No Service, No Strategy, No Profit

If I had to identify one topic that has sparked the strongest reader and vendor response in recent months, it would be the issue of service and support. I have heard from self-maintainers (VARs who do all of their own service and support), third-party service providers, and consultants. They all agree that, to remain competitive, VARs have to offer hardware service and support in some form. Doing so requires a defined business plan, vendor support, and a marketing strategy.

Because hardware uptime is so important to many business processes, there is demand for service. "We've had end users contact us because they want to be service trained," says Russell Hunt, general manager of scanner manufacturer Böwe Bell & Howell. "Many are fed up with the service they are getting and looking for other alternatives." Alleviating this frustration and offering a complete solution package with ongoing support can help VARs attract new customers and retain existing ones.

"VARs can use service to drive overall customer satisfaction, which creates loyalty," notes Joanne Boyd, director of worldwide marketing for Eastman Kodak Service and Support. "In addition to an ongoing annuity from renewals, service contracts allow VARs to interact with customers on an ongoing basis and identify opportunities to upsell or sell additional services such as training."

Marty Evans, president of Stratice Solutions, a consulting firm specializing in service strategies, agrees that providing service is profitable on many levels. In addition to margins ranging anywhere from 6 to as high as 20 points, a service contract can be a way to maintain "ownership" of a customer site. "If a customer associates service and satisfaction with the VAR, the recurring revenue will be more than contract renewal," Evans says. "If the customer perceives that a VAR did a good job, why wouldn't they come back when they are ready for a new solution in three years? That's why it is important that a VAR maintains its name in the business of offering service, even if that service is through a third party."

Customize Your Service Strategy
No one disputes that VARs can't live on hardware margins alone. The controversy involves how a VAR should offer service. Depending on the scanner manufacturer in question, VARs may or may not have the option of offering their own service. Even when the manufacturer allows VARs to service the hardware, it may not make sense for organizations without the infrastructure or technical expertise. It may also be impractical for VARs who have customers in regions where they don't have a local presence.

"What most VARs need to do is put an action plan together," advises Evans. "The feedback we get from many VARs is that they know they need to offer service, but they don't know how to go about it in a way that suits their business models." VARs need to evaluate their own technical capabilities, as well as devise a strategy for increasing initial attach rates and renewals.

When VARs undergo this self-evaluation, it's important to remember that service doesn't have to be "all or nothing." Hybrid strategies allow VARs to service certain models or geographic regions while still contracting service for other situations. The important thing, says Evans, is not to give up customer ownership. "Some VARs don't have the infrastructure to offer service," he acknowledges. "But in many engagements, ownership is determined by who owns 'the paper.' As a reseller, I would want to hold the contracts and take the first call even if I partner with a third-party provider. VARs also need to show customers every value they add. If they aren't taking the first call or holding the contract, what value are they adding in the customer's eyes?"

Hunt agrees that service keeps VARs engaged with customers, even when it isn't the primary business. "About 25% of our resellers have come for service training, including many who don't even offer service," he says. "They just want a better understanding of how the scanners operate and to be able to offer some basic support over the phone."

In the end, a successful service strategy really comes down to a cost/benefit analysis of the various brands and models. "Applications like distributed scanning, for example, are prompting more and more customers to buy low-end scanners," observes Reza Majidansari, VP of engineering and customer care for the Imaging Products Group at Fujitsu Computer Products of America. "For VARs, the challenge with low-end products is that it's not cost-justified to offer on-site service for sub-$1,000 scanners. Selling service contracts for units in this segment is a cost benefit to VARs."

Choosing The Service Partner To Fit Your Business
Even when VARs use third-party service organizations, the quality of service often reflects on the integrator who sold the solution. When choosing a service provider, VARs need to evaluate the ability to provide parts quickly and how often the problem is resolved on the first call. Nearly all service providers will provide customer satisfaction percentages, generally publishing numbers in the high 90s. VARs should examine what questions are asked on those surveys and how the information is collected when comparing providers.

Though Majidansari reports that Fujitsu research shows most VARs cite margins as a lower priority than customer service and quality issues, he still warns VARs against price shopping. "Many VARs go after service margin without evaluating quality," he says. "This is a lose-lose for the VAR and the manufacturer. When a customer can't get the scanner back in operation quickly, he blames the product and the person he bought it from."

Majidansari contends that manufacturer service is preferable to other options because the service providers are manufacturer-trained and specialize in a given brand. He also asserts that they are more likely to have the appropriate parts in stock because they don't have to be prepared for multi-vendor repairs. "We've seen many instances in which a service provider didn't have the part or the training, and the customer will come back to Fujitsu," he explains. "They are often unaware these people aren't manufacturer service providers and get upset. If VARs are going to sell non-manufacturer service, they need to be up front and set expectations."

Conversely, Boyd advises VARs to look for service providers with a breadth of abilities. "If a customer has a scanner, they certainly have a storage device around somewhere," she points out. "A VAR should look for a service provider with OEM agreements and a broad portfolio of services, so that VARs have more to sell. One thing you don't want to see is a stagnant portfolio." She also advises VARs to compare the value-adds of various service providers, such as contract management and renewal services, which can reduce VAR overhead.

Exploit Service As A Marketing Advantage
These industry experts agree that service shouldn't just be an afterthought of a project proposal. "Service is one way to differentiate yourself from the Internet e-tailers," says Hunt. "Market yourself as an expert and charge up front for that consultation. You can't build a relationship with a customer based on pricing."

Hunt suggests several ways VARs can market themselves as experts. "We see some VARs having great success with newsletters for existing customers and prospects," he says. "The content can include information about their service offerings, preventive maintenance tips, information about upcoming training classes, or promotions. When combined with stories in the local press, vertical and horizontal industry publications, and joint marketing from vendor partners, VARs can develop a very good connection with customers and potential customers."

Marketing service capability up front also increases the chances of selling service in the first place. "Include service as early as possible in the sales cycle," says Boyd. "When services are included in the pre-purchase proposal, customers are more likely to see it as a part of the solution."

The options for providing quality service to customers are plentiful and potentially profitable. VARs who don't offer service in one form or another are putting customer satisfaction at risk and possibly providing a point of entry for competitors. "Sales finds the customers; service keeps the customers," observes Majidansari.