Determining the ideal managed services pricing model can be complex. MSP University summarizes the advantages and disadvantages of six popular pricing schemes, including per-device, per-user, à la carte, and “pick 5.” MSP Mentor points out that service providers should consider break-even cost, staff expertise, competition, and regulatory issues, along with value to the customer, when determining managed services pricing.
Multiple models and a broad range of factors can be overwhelming, but establishing pricing and packaging is a lot easier when you crisply focus on your customer and the problem they are trying to solve. For marketers at B2B companies, whose products are the basis of managed services offers, this means thinking along two dimensions. First, you must help your immediate buyer – the executive or product manager at the MSP responsible for launching the managed service and driving a profitable revenue stream. Second, you must help the customers of this buyer understand the benefits of the managed service based on your solution.
Marketing to the first buyer goes without saying, but some may question whether it is in their charter to help their service providers market to their customers. Surely that is the job of the marketing team within the service provider itself, as they are the ones who best understand their own organization’s differentiators, competition, and customer base. Besides, B2B marketers need to move on to the next campaign, product launch, or demand generation activity.
Put Your Customer on the Winner’s Podium
Rather than take this narrow view, marketers should put their customer on the winner’s podium. To win, the service provider must ace the marketing mix as they target their customers. The 4Ps – product, place, price, and promotion – are tightly coupled for a managed service, and as the vendor, you are in the best position to help the service provider articulate the value proposition and competitive advantages of the technology underlying their managed service.
The podium also reinforces the benefits of a tiered managed services pricing scheme like “Gold/Silver/Bronze.” Large service providers, such as CSC and Sprint, and smaller providers like Technology’sEdge™ and Beringer Associates use a tiered approach. Doing so helps in several aspects of the marketing mix:
- Resists commoditization: Unlike per device or per user pricing schemes, which reduce the value proposition of a managed service to a simple cost comparison, a tiered managed service pricing model helps justify premium prices for the extra value of higher tiers. This helps reduce customer churn and enables more effective up-selling and cross-selling.
- Differentiation vs. the Competition: The product is a combination of the service provider’s staff expertise, SLAs, brand, and the technology on which the service is based. But every MSP touts its highly trained staff, secure data centers, and redundant power supplies. It is the software behind the back-up and recovery, monitoring, or security service that can differentiate among providers. While the lowest tier may provide the base level of service that is common across service providers, the higher tiers can leverage more advanced software capabilities. For example, in managed network services, “bronze” may provide customer notification of outages, whereas higher tiers can provide proactive notification of degradation, the impending approach of a network capacity constraint, or the ability for the customer to run their own reports.
- Differentiation vs. In-house IT: A prospect’s IT staff is often an MSP’s key competitor. Although a managed service may free up IT staff to work on more strategic projects, IT leaders often resist giving up control. Service providers can align their lower tiers of service to the capabilities of their prospects’ in-house IT staff, and use the higher tiers to demonstrate the extra value of more advanced functionality not available with current staff.
- Enables freemium business models: In today’s market, customers expect to be able to try a service before they commit to buying it. A tiered structure can provide basic functionality for free, as part of the lower tier of service, and time-bound access to higher value, higher tiers of service to entice customers to upgrade.
Although there are many approaches to managed services pricing, the benefits of a podium approach are clear. What do you think? If you are a service provider, are you getting the support you expect from the IT vendors on whose solutions your managed service is based? If you are a vendor, are you helping your service providers find a place on the podium? I’m interested in your feedback.by