Higher adoption of premium support? Not so fast.

One of my (many) pet peeves as an analyst is how certain ideas are repeated so often they become accepted fact, even if they aren’t grounded in reality.  The worst of these is the one you’ve all heard me grouse about before:  the oft repeated lie that 70% of CRM implementations fail.  Not true!  What is failure?  What is success?  How do you claim failure when you never defined success criteria? Aigh! But I digress.

I’ve recently had several companies remark to me about how in the age of proactive support and remote monitoring, more customers are opting for premium support contracts.  It makes sense to me.  When you look at a service contract through a Value-Added Support lens, it is logical that companies would want more services because they accelerate time to value for the purchase.

Accept it isn’t true.  I found our SSPA Benchmark information on this from 2003 and compared it with the 2008 numbers.  As you can see in the graphic, things haven’t changed much at all in the last 5 years.

Over the last five years there has been a slight increase in the percentage of premiere contracts, from 16% in 2003 to 21% today.  But the lion’s share (71% vs. 68%) of customers continue to go for the no-frills basic maintenance agreement.

Additionally, the attach rate for maintenance contracts on new purchases was 83.5% in 2003, compared to an industry average of 78% today.  The average industry renewal rate for maintenance contracts was 86% in 2003, compared to 80% today.  We are trending in the wrong direction!

I may not have all the answers for how to reverse this trend, but some of our innovative AFSMI, SSPA and TPSA members have some ideas, and if you are attending our Fall Leadership Conference in Vegas 10/19-10/22,  you will learn from the experts.  For example:

  • Case Study: Becoming a Support Fee Defender.  James BurrProduct ManagerAgilent Technologies.  When tasked with growing your support business, what should you do? Marketing intangibles is complex, so how should you go about it? What are the barriers and how do you overcome them? How do you set your price and ensure that it is not discounted? These are the questions facing marketing professionals in the support business. This presentation will explore the approach taken by Agilent Technologies to address these challenges, explain some of the difficulties encountered, and review the end results. It will be of interest to anyone who is involved in the maximization and sustainability of their support revenues.
  • Customer-Centric Innovation: Transforming Our Business with Customer InsightsRichard NelsonSenior Director of Global Marketing, Global Customer ServicesPhilips Healthcare (Philips Medical Systems). This presentation will reveal how Philips Healthcare is transforming its customer service business by standing in its customers’ shoes, gathering insights, and building new strategies. The presenter also will discuss how Philips is reshaping sales and existing offerings with Seasons of Ownership, how it is building responsive new offerings, and how it is creating new business models Summary of Results.
  • Transforming Services Marketing through Effective Campaign Management. Paula McCartySenior Manager, Global Services MarketingMotorola. From a video library to multimedia e-zines, Paula McCarty and her Motorola colleagues continue to innovate services marketing as they develop campaign programs to increase the effectiveness of marketing, while making it more engaging for B2B customers. Paula will lead attendees through samples of programs and techniques that have achieved significant measurable results. Examples include digital marketing with PR, search engine optimization, search engine marketing, digital press kits, case studies, and customer testimonial videos. For every market they pursue, Motorola Global Services brings differentiated positioning, a comprehensive services portfolio, and a cutting-edge marketing mix. The global team, in conjunction with their regional colleagues, can quickly gauge customer responses to the marketing message before rolling out a full-scale campaign. By focusing on real people in real situations and developing a tailored marketing mix, Motorola has become an innovative leader in services marketing.
  • Increasing Revenues by Extending Your Sales ReachTracy MoisanDirector, Product ManagementAdobe Systems, Seamus Greene Senior Manager, EMEA Business DevelopmentAdobe Systems. Adobe is increasing annual M&S revenue streams with a small, but focused M&S business development team who enable the Adobe direct and indirect sales channels to sell services. Through a comprehensive approach of sales training and enablement, regional account planning and field alignment, and sales-oriented business models, Adobe has seen continued double-digit services revenue growth. Participants will learn how to structure a services business development team, how to develop regionally appropriate sales training and marketing plans, how to increase deal size with tailored account planning, and how to leverage partner models for greater penetration in a mass-market model.
Thanks for reading, and I hope to see you in Las Vegas!  Be sure to sign up for a 1:1 meeting with me, my slots are going fast!
Explore posts in the same categories: Best Practices, Consumer Support, Enterprise Support

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5 Comments on “Higher adoption of premium support? Not so fast.”

  1. Hi John:

    As you know, I am currently a software vendor, but I am also a consumer and for many years was a CIO who depended on products and services from vendors. As such, I have gained many different perspectives as they relate to “premium” support contracts.

    What I have come to conclude is that way too many companies try to charge extra fees for “premium” support that really does not provide a value-add, but rather is required just to use the product or deal with problems with it. A gross example of this is when a vendor selling licensed or hosted software requires their customers to buy premium support in order to get 7×24 help to deal with consequential operational issues caused by their product or infrastructure. The sad thing is that this example is all too real.

    In cases where additional fees are required to get “premium” support that is not perceived by the consumer as value-add, the organization can quickly undermine their perceived brand quality since it can creates the impression that they will not (or cannot afford to) stand behind their offering without charging a premium. Another conclusion may be that the organization is just trying to distort the true price of using their product. Either conclusion is clearly not a positive one.

    From a vendor’s perspective, the need to charge extra fees for support that crosses the line into professional services is understandable and necessary, but vendors should also not underestimate the goodwill and customer loyalty that can be created by helping a customer out without nickel and diming them.

    What say you?

  2. jragsdale Says:

    Thanks for the dose of reality. I hear an opposite argument from member companies, who say customers keep pushing to move more premium features into basic support. I don’t know where to draw the line on what should be included in basic vs. premium, but I suspect that the consumer world (in which free support is increasingly rare) will continue to influence enterprise companies. But “nickel and diming” customers as you describe sure can make it seem that the company doesn’t stand behind their products.

    My best advice to technology buyers is to carefully evaluate support policies and definitely check references to understand the support experience before selecting a vendor. The coolest ‘best fit’ technology will not meet your business needs if you can’t get the support you require.

    And, don’t be a home buyer signing up for a mortgage you can’t afford. Companies that buy incredibly complex enterprise software to perform mission critical operations need to understand what support options are included in the base contract, and don’t complain afterwards that you need premium features and don’t want to pay for them. You should have done your homework, and you probably should have bought the premium contract.

  3. Hi John:

    Thanks for the response.

    I agree with what you are saying, but would add one caveat: I strongly believe that vendors that sell applications that are supporting mission critical operations — and of course customer care is in that category — should deal with any consequential issues in their product or infrastructure 7×24 within their base support package that comes with the product price.

    I personally believe that escalation to phone support when online self-service and assisted-service is not cutting it should also be included, but that may be asking too much of some vendors.

    Being on the other side of the wall for so long has definitely created a perspective not shared by many vendors.

  4. Haim Toeg Says:

    I am a little late to this party, but maybe in this specific discussion the arguments from earlier this decade are still valid. If you recall, there was a discussion about support being similar to insurance, where the customer pays a premium to receive protection from operational failures.

    Coverage (or more accurately, lack of it) become, under this scheme, equivalent to the deductible in the insurance policy. If you want lower deductible (faster response time, 7×24 instead of 5×12) then your cost becomes higher.

  5. For some products the comparison with insurance makes perfect sense to me. However, software vendors that sell mission critical software and charge a premium for dealing with THEIR bugs or infrastructure failures impacting a customers ability to support their customers is not one of them. When it’s really is not optional it should not be an option.

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