditions under which the services are bought, necessity for purchase, criteria for selection of suppliers and the key qualities the prospective client looks for in a vendor.

Another issue is that equipment vendors fear that their being linked to a particular product brand will disadvantage them as they will not be perceived as offering `vendor neutral' consultancy services. However, customers are not as concerned about 'vendor neutrality' as they are about demonstrated multi-vendor product knowledge.

Frost & Sullivan's research has found that vendors are more likely to win services contracts if their equipment forms a significant part of the project. Factors contributing to this consumer perception are vendors' inability to be accountable for a project and also their lack of knowledge about competitor's equipment.

"To develop the capabilities and a track record in higher value services offerings, equipment vendors must make money in the short term through focusing on quick wins based on services they know they can deliver," explains Mr. Tanner-Smith.

Vendors should be wary of billing customers for services that were previously not charged. Installation services and pre-sales advice, for instance, are considered a part of the entire sale deal. By making this a paid service, vendors risk alienating existing equipment customers.

Internal conflicts between product sales and services teams are another issue that vendors will have to face as they move to build a services competency. Sales teams have to understand that offering services free in order to win product contracts will only hamper the growth of the vendor's services arm.

Factors such as product loyalty, shareholder confidence, risk mitigation and increased profit margins motivate the need for a services market. However, equipment vendors will have to first understand what the market values in a supplier and in the services they offer before they can successfully optimize their service offerings.

Frost & Sullivan, an international growth consultancy, has been supporting clients' expansion for more than four decades. Our market expertise covers a broad spectrum of industries, while our portfolio of advisory competencies includes custom strategic consulting, market intelligence and management training. Our mission is to forge partnerships with our clients' management teams to deliver market insights and to create value and drive growth through innovative approaches. Frost & Sullivan's network of consultants, industry experts, corporate trainers and support staff, spans the globe with offices in every major country.