Service Package Design - Basics

The benefit or added value that a customer experiences through the use of a service is generally not an objectively measurable quantity. According to the Kano model, the minimum result expectation is defined by the fulfilment of the basic characteristics of a product or service. However, the perceived benefit as a whole consists of all impressions and experiences and is the sum of all deviations from a personal expectation multiplied by an individual weighting.
This applies not only to the service process as such, but to the entire customer relationship and any interaction interfaces. It is therefore not surprising that it is primarily qualitative delight features that can have a disproportionately positive influence on the user experience.

As many perceptible and tangible performance components as possible

Since it is not so easy to compare the qualitative features of different providers in a feature table, it can be said in principle for service design that the more the better when it comes to inspiring features. However, it is not quite that simple, because the following factors make the calculation much more complicated:

1. addition rule only applies in the positive sphere: The old wisdom that negative experiences cannot be offset so easily by positive experiences in the same proportion is not new. In my experience, the willingness to compromise is many times lower with services than with physical products and the knock-out threshold is reached much faster with negative deviations. I call the knock-out threshold the point at which the overall performance is classified as inadequate, even though there is only a minimal negative deviation from the expectation in one characteristic. As a rule, it does not matter whether the fulfilment of this characteristic is part of the primary performance function or whether it is an optional additional performance. In the case of the latter, the tolerance field may be somewhat larger, but additional services and options should only be included in a service package if they influence the overall impression positively at best, but not negatively at all.

2. influence of staging and composition: even with data-based, digital services, the user experience is ultimately an emotional evaluation. As with a concert, a film or a good novel, the individual service elements should also be part of a production that hopefully captivates the customer in the long term. This means, on the one hand, that even slimmed-down basic packages should not come across as boring and, on the other hand, that the arc of suspense and the grand finale are always chosen in such a way that this is celebrated with applause and standing ovations from all visitors. If, for example, the envisaged service package does not include any real highlights at the end of the performance or can only be seen by the spectators in the front row, then it may well make sense to add further service modules to remedy this.

3. performance and enthusiasm characteristics must be standardised and reproducible: Enthusiasm features in particular can be subject to a large variation due to situation-specific contexts or interacting persons. Under no circumstances should it be left to chance or soft skills whether the performance modules intended for customer enthusiasm can unfold their potential. In my experience, everyone knows those "Oh, that's possible" or "You offer that too, I didn't know that, that's great" moments. Often, the feeling arises that a much more comprehensive service package is available from a particular provider, just due to the fact that the individual components have been explained in more concrete terms. Therefore, one should not rely on an insider tip that then goes viral, but ensure this by standardising the service process.

4. there is also too much of a good thing: Indeed, over-fulfilment can also have a negative boomerang effect. This can come about, among other things, when the above-mentioned arc of tension does not correspond to the customer's expectations or when there is an imbalance due to an over-prioritisation of a sub-area. If well-intentioned service components cannot be deselected according to the motto "I'd love to another time, but I don't have time right now", or if they are first used to satisfy needs that are more important from the customer's point of view, service components that are intended as enthusiasm features can have a negative effect on the overall evaluation.

Convention before configuration

This rule is actually a software design paradigm. Simply put, it is about doing without project- and application-specific configuration as far as possible and instead orienting oneself to generally valid conventions. The increasing variability and modular structure of service packages should therefore by no means lead to an equal increase in configuration effort or make complex configuration more difficult to implement. Especially if the own customers do not belong to the Subway clientele. Under no circumstances should configurations require knowledge or other input factors on the customer side that may not be available.
I often gladly accept the hint that this or that setting is sufficient for most clients and sometimes have to admit that I don't even know which options to choose in this scenario. If this hint or even the choice is missing and I am also forced to specify my requirements, then I prefer to go straight to a service provider who at least gives me the configuration options. Service packages should therefore be tailored in such a way that in their standard configuration they require as little configuration effort in advance as possible in order to fulfil the intended use case. The related principles "Don't repeat yourself" and the KISS principle (Keep it simple, stupid) should also be observed in this context.

Horizontal and vertical package formation lead to different positioning

Anyone who has dealt even rudimentarily with strategic marketing issues in the past is probably familiar with the differences between horizontal and vertical product-performance differentiation. For everyone else, let me briefly explain that I can expand my product range either by selling products with similar characteristics by changing individual or a few features (e.g. package size) or by including upstream and downstream products.

The former is called horizontal differentiation, while the latter is called vertical differentiation. Both are of course possible in the case of technical services. In any case, it is important not to think that it would be most promising to stock the entire supermarket shelf from top to bottom, as well as the aisles on the left and right, with its services and offer them in a complete package. It should be understood that service differentiation can in many cases lead to a repositioning and a change in customer perception of the entire range of services. It is not without reason that attempts have been made in the past to counteract the potential negative effects, e.g. through a multi-brand strategy. As a general rule, however, it can be said that when designing new packages with the aim of differentiating services, not only the intended new target group should be considered, but also the effects on existing customer groups. Otherwise, it can happen that in the course of horizontal expansion, one literally cuts off one's own water, or in the course of vertical expansion, one becomes the target of new competitors, who perhaps - equipped with completely different resources - also ensnare one's own clientele in return.

Take substitution effects into account

Usually distracted by a certain euphoria for the new business potential, it is sometimes forgotten to think about the fact that substitution effects can also change in the course of the service change. In my experience, this is especially the case with the vertical expansion or reduction of the scope of services, as well as with the primarily value-driven positioning of a new service with a previously rather unknown usage scenario. A good example are the many IT solutions developed by previously rather product-oriented providers, some of which cost a lot of money. Of course, these information systems, which usually cover a specific use case, may reveal an enormous savings potential on the customer side if interpreted correctly and therefore deserve a decent price tag from the provider's point of view. However, it should not be forgotten that in the age of open interfaces, technologically more mature and established IT systems with a wider range of functions and better usability can often serve the same use case with just a few clicks.

Value depends on the user and is certainly not infinite.

I don't want to give the wrong impression: I am firmly convinced that pricing strategies should always be aligned with customer value and that effort-based service prices are among the biggest brakes on growth. Nevertheless, in my opinion it is a mistake to give disproportionate weight to possible savings potential and supposed efficiency gains and to give insufficient credit to other value drivers that are sometimes more difficult to quantify. Price-reducing substitution effects and a critical view of the level of innovation must also be included in the calculation. If, for example, Excel and a little workflow linkage can be used to generate comparable information content as in the fancy web-based dashboard application, this fact cannot simply be ignored.

Independent overall benefit

As has already been mentioned elsewhere, I do not think much of offering service bundles where it is obvious that they do not fulfil the benefit assumed by the customer. This means that should you actually decide on a three-tier package model, at least the basic variant should also cover the entire use case, perhaps with a smaller range of functions and less efficiency. A great deal of tact is required here in order to catch exactly the differentiating features that enable maximum skimming of the willingness to pay and at the same time lead to the clientele feeling fairly treated in the performance level. Particularly when experimenting, it is important to note that top-down adjustments are easy, whereas it can be very difficult to grant access only to higher price levels for features once they have been granted.

Clear handling of performance promises

Performance promises, both of individual modules and of the entire package, should always be formulated and communicated in such a way that the respective user - and not, as the case may be, his legal, IT or other advisor - can understand the performance content. Checking whether the service components offered meet the need must be as simple as possible. It often makes more sense to provide a feature as a configuration option (taking into account the convention-before-configuration paradigm, of course) than to use this feature as an opportunity to introduce another service package.

Special features for hardware

The integration of physical components into a service package can be both a driver and a limitation and cost trap. I cannot give a general recommendation at this point, but if the business model does not necessarily require billing as a bundled service unit, it can be advantageous to separate the hardware. Otherwise, the inclusion of consumables and wearing parts or the capacity commitment in the case of rental equipment in combination with a mixed price calculation may lead to the total price becoming unattractive for few users, while frequent users have to pay more.

In the case of new technologies where the financing of the necessary hardware is a barrier to use, especially because the future viability of the technology is not so easy for the user to assess, an "as-a-service" model can of course break down barriers. But here, too, it would first have to be examined whether the necessary technology rental can be treated as an independently billable module. This always has the advantage of greater flexibility in pricing and a cost-specific adjustment of the service content, which can pay off especially in stronger competitive confrontations. In addition, with a package price the value composition is not so easily recognisable for the client and the value contribution of the physical good tends to be seen as the determining factor.

A flat package price only makes sense if the service primarily consists of the use and provision of the hardware. In both cases, care should be taken to allow as much freedom as possible in terms of selection, replacement cycles or performance parameters. Otherwise, you can quickly find yourself in the embarrassment of competitors using seemingly more modern hardware as a differentiating feature, which offers no real advantages apart from higher costs.

Market definition makes the difference

Overall, it can be said that the more accurately the needs of a market segment are reflected in the selection and composition of the service components, the higher the customer acceptance will be. A stereotypical persona or sector definition should therefore be avoided. It is advisable not to formulate customer profiles in such a general way that everyone finds themselves in a horoscope description. Rather, an attempt should be made to describe the extreme positions in great detail in the sense of a clear demarcation and to derive the frequency and distribution function of these characteristics for the large mass with the help of random samples.