Why Outcomes Are Worth More Than Services
LinkedIn Article Tim Williams
August 18, 2014
How are cosmetics able to command such premium pricing? It’s not that the ingredients are expensive; their actual cost is quite minimal. Cosmetics are perhaps the ultimate example of the power of selling outcomes, because women aren’t buying the chemical compounds that comprise a powder, rouge or lipstick. They’re buying the promise of looking young and beautiful. As Revlon magnate Charles Revson once said, “We sell hope.”
Harvard’s Ted Levitt famously taught his marketing classes that nobody ever buys a three-quarter-inch drill; they buy the expectation of a three-quarter-inch hole. As consumers, we’re really buying the end, not the means. Economists dating back to Adam Smith teach that people don’t buy products or services, we buy the “utility” the product or service creates in our lives.
Professional services firms – like advertising agencies, law firms, and accounting firms – have fallen into the bad habit of selling the means to the end (hours and activities) rather than the end itself. By selling inputs rather than outcomes, professional firms miss opportunities to realize more value from their client relationships.
Going beyond the obvious
Selling a service rather than an outcome is the difference between paying to use the equipment at a gym (inputs) versus working with one of their personal trainers, whose job it is to help you produce an outcome. The latter is worth much more than the former.
When General Electric's jet engine division makes a sale to an airline, they aren't selling the actual engines -- or jet engine repair -- but rather "uninterrupted flying time."
When you go beyond the obvious and reframe your core competencies as benefits instead of features it not only helps your firm capture more value, it also helps focus your business strategy in new and unexpected ways. For many years, Bausch and Lomb defined its product line as “optics” and as such developed a reputation as a world-class maker of lenses. But a few years ago the management team redefined their business, not as “optics” (an output) but “sight” (an outcome). Being in the "sight" business points the company toward opportunities beyond eyeglass and contact lenses, such as a highly successful line of vitamins that help improve eyesight.
When it comes to describing what you do, the language you use -- especially on your website -- is incredibly important. Not only is the "About Us" section an opportunity to differentiate your firm, it also sends a strong signal to prospective clients that your organization doesn’t just rent its people – it solves vital business problems.
Even though organizations like advertising agencies should certainly know better, most make the mistake of listing the features of their firm rather than the benefits they produce for their clients. On most agency websites you’ll find a list of departmental functions something like this:
Branding / Creative Development / Media Planning / Design / Web Development / Digital Marketing / Social Media / Etc., Etc., Etc.
Not only is this not differentiating, it’s also not very compelling. It would be like a surgeon listing functional skills like cutting and sewing. Instead of describing methods, techniques, and functions, the best practitioners and institutions describe the positive outcomes they produce for their customers, patients, and clients.
Marketing firms that get this right include the likes of London Strategy Unit who articulate their competencies on a web page titled “How we can help,” which asks six questions that showcase the areas in which the firm is able to produce important outcomes for its clients.
Dallas-based Sq1, positioned as “The Conversion Optimization Agency,” serves up information about the firm on its website in exactly the right order. First, the agency features the results they have produced for their clients. They then present a short list of well-articulated solutions that represent the benefits of working with Sq1. A services section is included as support, to provide interested prospects with specific agency competencies; the features that support the benefits already described. This is the right hierarchy for describing what your firm does: results (outcomes) > solutions (benefits) > services (features).
SOV before SOW
If your firm has Service Level Agreements (SLA) or Master Service Agreements (MSA) with its clients, chances are these agreements articulate only services provided, usually described as Scope of Work (SOW). Much better to craft an Outcome-Based Agreement (OBA) that describes the Scope of Value in place of the Scope of Work. For marketing firms, this Scope of Value can be articulated in at least five potential areas:
1. Business-Related Outcomes. To what degree is this assignment expected to result in hard, measurable outcomes? This can include such indicators as sales, market share, market penetration, percent of full-price sales, average price per sale, incremental profit, etc.
2. Marketing-Related Outcomes. To what extent is this assignment expected to produce what could be considered marketing-related outcomes, sometimes referred to as “intermediate” metrics? These include inquiries, leads, store traffic, search engine rankings, web page views, purchase frequency, number of new customers, positive press coverage, positive online mentions, etc.
3. Customer-Related Outcomes. To what degree is this assignment expected to produce changes in behavior or attitudes at the customer level? This could include such things as brand awareness, brand preference, intent to purchase, brand ratings, likeability of brand, would recommend to a friend, etc.
4. Channel-Related Outcomes. In what way is this work expected to impact such metrics as average sale per dealer, dealer knowledge, dealer referrals, channel turnover, channel inquiries, etc.?
5. Internal Outcomes. Do we expect this assignment to have an effect on employee product knowledge, internal brand adoption, employee satisfaction, etc.?
Professional services firms should stop asking clients “What do you need?” and start asking, “What are you trying to accomplish?” The agency Sullivan Higdon Sink precedes the development of a creative brief with what they call an “Expectations Brief” which lays out the desired outcomes for a new client or new assignment.
No doubt, clients are always in hurry to get to the “deliverables.” But remember that unless you start with the right Scope of Value, the Scope of Work might be wrong.