How to switch to new product

Our company has sold and supported a good product for years. The product
had no direct competition but it wasn't updated, so other companies stopped
selling and supporting it. In recent years we've been the only serious
supporter for it. Our sales mostly is from getting paid for support time.
Including training, configuring, troubleshooting.

The business volume has been up and down. But the business that has come in
has been well paying.

Another company is nearly finished with a product that probably will be a
great replacement for this product. The company is open to us selling the
product. Including that we would sell to the companies on our current
client list. The company might be unsure about whether to offer protected
regions or any other kind of protection.

Selling the new product probably will hurt our sales of the old one. For
example, as a test, we tried referring one of our stingier clients. The
client seems to be shifting to the other product.

Plus, there probably will be competition. Both from other support companies
and perhaps from free support from other users. So far the new product's
literature has a web address where users will give each other advice.

On the short term, it seems like there's no direct payoff to our telling
current clients about the product. Once the product is out and proven,
there still might not be a direct payoff. But somehow there should be a
way.

Do you have ideas for how to deal with this? Perhaps ideas about how to
handle current customers, and ideas about what arrangements to suggest to
the new product's company? Our ideas include things we'd do if we were new
to the business. Like setting up training and customization. But what to
do about our current clients? And ideas for avoiding competing head-on with
newcomers?

thank you!

Thanks, follow-up questions are in-line below, per a co-sysop's post of a
few days ago. Please let me know if I've put them in in the right way.
Thanks!

"Richard" <rh86@azglobal.com> wrote in message
news:bil7q401vh6@enews1.newsguy.com...
>
> Howard J wrote:
> > Our company has sold and supported a good product
> > for years. [...] Our sales mostly is from getting
> > paid for support time.
>
> Time is a valuable commodity, and as they say... even by refusing to
> decide, you will have made a decision. Today, you have something no
> other competitor can offer this company - a customer base and years of
> experience. But the longer you linger, the less valuable that will be.

That's what it seemed like to us too but it's helpful to have your
confirmation.



> If the new product is better/cheaper/faster, your customers will find
> out about it eventually and you'll lose them to the competition because
> you didn't convert them first. Then where will you be? Instead, accept
> that things must change and make the most of the opportunity - eat your
> own lunch before someone else does.

Agreed. Here are some ideas we've had. Some of them are product-sales
related, not service-focused. As you noted, our current $ are mostly from
service. But that's because of the current sitatuation of the product being
discontinued. With the new one, there will be a lot of old users switching
and who knows how many companies starting to use it. (As good as the old
product has been, few companies with significant budgets were willing. And
in particular, few managers who saw "old but compelling" product, and
therefore also saw a risk of being blamed if things went wrong, and risk
that something big enough to need an active creator will crop up, and risk
that our company would change focus or otherwise not be around to support
the product. Etc.

So anyway, we suspect that there could be a lot of sales from switchers and
from completely new users. And while service money is great--I read a
business article pointing out that huge-ticket-item makers stay alive
through slow economies by having sold service contracts--service has seemed
like a low-leverage way to operate. That is, we get paid only for our
actual time. With product, we get paid on volume.

And if we jump on doing books, writing training courses, etc., that seemed
like a good way to be seen as the expert and to get paid for our own
"product" (the books and courses). Except that the books and training info
might include info that we normally would not educate competitor service
companies about.


Here are the ideas:


1) Books and training courses

2) Ways to earn commissions or profits on sales of the new product itself:

a) Obtain the other co's commitment to give us commission on sale for our
clients. Possibly we'd provide our client list. (There's a lot of trust
already between the co.s but our co. still would prefer not to give up a
list. Plus the list would mean that someone would have to go over the
purchasers' info.)

OR

b) Obtain a discount for people who use our co.'s name as the referring
agent. The new product's co. still would make the sale but we wouldn't have
had to give them a client list, and the new product's co. would have a way
to track sales. We trust that they'd do that properly.



> It should be valuable to the company that you've got an instant base of
> qualified buyers. Cut a deal early in the game to your advantage - the
> longer you linger, the more options they will have and the less
> attractive your windfall will appear.

We agree. We're just unclear on ideas and percentages. There is a
friendship and trust between the two companies but no-one's taken the first
shot at trying to come up with something. I think partly out of concern not
to over or underdo it. I'm curious if there are some ranges for such
things.


> Exclusive sales territory is one angle. But you say that service is the
> primary revenue source for the current product. If you expect the same
> for the new product, why not arrange to be the exclusive services
> partner for it (or default referral, or premium partner status).
> Arrange to be the only referral from the vendor's website for services.

We hadn't thought of that angle! Nice!

Also, please see above re our thinking that unlike with the old product
during the last years, we're now entering a period where there will be a lot
of sales of the new product, and we thus wonder about cutting a deal that
helps us capture $ for that whether from the new co paying us a commission
or from our being the direct reseller and therefore simply charging more
than the wholesale amount.

It's not clear yet whether the new product will need much service help.
Anyway, for those buyers who only need the product, and no service, we of
course want to end up being able to get the commission or margin $.

I don't think I've seen companies do this, but what would be nice would be
the only reseller cited at the co.'s web site, and somehow to be able to do
both wholesale--to other resellers--and to do sales to the end customers.


>
> Demonstrate value to the company by showing a) the value of the
> converted customer base to kick-start their product sales, b) your
> demonstrated experience (and longevity) servicing a similar product, and
> c) offer to lend your experience in improving / changing their offering
> (to improve the customer experience and their profits, but also to your
> advantage).

Ah, all good, and we had some discussion on that some time ago but nothing
specific, just agreement that we can help each other.

The new company is going on a self-funding basis and I think it has yet to
have a large customer come along. My company had several large potential
customers who I suspect could be such customers. We've hinted at the idea
of having equity in the new co. but no dice.


(Returning to your exclusive-service idea)

> Perhaps then you would find that competitive sales are actually working
> to create more business for you, instead of taking it away.

Yes, I agree. But at this point am still unclear on whether a lot of sales
will be without a need for service.



> For example, certain complex products can only be sold if a qualified
> partner is providing the design / installation services (or in the case
> of software, maybe licensed for the developers kit). In these cases,
> competing resellers are forced to involve the services company in order
> to close their product sale. If you play nice on-site (i.e., make them
> look good) and primarily focus on services, not selling product against
> them, this can be an attractive arrangement for all.

Yes, this sort of thing has worked well during the last years. Many service
co.s have contacted us because their clients have the old product. We
always offer to work directly with the client and to focus only on this
product.


> But beware that
> it's short-lived - eventually more partners will qualify and your edge
> will diminish.

Yes, we fear that will happen with a new product. With the old product, the
other top service companies dropped out and it was too costly for most
others to try to become current so they didn't even try.


So we have various things to offer the new co:

--Our regular customers
--Companies who have contacted us to see if there's a new product
--Possibly up to a few big companies. That might be willing to make
signficant purchases now that would help get the new co.'s cash flow
running. (We're not sure--we've not contacted them. We don't want to get
their interest in this field going so strong that they look around and find
the new co on their own. So we wanted to have something lined up with the
new co before getting the bigger prospects' attentions focused in this
product's direction.)
--Our expertise / advice about the product
--Our endorsement of the product.

And we have things we can offer the companies that might become users of the
new product:

--The ear of the new product's company. Better to have influence.
--Our long history on the old product
--If we invest enough time, we'll also have expertise on the new prodct.
--If we write books and create training courses, we'll be the starting
experts.


And to sum up our concerns:

--What percentages or other aspects to suggest in order for us to bring our
regular client list to the table.

--What deals to suggest to the new co in order for us to bring our largest
potential clients to the table. It just seems maybe crass to press for what
the deal might be. There's almost no direct cost to us to tell these
potentially large several clients about the new product, so possibly the new
co isn't giving much thought to creating an incentive.

--Possible impacts on custom service/training if we write books and training
courses. But your point that we'd do better eating our lunch ourselves goes
here too, I think. Better that we write the books and courses than others,
especially if the others also offer service. Plus, except for the time
investment of writing the books, we'd rather sell books than be spread thin
doing service. (And maybe the market won't be that way. Maybe most
companies that buy books and training courses would not buy service anyway.)

Thanks again!

Whew! Comments inline...

Incidentally, some questions about the product and your service... are
we talking physical product or software? Are your services viable
remotely (i.e., advice, repair), or are they geographically limited
(installation, on-site services)? I.e., is it practical for you to have
a global exclusive on the services?


Howard J wrote:
> And while service money is great--I read a
> business article pointing out that huge-ticket-item
> makers stay alive through slow economies by having
> sold service contracts--service has seemed like a
> low-leverage way to operate. That is, we get paid
> only for our actual time. With product, we get paid
> on volume.

Yes, the services business is a tough one - anything above or below 100%
of capacity is a problem. However, there are ways to improve margin /
leverage on services.

One is to offer fixed-pricing for services you can deliver consistently
at a known cost - especially where the value to the customer (price) is
significantly greater than the effort required (cost). This works
particularly well if you can develop a process that enables lower-paid
staff to execute the work.

Another is to offer service contracts (annuities) that provide a more
steady stream of income. The risk here can be big or small, depending
on what you sell.

If it's a retainer-type service, the risk is low - e.g., for $600/mo a
customer gets on-call support 8-5, Mon-Fri with a 4-hour response time
including up to 10 hours of labor. (i.e., the customer gets a discount
on your hourly rate, you gain steady income, it's cheaper than they
could do it themselves, and chances are they won't use the full 10 hours
so you get more profit.)

A riskier version is a warranty-type service. For, say, 15% of the
retail price annually, you cover parts & labor to repair defects in the
product. This is more suited to the manufacturer, who can leverage
their low production costs for replacements and recover costs with
refurbished units. However, I have seen bundled services where a
manufacturer's warranty is enhanced and marked-up by a reseller (e.g.,
support + warranty sold under one price, where the mfr backs the
warranty and the customer sees a single annual fee).


> And if we jump on doing books, writing training
> courses, etc., that seemed like a good way to be
> seen as the expert and to get paid for our own
> "product" (the books and courses).

Depends. Books take a lot of effort. A tech book takes an average of
1-2 hours per page to write. 500 hours isn't unheard of authoring an
average book. The direct return ranges from approx USD $5K to $50K (for
a strong seller), so don't depend on the book to be profitable - you'd
need to leverage it to close more deals (displaying credibility) or draw
in more business (promotional content in the book) to make it
worthwhile.


> Except that the books and training info might
> include info that we normally would not educate
> competitor service companies about.

Yes, but for how long will the info be your little secret anyway?
Eventually competitors will learn their own tricks. Meanwhile, you
grabbed the market for books on the topic, hopefully becoming the
recognized authority. Again, if the manufacturer endorses (or even
promotes) the book, all the better to dominate the market.

Consider the network security space, where this is done regularly - in
that example, experts share enough detail to impress buyers of books &
services, but not enough to divulge company secrets to competitors.
(Which is fine, since that level of detail would not normally be
interesting to the average buyer anyway.)


> 1) Books and training courses

Training courses in particular can lead to services work, if the
instructor is solidly competent. The customer gets to see first-hand
how good you are and gets a taste for how much more you know that they
don't.

> 2) Ways to earn commissions or profits on sales of
> the new product itself:

If you're turning over your client list, a simple method I've seen used
in the past is to arrange for a graduated commission schedule for
anything your customer buys from the vendor. For example, 15% of gross
sales to that customer in year 1, 10% for sales in year 2, 5% in year 3.

This lets you benefit from sales beyond the single product, but without
perpetual obligation from the vendor. For clients where they already
have a relationship, negotiate a reduced (if any) commission.

FWIW, this example comes from a real scenario where one services company
transferred its existing customer base and contracts to another.


> > ... why not arrange to be the exclusive services
> > partner for it (or default referral, or premium
> > partner status). Arrange to be the only referral
> > from the vendor's website for services.
>
> We hadn't thought of that angle! Nice!

This would work especially well if your services added particular value
to the customer - i.e., the vendor gets some implied benefit from
representing you as their partner. (e.g., "The product's hot, but check
out the fantastic things our partner can make it do for you!")


> I don't think I've seen companies do this, but what
> would be nice would be the only reseller cited at
> the co.'s web site, and somehow to be able to do
> both wholesale--to other resellers--and to do sales
> to the end customers.

Sure, you could be the "distributor", effectively outsourcing the
distribution channel and support for a geography. The semiconductor
space does this a lot, where the distributor even provides support for
their client base. So, perhaps for a broad geography (say, North
America), you are the sole distributor, providing "official" services
for customers and resellers, selling direct to customers, but offering
much better discounts to volume buyers (resellers).


> The new company is going on a self-funding basis
> and I think it has yet to have a large customer
> come along. My company had several large potential
> customers who I suspect could be such customers.

All the more reason to strike an attractive deal now. I've seen this
tide turn more than once before (and radically, at times) - suddenly,
they won't need you anymore because they start getting rave feedback
from magazines, customers, or other companies like yours.

> We've hinted at the idea of having equity in the
> new co. but no dice.

Nice try. ;-)


> There's almost no direct cost to us to tell these
> potentially large several clients about the new
> product, so possibly the new co isn't giving much
> thought to creating an incentive.

Ah, but you know something they don't, and it's very valuable. Often I
find that experience makes "obvious" to us things that are not so
obvious to someone else - in fact, they will pay quite handsomely to
gain this knowledge. Especially so with contacts and networking - this
knowledge did not come freely to you; it was earned over a long period,
and it's very valuable to the vendor (as can be your endorsement to
those same people who now trust your opinion).


> Better that we write the books and courses than
> others, especially if the others also offer
> service. Plus, except for the time investment of
> writing the books, we'd rather sell books than be
> spread thin doing service. (And maybe the market
> won't be that way. Maybe most companies that buy
> books and training courses would not buy service
> anyway.)

Well, I think that you will find buyers among those who buy your
training (see above). Consider also that there are many ways to deliver
training - self-guided kits (which will be shared among many people),
online training and videos (good global coverage), and instructor-led
training (good personal contact, stronger potential for follow-on
services, but travel expenses will preclude many prospective attendees).

Consider also that in many official technology courses, nearly half the
course fee goes to pay for the official student kit of materials. If
you were the developer and sole source for these official materials to
schools around the world, there could be great return on the initial
course development.

Look at Novell, Microsoft, and Cisco for examples on such training
programs - eventually non-official courses became available, but it's
costly for them to develop for a smaller scale than you'd be enjoying,
and there's brand value in training centers offering official courses.


Best of luck!

> Whew!

I agree, if you're referring to the time and quality you've already
provided!


> Comments inline...

Likewise, thanks again.


> Incidentally, some questions about the product and your service... are
> we talking physical product or software? Are your services viable
> remotely (i.e., advice, repair), or are they geographically limited
> (installation, on-site services)? I.e., is it practical for you to have
> a global exclusive on the services?

Software, and we've done much remote providing of services, mostly domestic
but also some international. So yes, a global exclusive would be practical,
though of course it'd need to be backed up with sufficient staff and shifts.


> Howard J wrote:
> > And while service money is great--I read a
> > business article pointing out that huge-ticket-item
> > makers stay alive through slow economies by having
> > sold service contracts--service has seemed like a
> > low-leverage way to operate. That is, we get paid
> > only for our actual time. With product, we get paid
> > on volume.
>
> Yes, the services business is a tough one - anything above or below 100%
> of capacity is a problem.

Well put!


> However, there are ways to improve margin /
> leverage on services.
>
> One is to offer fixed-pricing for services you can deliver consistently
> at a known cost - especially where the value to the customer (price) is
> significantly greater than the effort required (cost). This works
> particularly well if you can develop a process that enables lower-paid
> staff to execute the work.

Can do. To some extent we fear losing control over that, because
non-compete limits (for former staff) would expire after some period, though
ideally non-disclosure limits would not apply.


>
> Another is to offer service contracts (annuities) that provide a more
> steady stream of income. The risk here can be big or small, depending
> on what you sell.
>
> If it's a retainer-type service, the risk is low - e.g., for $600/mo a
> customer gets on-call support 8-5, Mon-Fri with a 4-hour response time
> including up to 10 hours of labor. (i.e., the customer gets a discount
> on your hourly rate, you gain steady income, it's cheaper than they
> could do it themselves, and chances are they won't use the full 10 hours
> so you get more profit.)

Nice idea!!


> A riskier version is a warranty-type service. For, say, 15% of the
> retail price annually, you cover parts & labor to repair defects in the
> product. This is more suited to the manufacturer, who can leverage
> their low production costs for replacements and recover costs with
> refurbished units. However, I have seen bundled services where a
> manufacturer's warranty is enhanced and marked-up by a reseller (e.g.,
> support + warranty sold under one price, where the mfr backs the
> warranty and the customer sees a single annual fee).

Hmm, seems less applicable to software (sorry I hadn't stated before this
post that it's software), but perhaps I'm missing how to apply it.



> > And if we jump on doing books, writing training
> > courses, etc., that seemed like a good way to be
> > seen as the expert and to get paid for our own
> > "product" (the books and courses).
>
> Depends. Books take a lot of effort. A tech book takes an average of
> 1-2 hours per page to write. 500 hours isn't unheard of authoring an
> average book. The direct return ranges from approx USD $5K to $50K (for
> a strong seller), so don't depend on the book to be profitable - you'd
> need to leverage it to close more deals (displaying credibility) or draw
> in more business (promotional content in the book) to make it
> worthwhile.

Wow, this is great, specific info! Can you tell me if these figures are for
widely generic products (e.g., Word) and also apply to smaller volume
products (though perhaps the smaller volume ones can command a higher price
per book).



> > Except that the books and training info might
> > include info that we normally would not educate
> > competitor service companies about.
>
> Yes, but for how long will the info be your little secret anyway?
> Eventually competitors will learn their own tricks.


Certainly a fair question and answer, but for reasons that probably in part
have to do with the product's stale status, there've been relatively few
challenges. We realize that the new product probably changes things, and
that of course is what stimulating our making the first post.



> Meanwhile, you
> grabbed the market for books on the topic, hopefully becoming the
> recognized authority. Again, if the manufacturer endorses (or even
> promotes) the book, all the better to dominate the market.

Agreed. And if the manufacturer would only allow us a commission on all
sales, we'd have a direct incentive almost to give away training, but
certainly at least an incentive for revealing tricks etc at a much lower
cost than for paying for consulting.


> Consider the network security space, where this is done regularly - in
> that example, experts share enough detail to impress buyers of books &
> services, but not enough to divulge company secrets to competitors.
> (Which is fine, since that level of detail would not normally be
> interesting to the average buyer anyway.)

Nice!

>
> > 1) Books and training courses
>
> Training courses in particular can lead to services work, if the
> instructor is solidly competent. The customer gets to see first-hand
> how good you are and gets a taste for how much more you know that they
> don't.

Good; and probably we'd do a blend, with the outcomes of the training
helping to inform the content / depth / outline / strategies of the book(s).


>
> > 2) Ways to earn commissions or profits on sales of
> > the new product itself:
>
> If you're turning over your client list, a simple method I've seen used
> in the past is to arrange for a graduated commission schedule for
> anything your customer buys from the vendor. For example, 15% of gross
> sales to that customer in year 1, 10% for sales in year 2, 5% in year 3.
>
> This lets you benefit from sales beyond the single product, but without
> perpetual obligation from the vendor. For clients where they already
> have a relationship, negotiate a reduced (if any) commission.
>
> FWIW, this example comes from a real scenario where one services company
> transferred its existing customer base and contracts to another.

Nice again!



>
>
> > > ... why not arrange to be the exclusive services
> > > partner for it (or default referral, or premium
> > > partner status). Arrange to be the only referral
> > > from the vendor's website for services.
> >
> > We hadn't thought of that angle! Nice!
>
> This would work especially well if your services added particular value
> to the customer - i.e., the vendor gets some implied benefit from
> representing you as their partner. (e.g., "The product's hot, but check
> out the fantastic things our partner can make it do for you!")

I see; I think the manufacturer perceives the product in a way compatible
with that.


> > I don't think I've seen companies do this, but what
> > would be nice would be the only reseller cited at
> > the co.'s web site, and somehow to be able to do
> > both wholesale--to other resellers--and to do sales
> > to the end customers.
>
> Sure, you could be the "distributor", effectively outsourcing the
> distribution channel and support for a geography. The semiconductor
> space does this a lot, where the distributor even provides support for
> their client base. So, perhaps for a broad geography (say, North
> America), you are the sole distributor, providing "official" services
> for customers and resellers, selling direct to customers, but offering
> much better discounts to volume buyers (resellers).

Excellent!

> > The new company is going on a self-funding basis
> > and I think it has yet to have a large customer
> > come along. My company had several large potential
> > customers who I suspect could be such customers.
>
> All the more reason to strike an attractive deal now. I've seen this
> tide turn more than once before (and radically, at times) - suddenly,
> they won't need you anymore because they start getting rave feedback
> from magazines, customers, or other companies like yours.

Great points.


> > We've hinted at the idea of having equity in the
> > new co. but no dice.
>
> Nice try. ;-)
>
>
> > There's almost no direct cost to us to tell these
> > potentially large several clients about the new
> > product, so possibly the new co isn't giving much
> > thought to creating an incentive.
>
> Ah, but you know something they don't, and it's very valuable. Often I
> find that experience makes "obvious" to us things that are not so
> obvious to someone else - in fact, they will pay quite handsomely to
> gain this knowledge. Especially so with contacts and networking - this
> knowledge did not come freely to you; it was earned over a long period,
> and it's very valuable to the vendor (as can be your endorsement to
> those same people who now trust your opinion).

Exactly, it's just that pointing this out to them might seem overreaching
somehow, in that if this product is the only really good alternative, we'll
end up telling our clients about it eventually, with or without direct
incentives. Again, the relationship with the new company is strong, we just
are concerned about harming it. In other words, the flip side to "how about
a deal--we'll ensure that our clients know about your product and you'll
give us x, y & z", is "if you don't agree, then we won't tell our clients,
at least not right now", which seems like a negative thing to put into the
relationship with the new company. (By the way, though our privacy policy
has been informal with some clients, in at least some of the clients' cases
we really should be the ones contacting the clients--the new company
shouldn't. We are, as I noted, willing to trust the new co in tracking
which of its product purchasers gave our company's name. And of course if
we're the domestic distributor as you suggested, we'll be the ones making
the direct sales anyway.)


> > Better that we write the books and courses than
> > others, especially if the others also offer
> > service. Plus, except for the time investment of
> > writing the books, we'd rather sell books than be
> > spread thin doing service. (And maybe the market
> > won't be that way. Maybe most companies that buy
> > books and training courses would not buy service
> > anyway.)
>
> Well, I think that you will find buyers among those who buy your
> training (see above). Consider also that there are many ways to deliver
> training - self-guided kits (which will be shared among many people),
> online training and videos (good global coverage), and instructor-led
> training (good personal contact, stronger potential for follow-on
> services, but travel expenses will preclude many prospective attendees).

Thanks, good run-down of the pros/cons. We'd probably do one or more
training trips/tours in key cities so as to eliminate the bulk of the
customers' travel costs. Those in part could help hone the training--much
like a focus group can help hone a questionnaire's development--and then
later we could do online training. Or, instead of using timing (first
instructor-led, then online, then kits) perhaps we could stratify by having
relatively simple items be in the most shared medium (self-guided kits) so
that we'd be able to hit all of the markets.


> Consider also that in many official technology courses, nearly half the
> course fee goes to pay for the official student kit of materials. If
> you were the developer and sole source for these official materials to
> schools around the world, there could be great return on the initial
> course development.
>
> Look at Novell, Microsoft, and Cisco for examples on such training
> programs - eventually non-official courses became available, but it's
> costly for them to develop for a smaller scale than you'd be enjoying,
> and there's brand value in training centers offering official courses.

Excellent points! At least in Microsoft's case, their courseware (or kit)
is much more expensive than those of after-market training course
developers.



> Best of luck!

Thanks again!