May 23, 2013 | 06:08 PM (BD Time)
23 May, 2013 Thursday
ADDING SERVICES TO PRODUCTS - AN INNOVATION CHALLENGE IN TODAYS MARKET
"Some of the companies that have made tablets have not been successful because they made tablets," Jeff Bezos, CEO of Amazon said. "They didn't make services." That statement is an acknowledgement of the growing value that can be derived from service-based business models, rather than from product innovation alone. According the statement of CEO of Amazon I would like to say that is that in today's market place where so many products and services are viewed as a commodity, the ability to add value to your product or service is an absolute necessity. There is no doubt that in the absence of value-added components virtually any product or service can be driven down to the most bottom line - price. The problem? When you are only selling price you'll never be able to sell any degree of high margin sales and that is where profitability, long term growth and sales success resides.
Now a days US manufacturers are facing pressure from powerful global customers and competitors to lower prices and accept shrinking margins. They have responded to this pressure by adopting innovations in operational excellence such as lean manufacturing and sixsigma.
Why Add Services?
There are many reasons why the addition of services can provide significant growth
opportunities, greater stability, and higher profit margins to companies 2 . For example:
o Improving predictability of sales and cash flow by reducing cyclical variations. In addition many product categories are becoming "commoditized". Adding or substituting service revenue can mitigate against this.
o Differentiation from competitors and establishing closer relationships with customers
o Innovation in services usually results in increased customer satisfaction and loyalty, which eventually impacts financial results from higher gross margins, lower cost of sales, and recommendations to other potential customers.
Types of Product Related Services:
A useful taxonomy is to divide customer interfaces as either heavily transactional (or "product like") to mainly relational ("pure service like"). These authors, as well as others suggest that firms must master product based services first before graduating to comprehensive and relationship based services. Firms that don't do this usually fail at transitioning to services.
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