Many clients ask us to help them re-engage their customers in a more meaningful way. They successfully engineered, operationalized, and commercialized a set of products or services that created or met a market need and have enjoyed the success of growth, market share and the financial rewards that accompany both. However, through our understanding of the commoditization curve, we know these successes have a finite timeline. Regulations, extreme capital requirements, supply chain limitations, or any of the other factors that can insulate a product’s market and profit only protect markets for so long; they are eventually overcome, and the market share, revenue, and profit erode. We have found that in many cases, these factors can be thwarted and delayed through adjustments to your commercial and business model, extending the lifecycle of the product and its financial impact to your business.
This is true for all products, but especially for the stars of your portfolio – margin-rich goods that provide much of the leverage for your organization, creating access to clients and funding needed investment for new products and services. These stars are the natural targets for your competition, both seen and unseen. Known competitors want to capture your clients and market share to be the dominant player and compound their capability to invest and engage new customers. Start-ups and other small unknown players are seeking access to these margin-rich opportunities by engaging with transformative technology, first eroding the market and then siphoning clients, and ultimately changing the entire competitive landscape.
To fend off this competition and lengthen the commoditization curve, we help our customers create more value for their products and services and extend their lifecycle. To start the process, we work with the client to understand their customers’ strategies so they can begin to extend the value they create further downstream. Doing this effectively multiplies the value you create for your customer, building a tighter, more partner-focused relationship that is difficult to sever.
An example of this is a banking technology company we worked with that, as we described above, identified a margin rich market segment (small to medium sized banks) that they wanted to protect and expand. The market segment was very profitable but not as large as the market the core business addressed (large mega banks) so posed an interesting opportunity for the client. After investigating the market, it was discovered that the small/ medium banks’ customers wanted the same services and solutions in their typical remote/ rural locations that were more commonly provided by the large banks in the city centers. The smaller regional banks were anxious to close the gap and provide these services. Doing this would protect their customer base from being acquired by the big banks who were looking to engage this market with expanded capabilities – investing in easy access facilities and remote technology capabilities.
Our client felt their technology could assist these small/ medium sized banks in bridging this gap but knew there would be challenges to the investment model if they approached it as a large bank might – investing to deploy more expensive technology and develop storefronts. An alternative way to bridge the gap would be to develop and deploy a Technology-as-a-Service (XaaS) business model with their current client base. There are many advantages to the XaaS model, but the one the that most appealed to our client was the potential to position and invest in new services and solutions to augment their existing technology, while minimizing the the capital outlay and providing a more robust revenue stream moving forward.
Instead of investing in specific technology for the market segment, they would invest in supportive offerings and services to better allow their current technology to engage with the clients. Identifying what specific services and needs your customer requires takes some time and investment; additionally, there might be upfront investment if these offerings and services do not fall within their current skillset and capabilities. However, with careful selection and understanding of your client’s overall value proposition, you can identify economic opportunities to transform your revenue profile (recurring revenue streams and subscription services) and expand the barriers to entry for less sophisticated competitors.
In our banking example, one of the options they explored was to develop a more robust professional services organization to help the small/ medium market segment clients implement more sophisticated transaction and business processing practices. This was coupled with technology services that expanded the quality of high-touch interactions with their remote customers. By introducing new revenue streams (consulting) and subscription services (remote accessing software), they both improved the financial profile and created a more partner-focused relationship. They were able to engage with strategic client and business issues – not only technology opportunities.
A XaaS business has the potential to help your clients develop better insight into their customers’ needs, expand their portfolio beyond products into business and strategy-oriented solutions and offerings, and create recurring revenue streams. This is just the tip of the iceberg – there are other benefits to this game-changing business model that we will explore in future blogs.
Written by: Marc Cottle
About the Author: Marc Cottle is an experienced sales leader with 15 years of experience; he is a Principal with McMann & Ransford and leads the Commercial Practice at the company.