Delivering support through the channel

If you use resellers or distributors, in many case they will want (or need) to deliver the first level of support to your customers. Here are some tips to ensure success.

• Work out a reasonable revenue split. Revenue splits are eminently negotiable depending on how responsibilities are split between the reseller and the vendor and, naturally, their negotiation skills. Aim for a 50/50 split assuming that the reseller provides first level support and no onsite component is included.
• Track the supported customers. There needs to be some type of registration of customers (or systems) so you can audit the records.
• Define training and certification requirements for the resellers. The worst thing can could happen, both for the customers and the vendors, is that the reseller pockets the money without delivering any support to speak of. All issues go back to the vendor and the customer gets very slow service. To counter that, require resellers to maintain a certain number of trained staff members in-house. You can even define several levels of certification and tie different revenue splits to different levels, a wonderful incentive for the resellers to do more.
•  Actively manage the support relationship. Designate someone to watch over the interactions of the resellers and the support team. It should be reasonably easy to spot the resellers that are abusing the system or simply need to (re)train their staff. Ideally you should be able to audit customer satisfaction on a regular basis as well as observe the internal dealings between the reseller and support.

Hardware support past the warranty period

Hardware support typically includes a free warranty period, ranging from a few months for consumer products to a year or more for larger, enterprise systems. After the warranty period customers can elect to purchase so-called extended warranty contracts to continue the service.

• Offer a premium warranty program from the start. Many customers will pay extra for better service. For instance, your basic warranty could cover the cost of replacing parts when shipped back to the factory but customers may want (and be willing to pay) for advanced replacement service.
• Base the price of extended warranty on the product price. The price for extended warranty is often expressed as a fixed price but is typically calculated as a percentage of the product price. The percentage varies depending on the product price. It may be a couple points for very large systems (say, $500k) but 10% for consumer equipment. (This would be on top of charges made for supporting the software on the equipment.
• Increase the price for older equipment. Older equipment tends to break more, so, unlike for software support, the cost of extended warranty goes up over time. This is an inducement for customers to upgrade to more recent machines with lower support costs.
• Attend to end-of-life. After several years it may not be possible to provide extended warranty as getting parts become difficult or impossible. So price increases are not enough: you also need to define a cut-off date for support.
• Define a policy for expired warranties. Most vendors sell extended warranty only to customers that are currently under warranty to avoid the unpleasant fact that customers may wait until a problem develops before purchasing the extended warranty. Once the warranty has expired customers must use a fee-based service (which is more expensive, if yu have to use it, than buying a contract.) 

Collecting customers’ input

Whether you want to brainstorm new approaches to support or you want to validate ideas for new offerings, your customers are a critical audience. So how can you work with them effectively and with positive outcomes?

• Define what you want to know. Brainstorming improvements to existing support offerings is different from validating pricing proposals. Prepare your questions in advance and test them with a small group of friendly customers (yes, it’s fine to use only friendly ones at this early stage.)
• Use a proper sample. It’s tempting to only speak to “friendly” customers, or customers from a particular country, or time zone, or customers above a certain size, but naturally the validity of the data will depend on your sampling so sample widely — or be cautious about applying the findings to the entire customer base. If you choose to sample widely pay attention to: product lines; geography and language; tenure as a customer; size of purchases;  satisfaction with the product, support, and company; and job title.
• Go high enough. Asking a technical contact his opinion on pricing won’t take you very far: go to the decision maker instead. On the other hand, the technical contact is the right person to ask for feedback on how well the new search engine is working.
• Hold individual interviews. Most customers are very amenable to spending a small amount of time with their vendors (say 30 to 60 minutes). That should be enough to elicit basic brainstorming information or validate a proposal. Be sure to work with the account rep so you don’t inadvertently step into the middle of a purchasing decision.
• Hold group discussions. Group discussions are wonderful because the various participants can feed off each others’ ideas and quickly generate pros and cons. On the other hand, group discussions are harder to organize and, more problematic, can inhibit free discussions on the more touchy topics of pricing. Group discussions also tend to be dominated by the more vocal participants so it’s always a good idea to keep the groups relatively small and homogeneous so the smaller customers have a voice too. If you host a User Conference you should find that the attendees are good candidates for group discussions.
• Consider online or written surveys. An efficient way to conduct surveys on a large scale is in written (today, electronic) form. Response rates are crucial for validity so you can attach a small prize in a raffle format. Keep the number of questions to a minimum and allow respondents to comment at will (and capture their contact information in case you want to learn more.) Written surveys work well for validation exercises, perhaps not so well for brainstorms.

Why move to fee-based support?

Here are 5 reasons to introduce fee-based support offerings.

Your products have changed. If you’ve been selling a pretty straightforward product that has morphed into a complex package with regular software updates you will find that it becomes more and more difficult to bundle the support cost into the product. Since regular updates have a clear value you should be able to roll out fee-based support, bundled with maintenance.

Your customers demand it. Can customers ask to pay for something that’s free? Almost: some customers, especially high-end customers, may want a better level of service and be willing to pay for it. For instance, they may want round-the-clock support when you only offer business-hours support. Or they want response times faster than your standard 24-hour response.

Your customer base is changing.  Continuing on the same theme, a changing customer base, especially away from consumers and more towards corporate customers, will put more demand on the support team and at the same time bring a mindset that allows fee-based support.

Your competitors are doing it. As margins tighten in the high-tech world many vendors are going to fee-based offerings as they tighten eligibility for free support. If your competitors are offering fee-based programs you probably should consider it – although to be sure going against the crowd could be a powerful sales argument. Basically any time you see a chance to offer differentiated levels of support for different customers fee-based offerings probably make sense.

Your CFO is demanding it. This is not such a bad reason for charging for support! Fee-based support, amongst other advantages, will give you some leeway to make investments and deliver the kind of support that may not be affordable at all with a free offering.

Is simple better?

When it comes to support pricing, yes! Complicated pricing antagonizes customers because they feel it must be hiding predatory practices; breeds confusion with sales reps that easily leads to “creative” pricing; and opens up avenues for customers to press for discounts.

Simple pricing with firm no-discount or pre-planned discounts policies removes confusion and is better accepted all-around. In the enterprise software world, a pricing based on percentage of net license with no discounts seems to be a very robust and successful strategy. You can offer several levels of support at various percentage levels and voila! A complete support portfolio everyone can feel good about.