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At the first sign of warm weather, lines at the car wash can get pretty long. Last weekend while waiting to literally and figuratively wash the cold away, I wondered what level of car wash to purchase. There were so many options beyond the basics, and while they may sound exciting and important, I wondered what provided the most value to me. Me, the SUV driving mother of two active kids + dog, going to and from sports, beach and yes, work. I’m a special segment, right?

As Customers, We Are All Special

We all believe that we are a special segment. Getting clarity on what business outcomes, markets, and customer types to build service offers around begins with segmenting customers into logical groupings. At its most basic, customer segmentation is the division of customers in a given market into discrete groups. Based on the findings from the TSIA 2017 Emerging Offerings Survey, 76% of companies segment their customers to understand the unique needs of specific groups of customers. The patterns from each customer segment are then used as input into the service offer development process.

76% of companies segment their customers to understand the unique needs of specific groups of customers.

TSIA 2017 Emerging Offerings Survey

The segmentation groupings may be based on the customer’s industry vertical, the products they purchased, or the total revenue of the company. Having a clear idea of who purchases your product and what they need it for will allow for the development of profitable and tailored service offers and can also deliver measurable outcomes for customers. “Tailored” is the key word—instead of giving your customers a choice between you and a competitor, you’re allowing them to choose between you and you, with offers relevant to them.

Segmenting customers enables a more strategic approach to:

  • Identifying markets or customer types that offer the best opportunities for profitable growth.
  • Designing service offerings that specific customers need and are willing to pay for.
  • Sizing the market opportunities for service revenue growth.

Choice Equals Value

Back to me and my car wash dilemma. Which level of service did I purchase? They offered silver, gold, and platinum: 3 tiers of service and custom “extras” to rid my car of the never-ending kid crumbs—don’t laugh, the struggle is real!

By providing choices to end customers with bundled service attributes, you provide a platform to deliver value-based packages. For technology and equipment manufacturing companies, they offer between 3 to 5 choices of support tiers. Each support tier is differentiated by both value and price, and with price comes revenue.

Technology and equipment manufacturing companies offer between 3 to 5 choices of support tiers.

TSIA Service Revenue Generation Benchmark H1 2018

The next question is, how do you move customers from a basic level of support to a premium level of support? After all, you want your customers to have exceptional support experiences, fully adopt the features of your technology, and provide you a recurring revenue stream year after year. Based on the TSIA SRG On-Premise Benchmark Study, software companies report only 30% of customers as being on premium support tiers, with hardware companies reporting about half. There is a lot of opportunity here to upsell customers to premium levels of support. Additionally, it’s important to balance service attributes between bundling together and offering services a la carte. The “extras” are an excellent way to provide value-based services to a particular segment without over building the bundled support packages.

Let Customers Choose What’s Valuable to Them

People want to know they’re getting the most bang for their buck. By allowing them to pick a service offer for themselves—one that includes what they want at a price they prefer—you create a sense of maximized value. I saw that value in my platinum car wash level of service and chose the “extra” cleaning inside to rid my car of all the crumbs, dog hair, and other random kid detritus. Now it’s time for summer and the beach, which means more sand, more play, and of course another trip to the car wash.

Is it time to re-evaluate your support portfolio to create compelling offers? Consider benchmarking with TSIA’s Service Revenue Generation practice to see how your portfolio, price tiers, and options you’re offering your customers compare to the rest of the industry. To learn more, read our TSIA Service Revenue Generation Benchmarking paper.

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Jodie Paxton

About Author Jodie Paxton

Jodie Paxton is the former vice president of service revenue generation research for TSIA. In this role, she worked closely with members to provide insights and best practices on how to develop service offers and monetize recurring revenue models. Jodie has over 16 years of experience as a strategist and thought leader in the services technology industry. She has held various roles where she was responsible for developing and marketing services portfolios, monetizing the contract renewal management process, and actively participated in change management of delivery organizations.