“Revenue is vanity; margin is sanity.” I can’t recall where I first heard that saying, but it always acts as a salient reminder about the need to focus on sustainable margin in any commercial endeavor. Continued business growth through re-investment is dependent on it.
That brings me to the point about service bundling in telcos, and, in particular, bundled offers to the small medium enterprise segment. Most if not all telcos offer some form of bundled service offering to SMEs, including portfolio elements such as broadband, mobile, fixed voice, cloud and applications. The benefits of doing that are clear — bundling can be both revenue accretive and “sticky” — the more services an SME takes, the less likely they are to churn.
The two real challenges with bundling are, first, it is margin dilutive, in that one or more portfolio elements will have to take a “margin haircut” for the bundle to be attractive. Second, bundling doesn’t solve the inherent issue of serving up technology-based offers to a non-technology audience; in many ways it exacerbates the situation.
Some may argue that the first of those challenges is temporary. Attract SMEs with bundled offers for the first 12 months of a 24-month contract, move them up to normal portfolio pricing at the end of that period and normal margin is restored. The challenge with that thinking is it places the relationship with the SME on a tactical, transactional footing and not a sustainable, value-based one.
The second challenge is altogether trickier.
SMEs are typically time-poor, have no central IT team, are traditionally not IT businesses and crucially are looking for straightforward, uncomplicated solutions for the business challenges they have. Positioning and selling technology to them is anathema. Multiplying that through the bundling of those technology-centric products deepens the credibility chasm for telcos and has to be addressed if that margin-rich ICT integration business is not to be lost to competition.
It’s clear that broadband, mobile, voice and various productivity and communication applications are vital services for all SMEs. How they are packaged and sold is where the creative muscle needs to be applied.
And SMEs matter. At over 50% of the entire enterprise market and typically the fastest growing segment, they represent the best opportunity for telco growth at a time when consumer services are relatively flat.
Outcome-based pricing is centered on the principle of recognizing the line of business or vertical industry that the SME operates in, and packaging and positioning an offering that delivers a clearly defined business outcome that is matched to known challenges and issues within that vertical. Underpinning that offer are the same portfolio elements such as broadband, mobile and voice, etc., but they are packaged in such a way that conveys operational understanding and business value. The value in doing this for the telco is it elevates the engagement to one based on business improvements and outcomes that SMEs will understand and that provides a platform for higher margin SLAs based on guaranteed business outcomes.
For argument’s sake, let’s look at delivering an outcome-based solution to small/medium-sized legal firms. Those legal firms are defined by:
• High proportion of knowledge-based employees
• Exacting requirements for information security
• Highly mobile workforce requiring consistent, secure access to information
• Secure, high-performance collaboration requirements
Let’s assume that an outcome-based offer to market targeting legal firms is entitled “LegalNet.” Its key elements would be made up of one or more of the following items, positioned as building block components of offering:
• Secured and assured productivity – Guarantees the same applications and level of performance whether in a fixed location, mobile or telecommuter, and are end-to-end encrypted from device to data center, guaranteeing security for data at rest and in-flight
• Legal compliance – Ensures all elements of the services offered meet any appropriate legal compliance requirements in the country of operation
• Hybrid work guarantee – Ensures that telecommuters have the same service, resiliency and throughput characteristics as those on business premises
• Service resiliency – All key elements of the LegalNet offer are based on a 1:N resiliency design where possible and practical
• Device to data center support – Ensures all elements of the service provided (laptops, mobile, switches, routers, wi-fi and security elements) are under an all-encompassing support umbrella
• Self-help operation – Provides key staff in the legal company with access to a digital marketplace through which spend control and usage management can be monitored and controlled by themselves
While the above is just an example, the point being made is that all the above elements are business value-based, not technological. Technology underpins them, but they are sold and positioned as part of an SLA business wrapper or similar, a language SMEs will understand.
Putting It All Together
Outcome-based pricing is a key way of delivering accretive value to both the SME and telco through the process of leading with business value and outcomes. It helps drive both revenue AND crucially, margin improvements. It is also complementary to bundling. Whereas before bundles would have been delivered as broadband, mobile, voice or cloud technology elements, they are now integrated into an outcome value offering. When tied to the benefits of a dynamic digital marketplace, much of which was covered in a previous blog, the new SME experience mentioned in the title becomes one based on a long standing and trusted value-based relationship, no longer a tactical, transactional one.