Service Strategy in Action: A Practical Guide for Growing Your B2B Service and Solution Business by Christian Kowalkowski & Wolfgang Ulaga

Author:Christian Kowalkowski & Wolfgang Ulaga [Kowalkowski, Christian]
Language: eng
Format: epub
Publisher: Service Strategy in Action LLC
Published: 2017-04-04T21:00:00+00:00

We provide construction firms with fleet management for their tools. Instead of buying equipment, customers pay a fixed monthly charge that covers all tool, service, and repair costs. That greatly simplifies their lives and cuts out lots of hidden costs. Yet, over time, we found that some construction workers changed their behavior once they knew that tools were now covered through a contract. They handled the tools less carefully, and we found ourselves with soaring costs for repair and shipments. We hadn’t anticipated these costs, and it took us a while to learn how to keep these costs in check by introducing personalized tool labels and online tracking.

This illustration shows that with the high levels of risk involved, the interests of both parties should be strongly aligned in process-delegation services. Setting prices for PDS in such an environment can easily turn into a nightmare for both the buyer and the seller. From a customer perspective, how does one trust a vendor that suggested prices reflect the value created in implementing a PDS contract? How to compare prices proposed by one PDS supplier to those of a next-best alternative? Similarly, from a vendor perspective, how does one set prices in such a way that the company can achieve its profit targets? What is the true value-creation potential? Which key performance indicators make most sense? Consider the following example of an outsourcing agreement negotiated between telecommunications company Hutchison Australia and network equipment and telecom service provider Ericsson as a case in point (see exhibit 6).

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