Unbundling Products From Services

Traditionally, distributors roll the costs of services into the costs of the products they sell. For example, when a facility buys all new paper towel dispensers, it only pays for the dispensers; there’s no actual transfer of money for the installation of those dispensers. The installation service is a value-add.

But does it have to be? What if the distributor began charging separately for the service of installing all of the new paper towel dispensers? The answer is simple: Most customers would object and go find a competitor who will do the work for free.

Where some distributors are beginning to find success, however, is in disassociating the cost of the towel dispensers from the act of installing them. Lucas calls this “unbundling,” a term most often used to describe the way cable television providers are beginning to offer viewers a cable package that includes Comedy Central but doesn’t include ESPN. Why should a viewer pay for both when that particular viewer only watches one?
Lucas wonders the same thing.

“See the mistake we sometimes make is that we think everyone needs premium service,” she says. “Often people don’t have the budget or the resources, or they can’t even really use all of the additional value. It doesn’t mean anything to them, because they can’t use it.”

If the cost of a service is unbundled from the cost of the product, a distributor could theoretically charge less for the actual product, since the distributor would make up the difference by charging for the service. Of course, as discussed, a customer probably won’t be thrilled to pay an additional cost for a service it was previously receiving for free. But a customer might be willing to pay for the true cost of a service — in this case installing paper towel dispensers — if the price of the product itself is correspondingly reduced.

This probably seems like a lot of work for a distributor to go through in order to simply end up at the same exact profit margin. But, in fact, it’s a powerful way for a distributor to highlight its value to the customer.

“It is essential that service providers periodically remind customers about the value of their services lest those clients take them for granted,” writes St. Germain.

It can be hard for any company to toot its own horn, but distributors say it’s even harder when jan/san distributors aren’t armed with quantifiable evidence of their value.

This is one place jan/san distributors tend to struggle, says Mike Holland, sales manager for Brame Specialty Company, Durham, North Carolina.

“Traditional wholesale distribution has not done a good job documenting its core competencies,” he says. “We may go out to a facility’s location several times with a service tech and do things we aren’t charging for. And we come up in a pricing negotiation situation and we aren’t able to go back in our system or have a good record and say, ‘Hey, Mr. Customer, remember these seven times we sent a service tech out and we didn’t charge for it?’”

One possibility being contemplated by multiple distributors is to provide an invoice for that service, but zero out any expenses. That way, the customer can see how much the distributor has calculated the provided services actually cost, yet the customer doesn’t actually have to pay an additional charge for those services. Again, the point is for the distributor to highlight its value to the customer.

Another possibility is to do what Glen Huizenga does. The sales manager at Nichols, Spring Lake, Michigan, says his company sits down once a year with its top 250 customers for business reviews.

“The business review format that we follow,” he says, “does allow for the communication of these different value-adds. ‘So we worked on Project X. Out of Project X, we were able to document $10,000 cost savings to you, Mr. Customer.’ You try to capture those kinds of moments with dollarized documentation.”