Marketing high tech services.

High tech services such as technology consulting, systems integration and implementation of enterprise-wide software applications like customer relationship management (CRM) are predicted to become a $700 billion industry by 2005. Intangible services require a more relationship-driven approach to marketing and sales -- which can be challenging to those with strong technical backgrounds. The article discusses three approaches to marketing high tech services: 1) professionals-who-sell; 2) bigger hammer marketing; and 3) the funneling approach.

Introduction

With computer hardware becoming a commodity in many industries (14), high tech companies are focusing more on services. Services include technological consulting (design, education and management services), technical support, systems integration and implementation of enterprise-wide software applications like customer relationship management (CRM). Market research firm IDC forecasts 12 percent annual growth in tech services, reaching $700 billion by 2005 (8). Due to intangibility and other factors, the marketing of services is inherently different from marketing products.

This article's purpose is to help companies avoid costly trial and error approaches in this new area. Many startup firms or divisions have failed due to inappropriate marketing approaches. More mature firms have clung to past practices when new ones were needed. We argue that the nature of high tech services requires special techniques -- the traditional product-oriented sales cycle must be radically modified. Our discussion responds to the comment of one interviewed executive, "Tech services are hard to buy and hard to sell but can be extremely beneficial to buyers and profitable to sellers." In this article we discuss such difficulties and three marketing approaches for firms to consider.

High Tech Services

High tech services include a range of firms. Some companies derive all revenue from services and include Accenture and Electronic Data Systems (EDS). Other companies derive a portion of revenues from services. For example, divine Inc. provides professional, software and managed services to improve collaboration and knowledge sharing across a company's entire value chain, from suppliers to internal departments and final customers. Also there are specialized service units in traditional technology companies such as IBM, Oracle, Microsoft and Yahoo. More than half of IBM and Oracle revenue is generated by services. Microsoft Consulting Services (MCS) focuses on educational and integrative services to implement Microsoft products. Importantly, it serves as Microsoft's front-line effort in many large corporate engagements. Yahoo has a growing Enterprise Solutions division including Portal Solutions, Broadcast Solutions and Small Business Services, which offer software, hosted services and consulting. Many startup firms or divisions are based on tech services. MediaMap, a privately held firm, is a provider of communications management solutions for public relations agencies and corporate communications departments and integrates software packages, online services and consulting.

Services are bought when internal resources are not available or it is not economically feasible to develop them in-house. They may increase the efficiency of operations or provide competitive advantage through lower cost or enhancement of a marketing program. Laggards may buy tech services for defensive reasons to maintain competitive parity (13). EDS and Saturn provide an example of successful partnering (for further discussion of partnering, see (3). Saturn's tier-one customer care advisors assist people who contact Saturn for general product, service, feature and option information. But, in the past, these agents often functioned more as "air traffic control" directing calls to the next level -- customer assistance managers who provided tier-two support to owners needing additional assistance. Saturn and EDS developed the One-Call Resolution strategy, which empowers advisors to resolve inquiries in the first contact. EDS training programs gave advisors the extra skills and knowledge needed for their enhan ced roles. The main advantage of One-Call is that the solution did not call for any new technologies -- only an improved methodology and better use of Saturn's first-tier advisors. Ninety-five percent of Saturn owner concerns are resolved in a single contact. Customer service and satisfaction improved, without additional staff (7). Another example involves tech services provided by Accenture to enhance Dell's strategy of letting each customer build his or her own computer. Such customization can interrupt supply channels, but the Accenture-designed system allows Dell to place over 90 percent of orders electronically with suppliers. This allows Dell to schedule worldwide factory lines every two hours, keep only six hours of materials in factory inventory, and maintain four days of total inventory (1).

The Study

Brief case histories were collected from a convenience sample of firms involved in tech services. The cases were contributed by 32 executive participants in an MBA program under the guidance of a professor. Participants were asked to contribute, where possible, cases from each of the following entities: 1) their own firm; 2) a customer; and 3) a supplier of their firm. Given the nature of their businesses, some participants were able to collect cases for all three entities, while others provided one or two examples. Data were collected by personal interview, telephone or email. The interview protocol consisted of questions pertaining to the challenges of buying and selling tech services due to intangibility, perishability, variability and inseparability, as well as effective marketing-sales approaches. A brief company overview was also collected. Some respondents asked that certain data be collected from a company web site such as the overview and certain case histories.

In total, 71 cases were collected from firms, some of which preferred to remain anonymous. The cases were analyzed by the authors to develop themes and patterns of behavior. The theoretical structure of three marketing approaches in this article is an outcome of that analysis. The most illustrative cases are included and discussed throughout the article.

The Nature of Services

It can be difficult for product-centric companies to make the transition to marketing services for the following reasons.

Intangibility. Services are intangible and cannot be tried out or inspected in advance. The outcome cannot be seen until the service is performed. Because of this, the basic idea and benefits of a new service may be difficult to understand. A buyer's perception of what is being "bought" may be different from what is being "sold." Each service package may contain dozens or hundreds of features, but only a few may represent benefits for a particular buyer.

Consider the case of a computerized pension fund evaluation service whose Web page states "...provides complete system management through a real time monitor that provides for online diagnosis, tools that allow customers to monitor virtually any aspect of the system to identify conditions that disrupt performance, and a comprehensive tool for monitoring network activities." From the seller's viewpoint, this was the service being sold. The seller discovered, however, that customers infrequently accessed the data. In fact, what customers were buying was the expert advice on a wide range of technological, investment market and industry topics of the professionals who designed the service. "It took forever for us to figure out that customers were buying consulting from us, not software solutions," said a manager.

Perishability. Services have been characterized as perishable, implying they cannot be inventoried for later sale. An unsold service is lost forever. The temptation is to cut price in order to guarantee a steady flow of sales. Service marketers may attempt to coordinate production and consumption to reduce perishability, but this tactic does not easily apply to tech services. Use of part-time help during peaks may work for McDonald's, but advanced training is often required for high tech -- and such individuals are seldom available part-time. And, while in other service businesses providers may strive to increase customer self-service participation in the production/consumption process (e.g., salad bars in restaurants), this rarely succeeds in high tech due to the sophistication of the work.

Variability. Variability in services may come from several sources. Variation may result from unwanted or random levels of service quality caused by the human element or by system malfunctions. Quality control may depend on the qualifications and skills of the service provider. Sellers also face the challenge of variation in customer knowledge and expertise brought into the service process. Most high tech services add another variable -- the burden of implementation and customization at the customer site.

Consider the case of a firm wanting to buy a CRM system because its closest competitor just bought one. The firm purchased a "kit" solution (a level above shrink-wrapped software because it includes basic installation), but the system crashed frequently because of an inadequate technology infrastructure and shortage of technical people to run it.