Positioning Product Businesses as Services

Consultative Selling transforms product businesses into financial service businesses by converting a product's operating values into dollar values—and then selling the dollars, not the product.

Since the dollars are used to improve a customer's profits, the supplier who practices Consultative Selling is providing a service. The name of the service is continuous business improvement of the customer. The role of the supplier's products and processes is to enable the service to realize its objective.

In this way, a product-based business can segue into a service by reversing the rank order of importance of what it makes and how it sells what it makes. It sells as a service. It continues to make products as a manufacturer, but it makes its money on the service of counseling customers how to apply its products to improve their profits.

The business advisory role of a financial service provider allows consultative sellers to make their own products or to buy products from outsourced contract manufacturers. It also allows them to offer the products of other manufacturers with either their proprietary brand names or as no-name "white boxes." It makes no difference because, in any event, the products themselves are not sold. Only their contributions to customer profits are priced and proposed.

Service businesses propose profit improvement in the same manner as product businesses. The cost of providing their service, like the cost of products, is irrelevant as the basis for price as long as it is met. The capital equipment employed—human capital rather than hardware capital—is unique. But it still requires a customer to make an investment in its application, and the investment still requires a positive rate of return to make it compelling.

In examining a cost-benefit analysis, there should be no way to tell if its outcomes are being calculated for a product business, a service business that is being enabled by products, or a service business that is a pure play in which no products at all are involved. The only telltale sign in some cases might be a smaller investment on the cost-benefit's top line and a consequently higher IRR as the result of lower or no hardware capital expenses.

The Consultative Selling service business model can take several forms. Electronic Data Systems (EDS) is a pure service play. It manufactures nothing. As an outsourcer of corporate information systems, EDS sells the results of its services in reducing its customers' costs by getting IT off their books. EDS may also be able to generate revenue from an IT system by managing it more productively and renting out the excess capacity for gains that can be shared with customers.

IBM Global Services is also an outsourcer as well as an IT systems maintenance organization. Like EDS, it sells the value of the improved results it can realize for customers. Many of its own products are embedded in the systems it engineers, operates, and maintains. So are many competitive products such as computers, servers, and printers. IBM professes an ecumenical attitude. It makes its money on sharing in the value of the gains it creates, which are far greater than the margins on sales of hardware, software, or systems.

The decision to engage EDS or IBM is a financial decision. In order to make sense operationally to a customer, it must make or save dollars financially. No less than traditional financial services such as GE Capital or Citigroup, EDS and IBM Global Services represent themselves as sources of funds. If customers want their money, they will show them the costs and the benefits of their strategy for improving access to financial capital. It will come not from lending them new assets but from the service provided by making their current assets more competitive.

Product-based managers have often disparaged service businesses as dealing in intangibles. But the improved customer profits that a service business sells when it employs Consultative Selling strategies are no less tangible than the profits sold by a product manufacturer. They represent hard cash. They can be taken to the bank. They show up as earnings. In the end, profits are the ultimate tangible. From a customer's point of view, their source is far less important than their amount, the speed with which they flow in, and their predictability.