In sales and service, the ability to understand and clearly communicate value is essential for success. However, many service providers and manufacturers struggle with this, often falling into one of two common mistakes: either undervaluing their offerings or attempting to artificially enhance value through poorly implemented extras and add-ons. True value, however, doesn’t need embellishment; it stands strong on its own, rooted in quality, reliability, and transparent pricing. Below, I will outline how to identify, communicate, and price value in ways that truly reflect the substance of what you offer, without compromising your brand’s integrity or eroding customer trust.
In service, value can often feel difficult to define because it doesn’t always have a clear market reference point. True value in service-based offerings lies in the expertise, reliability, and quality that a provider brings, which directly translates to outcomes for the customer. For example, skilled service can prevent costly downtime, optimise productivity, or solve complex problems that the customer couldn’t address alone. Here, value is rooted in the results delivered and the impact on the customer’s operations, which often isn’t immediately visible but becomes evident through performance and reliability over time.
In product sales, value tends to align more directly with market pricing and competition. Products are often priced competitively, with perceived value shaped by the customer’s willingness to pay relative to alternatives. Here, true value is still based on quality and durability, but it’s also influenced by direct comparisons with other offerings. When product value aligns with what the market perceives, it forms a sustainable price point. However, if customers perceive less value than the product provides, this can signal poor pricing or a need to better communicate the unique benefits or differentiators that make the product worth its price.
Service also plays a critical role as the ongoing link between a manufacturer and its customers, enhancing the product’s value beyond the point of sale. No matter how well-positioned a product may be in the market, poor-quality service can quickly undermine its overall value to the customer. Effective, reliable service reinforces the worth of product ownership by ensuring long-term satisfaction, smooth operation, and prompt support when issues arise. By delivering consistent value through after-sales support, service strengthens customer trust and maximises the total value that customers derive from their investment in the product.
Tangible vs. Intangible Value
Understanding the distinction between tangible and intangible value is essential for setting fair and transparent prices.
- Tangible Value: This is the aspect of value that can be measured, touched, or seen—things like materials, production time, and craftsmanship in products. For services, tangible value includes costs that can be easily verified, such as travel expenses, parts, or tools used. Tangible value is clear-cut, offering customers a straightforward basis for understanding what they’re paying for.
- Intangible Value: Intangible value is less visible but just as important. For products, it might include factors like brand reputation, perceived durability, or a company’s commitment to sustainability. In services, intangible value is often rooted in expertise, reliability, and trust—the qualities that give customers peace of mind, knowing the work is done right. Importantly, intangible value must be grounded in something concrete that the customer can appreciate. It’s a mistake to inflate prices based on vague or unsupported intangibles that don’t offer clear, meaningful benefits to the customer. True intangible value should reflect actual benefits, not just aspirational promises.
Understanding these two types of value helps businesses set fair prices that reflect both the direct costs of delivering a product or service and the quality embedded in the experience. By ensuring that intangible value is transparent and meaningful, companies can build trust and effectively communicate why their offering is worth its price.
The Role of Transparent Costing in Service Value
In service industries, it’s easy to fall into the trap of pricing based on product-markup mindsets rather than focusing on true service value. However, service pricing should always be transparent and based on five key factors: parts, travel, labour, quality of work, and the value to the customer.
- Parts: If parts are required, they carry a clear cost that can be verified by the market. There’s little room for markup here since customers can easily check prices, so transparency is crucial to prevent mistrust. Charging a fair price for parts and showing customers the breakdown of this cost builds confidence in the integrity of the service.
- Travel: Travel expenses, whether for on-site repairs or consultations, also carry a visible cost. Many service companies use standardised zone-based rates to keep pricing consistent and fair. This clarity removes ambiguity and assures customers they’re not being overcharged. Utilising resources like Rome2Rio can help estimate travel costs accurately.
- Labour: Labour costs vary based on factors like regional cost of living, market pressures, and the skill level required for the service. Highly specialised technicians, such as those servicing MRI machines, command a higher hourly rate than general appliance technicians because of the expertise required. Transparent labour costs help customers understand why different services may be priced differently, based on the skill and experience of the professionals involved.
- Quality of Service: Unlike parts, travel, or labour, the quality of service is where the real value lies. Skilled labour, expertise, and reliability make a service valuable and justify a higher price. Charging appropriately for high-quality, reliable work reflects its worth, ensuring that customers pay for expertise rather than hidden fees or additional markups.
- Customer Value: Beyond the direct service provided, the value to the customer includes considerations like minimising downtime, maximising uptime, and ensuring optimal device performance. These aspects translate into confidence in the product and real financial impact—reduced downtime, for instance, can save customers from productivity losses. By factoring in the broader benefits customers gain, service providers reinforce the true worth of their offering, making pricing more justifiable and value-driven.
Transparent cost structuring reinforces customer trust, ensuring they see the full picture of what they’re paying for. This clarity in pricing also allows businesses to focus on showcasing the high-quality, reliable aspects of their service, which is where the true value resides.
Building Trust Through Transparent and Fair Pricing
Trust is built when customers understand the value they’re receiving and believe that it’s fairly priced. Transparent pricing that accurately reflects true value—costs, quality, reliability, and the team’s expertise—cultivates trust and strengthens customer relationships over time.
- Setting Fair Prices Based on Skill and Reliability: Skilled service providers should confidently price based on the quality, skill, and experience they deliver, rather than underpricing out of fear of being seen as too expensive. When prices are set to reflect the true value of the team, customers are more likely to appreciate the quality and reliability provided. Undervaluing these aspects may attract price-sensitive customers but often leaves the team and service undervalued, making it more difficult to deliver high-quality service.
- Showing Value Through Transparency: Integrating service value transparently into the pricing structure (such as including maintenance, support, or extended warranties) ensures that customers see the real worth of what they’re purchasing. Hiding value within the product price—without clear communication—risks undervaluing the offering and can create issues when setting realistic service prices later. Transparent communication avoids confusion and reinforces the true value of the service included, not to mention the value of the product at sale.
- Avoiding Hidden Costs in Service Pricing: Hiding the true cost of service (a high cost of ownership) to make a product appear cheaper at the point of sale may yield short-term gains but undermines service pricing in the long run. This practice can erode customer trust and negatively impact future sales. By openly reflecting the cost of ongoing service, companies position themselves as trustworthy and ensure that customers see the full, realistic picture of product ownership.
- Transparent Pricing Builds Credibility: A clear pricing model, where tangible costs (like parts, travel, and labour) are openly shared and the only added cost reflects the quality of service, establishes the provider as trustworthy and competent. Customers who understand the breakdown of costs feel more confident in what they’re paying for and are more likely to view the service provider as fair and reliable.
Transparent pricing, when done correctly, strengthens the customer-provider relationship by highlighting the real value behind every cost. It also sets a foundation where high-quality, reliable service is appreciated and fairly compensated, benefiting both the provider and the customer in the long term, which is the very foundation of a good business.
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Common Pitfalls that Undermine Service Value
Companies often fall into traps that unintentionally undermine the perceived value of their services. These practices not only reduce customer trust but also weaken the company’s reputation for delivering quality. Here are some of the most common pitfalls:
- Undervaluing Service: This is perhaps the most common mistake, where companies set prices too low, often out of fear of scaring off customers or exposing the full cost of product ownership. While it may seem appealing, undervaluing services can raise red flags for customers. If the service price seems too good to be true, customers may question how the company is making money—Is the product overpriced? Is the service quality being sacrificed? This approach can create distrust and signal a lack of confidence in the value offered.
- Exploiting Value: In highly regulated industries, such as healthcare, food production, and aviation, some service providers exploit the lack of customer options by setting prices disproportionately high. Since customers are often bound by strict regulatory demands and have little choice but to comply, they may feel compelled to pay inflated costs, often in the form of mandatory maintenance agreements. This practice may yield short-term gains but can damage long-term relationships and trust. Not to mention how that pricing impacts customers with the same products in unregulated areas, such as research.
- Mismatched Value: Service pricing should always align with service quality. Higher prices should signify high-quality, comprehensive service, and vice versa. A mismatch between price and quality creates confusion and dissatisfaction, leaving customers wondering if they’re getting what they pay for. When prices don’t match the perceived value, customers may seek alternatives or become reluctant to commit to the service.
- Arbitrary Pricing: When service pricing isn’t based on the actual costs or quality of service provided, but rather on arbitrary metrics, like a percentage of the product’s sale price, it weakens value perception. For example, setting maintenance prices as a percentage of the product price—regardless of the true costs involved—will mean that some customers are underpaying for service while others are overpaying. Customers may feel the service isn’t truly tailored to their needs, eroding their confidence in its worth.
- Mixed or Inconsistent Value: Offering extended warranties, “build-your-own” maintenance agreements, or “comprehensive” service packages that aren’t truly comprehensive can create a maze of options that customers find hard to navigate. While unintentional, these complex offerings can make it difficult for customers to assess value accurately, leading to choice confusion and mistrust. Hidden costs or unclear terms add to the frustration, leaving customers feeling they’ve been misled about what’s included.
These pitfalls, while often based on a desire to maximise value, can lead to customer dissatisfaction and reduced loyalty. Which in turn leads to greater difficulty in growing customers and increasing product sales. This can lead to a destructive cycle where high-priced service is driven even higher to overcome lower product sales, which only deepens the divide between customer and manufacturer, and so on.
The Dangers of Falling into These Pitfalls
For many manufacturers, especially in high-tech and regulated industries, after-sales service is a significant revenue generator. Boeing, for example, derives nearly a quarter of its total revenue from after-sales service alone. However, when service revenue is extracted without delivering value that aligns with the cost, it erodes customer trust and can ultimately damage the company’s reputation and growth potential.
In industries with long product lifecycles, after-sales service often represents a steady revenue stream that can exceed the initial product sale. This longevity can tempt manufacturers into believing that service revenue will continue indefinitely, as the effects of poor service practices may not immediately impact product sales. However, once customer trust is compromised, a destructive cycle can begin.
When trust breaks, product sales start to slow—a critical red flag. If the service is valuable, it should actually support and enhance product sales, as customers recognise the long-term support they’ll receive. Instead, when trust is undermined, manufacturers may see increased service revenue temporarily, as products are still in circulation. Rather than addressing core issues, companies may attempt to compensate for slowing sales by driving service prices higher, or by falling into more pitfalls. This deepens customer distrust, further reducing product sales and perpetuating a negative cycle. Boeing provides a good example here also.
For shorter product lifecycles, the consequences of these practices are more quickly apparent. But in industries with longer product lifecycles, customers may already be planning an exit to competitors long before the manufacturer realises the damage being done.
There are warning signs to watch for, including:
- Customers who choose not to renew service-level agreements (SLAs).
- SLAs that are renewed only in regulated areas, while others lapse.
- Customers increasingly turning to third-party service providers, bypassing the manufacturer (despite the logical assumption that the manufacturer should provide better value).
- Product sales slowing, even as SLA renewals indicate customers still need the product operational, suggesting dissatisfaction with the overall value.
- New product releases that fail to resonate with high-paying after-sales customers, signalling a lost connection with core customer expectations.
Avoiding Common Pitfalls in Service Pricing
Avoiding these pitfalls requires a commitment to transparency, fair pricing, and consistent delivery of value. When customers see clear value in what they pay for, trust grows, and both product and service sales benefit. Here are key strategies to build a sustainable and trust-based service model:
- Embrace Transparency in Pricing: Clear, transparent pricing is the foundation of customer trust. When pricing is transparent, it’s harder to inflate prices arbitrarily or to overcharge customers who lack alternatives. Set prices based on the true value of the service, not on what the market might bear in a moment of need. By aligning product pricing and after-sales pricing, you demonstrate the total cost of ownership, rather than giving the impression of a “cost-plus” approach where after-sales is simply an extra revenue stream.
- Know Your Value and Price Fairly: To build trust, understand the full value your service provides and price it accordingly. Avoid undervaluing your service out of fear of scaring off customers. Instead, set prices that reflect the quality, reliability, and expertise that your team delivers. Customers are willing to pay for quality when they can see the real benefits, and fair pricing backed by transparency ensures they understand exactly what they’re paying for.
- Invest in Your Service Teams: Delivering value isn’t just about pricing; it’s about the quality of service you provide. Invest in training, tools, and resources for your service teams to ensure they can meet high standards. When your teams are equipped to provide reliable, skilled support, you can confidently charge for the quality of service they deliver. Excellence in service allows you to uphold your pricing, as customers can see the tangible difference in quality and reliability.
- Ensure Strong Support Systems: A reliable service experience depends on efficient support systems. This means having parts readily available, SLAs that are structured to meet customer needs, and service delivery that is smooth and prompt. SLAs should clearly demonstrate value, not just compliance, and should be designed to give customers confidence in the support they’re receiving. A well-functioning support system minimises downtime, ensures timely repairs, and fosters a customer experience that stands out for its quality, not its excuses.
- Align Service with Customer Experience Goals: Service should enhance the customer experience, not detract from it. By structuring service agreements and interactions around customer needs and expectations, you make sure that every touchpoint reinforces value. Customers want to feel that their investment is respected and that they’re receiving excellent support. Consistently delivering on this experience builds loyalty and encourages repeat business.
By focusing on transparency, fair pricing, and high-quality delivery, companies can create a service model that customers trust and value. When service supports the product rather than simply extracting revenue, both product sales and after-sales revenue grow sustainably, fostering long-term customer relationships and a reputation for reliability.
True Value Doesn’t Need Embellishment or Hidden Costs
True value stands on quality, reliability, and clear communication. By aligning service pricing with actual value and consistently delivering a positive customer experience, businesses can build a sustainable service model that enhances product sales. This approach not only boosts customer satisfaction but also positions the company as a trusted partner, fostering growth and stability in a competitive market. When after-sales service is valued properly, it becomes a vital revenue driver in its own right, while simultaneously supporting growth in product sales.
