Most IT services providers, custom software agencies and consultancies who have been in business for a few years can attest to how rapidly market demands have changed over the past decade.
An offer that once used to work and have clients lining-up outside of the door to do business with you now, as it transpires, is no longer effective due to an overcrowded market of other suppliers providing similar offerings.
Consequently, IT service providers have found themselves needing to change tack and modify their service offerings in order to avoid commoditization, provide value to their clients and to sustain their own business for the future.
The Challenges IT Service Providers Face In An Over-Crowded Market
An overcrowded market is one where there are more suppliers than there is demand in a given market. This can result in suppliers competing for the same business, which can often drive down service prices. For example, if there are several managed IT service providers (MSPs) all serving the same market segment – let’s say twenty small businesses 2 to 50 in size all within a local 20 kilometer radius – then we could make a fair assumption that this market is over-serviced and that there is an oversupply.
Let’s take the example of a doctors office who requires the expertise of an IT service provider to support their internal IT systems. To the relatively non-technical owner of a doctors office, there may not be much of a difference from one provider to another in a given local market. For instance, if all of the managed IT service providers he interviewed provide similar offers such as; ‘99% up-time’, SLAs that ‘guarantee a 5 minute incident response time’, ‘monthly server patching’ and ‘predictable fixed pricing’ his decision may come down to price or less tangible features, such as years in business and references.
For instance, if MSP A charges $200 per end point, MSP B charges $175 per end point and MSP C charges $150 per end point and all there are no differences in terms of offering between any of the MSPs, then it’s reasonable to say that the buyer will opt for the MSP charging $150 per end point thus saving themselves any additional expense.
Here we’ve seen three MSPs with similar offerings compete to acquire business from a supplier. With no key differentiating factor between them, they have ultimately become commoditized. What’s wrong with that? Well, the problem with becoming commoditized is that there is little differentiation between you and your competitor who provides a similar offerings and consequently, the buyer will purchase based on the lowest price. The negative effects of this from a supplier perspective is that it drives down margins, leaving you with little to recoup after your service is delivered.
For business owners astute enough to recognize this happening, they can quickly re-position their service to perceive to deliver more value than their competitors. For those not so savvy, it can be the slow painful ride to tighter margins and can leave them stuck in the mud for years never being able to scale beyond a certain level.
Identifying ‘Blue Oceans’ of Opportunity
In our last example, we saw how three MSPs competed for the same business and with no redeeming difference between them, the buyer ultimately opted for the MSP with the least price.
Let’s pose this question though – In what instance would the buyer not have gone for the cheapest solution and opted instead for the for the $150 or $200 per end point offer?
The answer is; if the supplier had more perceived value to offer that its competitors. How does one of the suppliers achieve this additional perceived value? The key lies in crafting a more compelling offer through uncovering current and emerging market demands and effectively positioning and differentiating your offer accordingly in comparison to other suppliers.
Let’s say during the interview process MSP A, instead of simply ‘featuring-stacking’ and pitching everything to justify the price of his solution, he took the opportunity to talk to the prospect, carefully listened to what they have to say and understood their problems and the challenges their industry faces as a whole and subsequently, identified and unraveled new opportunities to augment the perceived value of their MSP offering. A typical conversation might look like this..
Service Provider: So Bob, tell me what kind of problems are you having with you IT?
Buyer: Well, we’ve had an internal IT guy with us for years who managed pretty much everything for us – he was great! But ending up leaving us as he wanted to travel. Now all of a sudden we’re having a host of issues that’s eroding our productivity.
Service Provider: What kind of help do you need?
Buyer: We want to achieve stability with our IT systems first and foremost as it’s affecting our productivity.
Service Provider: Any other concerns?
Buyer: Yeah I guess we’re kind of concerned about our online security. A few other doctors offices like us got hit over the last few months. It was all over the local newspaper so I guess you could say it impacted their reputation a bit. Also, they got a hefty fine too so we’d like to avoid that. Not sure if you can help with that or not..
With this information, MSP A charging $200 per end point can now craft his offering accordingly. Their MSP offer already covers the first concern the buyer has of stable and reliable IT however, in the subsequent question, he has uncovered a new, recent demands among their industry and that is; protection against cyber security threats.
Through a series of simple questions, he has uncovered an unmet need that can be added to their offer. Not only that, but he also finds out that other doctors offices all have the same online security concerns as they all read the same news paper where this doctors office owner first stumble across the publicized cyber security breach.
To summarize, understanding your market and effective positioning and differentiation your offer in comparison to your competitors can help you win new business in a competitive landscapes. Regularly interacting with your customer and understanding the problems that they face in their business and their industry as a whole, will help your to effectively position and differentiate your specialist technology services and ultimately, win new business.
My name is Kieran Moloney and I help small to medium sized IT service providers, MSPs and IT consultancies acquire their ideal clients through a proven digital sales process. If you are struggling to get new customers and realize a positive Return-on-Investment from your marketing efforts then fill out the free evaluation to see if and how I can help – https://www.kieranmoloney.com/free-evaluation/
– Kieran Moloney