If your mission is to both reduce service costs and increase service revenue, you risk failing at both if you bundle them together. That is, if your customer chooses not to buy your offering, you have just eliminated your chance to reduce your own costs.

If you begin by “giving away” the portion that reduces your service cost, there are usually intrinsic benefits for the customer that gives them reason to allow you to install the service (get connected). And when I say, “give away”, I really mean to include in a service contract of some sort. The benefits necessary for the customer to allow you to connect is what we call the “minimum acceptance criteria” and is the basis of creating the value proposition when we work with clients launching a new service. Yes, you are giving away that value but it is the necessary trade off for your customer to allow you to connect. Any benefits you create that go beyond that “minimum acceptance criteria” should be reserved for a value added offering subsequent to getting connected to the install base.

If reducing service costs is not the priority (or you are beyond this and ready to sell a fee based service), then the approach is different. Assuming the offering is truly value add for the customer, then it is necessary to quantify the value of the offering and communicate that value in terms the customer can understand. Most companies screw this up and is often an area where we help.

Creating a value based pricing scheme is the best-in-class method here. The key to being successful with this is understanding your customer’s costs well enough to put a pricing mechanism together that your customer believes in - and you can prove it to them. There are of course many other challenges with value based pricing such as how to sell it. But it all starts with being able to calculate the value (real money) the service adds and then just negotiate how you are going to split it up.

This post hits right down into a discussion I recently had!

Your views above are without doubt valid and correct, but what if your focus of your base offering is on providing value internally as well as externally? And if an offering is free, does it (at least as perceived value) provide any value to the customer at all?

My rule of thumb: Free means no value! Switching from free to cost based is impossible!

From your experience; what different pricing scenarios are used by best-in-class implementers of remote services?

I actually know of one large company who states that their support fees are based upon the customer allowing remote support. The support contract states the vendor can apply a 30% surcharge if the customer fails to enable call home and remote access. (I don’t think they ever did though. Sales would have objected)

I find it interesting that customers do not seem to request a reduction in support fees when a vendor rolls out e-support. It seems this would have the same effect on lowering direct support costs as would remote support. I believe the reason for this is that e-supprt is less intrusive and requires virutally no customer resources to implement.