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The Power of Productization: How Standardizing Services Can Transform Your Business

Productization

It is well known that the rise of digital tools and platforms, from management software to e-commerce and digital marketing platforms, has facilitated the proliferation of service-based companies in recent years.

However, this proliferation has brought challenges for both consumers and companies.

  • For consumers, the increasing number of companies and interchangeable services makes choosing more complex.
  • On the business side, the presence of numerous competitors complicates and raises the cost of communicating their value proposition to the end customer.

This is why “Productization” can be a key tool for companies looking to stand out in saturated markets. It simplifies consumer choices, effectively communicates the value proposition, and reduces operational costs, among other advantages.


What is Productization?

Productization involves transforming personalized services into standardized products that can be consistently sold and delivered to end customers.

Instead of offering unique, customized services for each client, productization identifies patterns and common features to create a standardized solution that can be efficiently delivered to a broader audience.

The model is duplicable, requiring only modifications, not complete overhauls, from client to client or project to project. Thus, productization facilitates the reproduction and distribution of these new products on a larger scale.

However, many service companies still prioritize personalization as their main differentiator.


Productization vs Personalization: Risks of Overpersonalizing Your Services

Personalization can have various objectives, such as enhancing the appeal and differentiation of a product or service, or meeting specific client requirements to close pending business deals.

Even though a business model based on personalization can be highly profitable, it’s crucial to understand that excessive or poorly planned personalization can be costly in the long run.

The reason is straightforward: customizing services requires engineers, executives, and support staff, among other specialists, to invest time and resources in developing, marketing, and supporting unique and challenging-to-replicate products across multiple clients.

The scalability potential of service-based companies may be jeopardized when they focus on offering highly personalized or even bespoke products.

Another drawback of highly personalized services is that, by definition, they lack standardized and visible prices to the public, as each product is created (and sold) to fit. This compels customers to

Therefore, an overly personalized product offering can negatively impact your company’s gross margins by adding costs, reducing operational efficiency, and limiting the scalability of your products.


Why is Productization Important?

Productization simplifies consumer choices, effectively communicates value propositions, and reduces operational costs, making it crucial for companies in saturated markets. It involves transforming personalized services into standardized products, streamlining sales processes, and reducing errors.


Why Service Companies are Beginning to Embrace Productization to Scale Their Businesses

Unlike industrial or manufacturing companies, service companies heavily rely on their human resources to deliver intangible services. This means that the growth potential of these companies is inherently tied to the availability of personnel to carry out their services.

This translates to the fact that service companies generally need to hire more staff as they grow to meet increased demand and maintain quality in service delivery.

Productization addresses this dilemma.


Benefits and Challenges of Adopting a Productization Strategy

Benefits

The adoption of a productization strategy can bring several advantages to your service company, with improved operational efficiency, simplified sales processes for your sales team, and reduced errors being some of the key benefits.

Let’s delve into these benefits in greater detail:

  • Benefit #1: Clearly Communicates the Value of Your Service: Standardized products have defined functionalities, features, and benefits that are easier to communicate to potential clients, facilitating the communication of the value your products offer to these clients.
  • Benefit #2: Simplifies the Training of Your Sales Teams: Productization streamlines the learning process for your sales force by offering standardized products that are generally easier to understand and sell than custom-made ones.
  • Benefit #3: Speeds Up Your Sales Cycle: With well-defined functionalities, features, and benefits, standardized products help your clients compare various options and make quick decisions by easily understanding the cost and benefits of your services. This also reduces the need for your sales executives to spend time explaining each product and negotiating prices with each client.
  • Benefit #4: Reduces Errors: An offering of standardized products can help minimize errors commonly associated with custom products that have not been thoroughly tested in the market (by your sales or customer support teams).
  • Benefit #5: Reduces Operational Costs:: Standardizing services into products allows companies to streamline their operations. With predefined service packages, companies can optimize their processes, reduce the need for customization, and lower the overall cost of service delivery. This operational efficiency leads to cost savings, which can be crucial for companies operating in saturated markets.
  • Benefit #5: Reach New Customers by Offering a Lite or Freemium Version of Your Services: By offering basic, lite, or even freemium versions of your more comprehensive services, you can reach new customer segments that may not have access to your premium services. This approach allows these new customers to interact with your products with low initial risk and eventually progress to your higher-value offering once they have identified the value of your service.

Productizing services requires your company to rethink how it operates and delivers value to its customers, which is inherently complex.

Implementing a successful productization strategy not only involves innovating the way you design, sell, and deliver your products; it also requires companies to adapt their organizational structures, incorporate new skills, and, above all, be willing to modify their culture.

In other words, productizing services requires your company to rethink how it works and delivers value to its customers, which is inherently complex. This is highly relevant when considering that, according to several studies, only a third of new digital products launched to the market end up being successful.


Challenges

As a consultant specializing in productization and digital reinvention, I get to see first-hand the challenges that companies face when starting to adopt productization. These are my top three:

Challenge #1: Technological Adoption by Staff: The implementation of digital tools and management systems is essential for any company seeking to standardize and automate processes to become more efficient. In my experience, many companies allocate the necessary resources for implementing these systems but neglect employee training. The lack of training obviously results in poor adoption of the new tools, causing frustration (and even some aversion to using the new tools) among the staff. This situation is often more critical in more traditional service companies accustomed to managing business with “pen and paper” (or Excel spreadsheets, at best).

Challenge #1: Customer Education: Transitioning from offering a bespoke service to a standardized one can have a significant impact on customers accustomed to high levels of personalization. These customers may perceive a decrease in the quality of the new product or service if its attributes, conditions, and benefits are not effectively communicated, leading us to Challenge #3.

Challenge #3: Value Proposition Communication: In personalized or less standardized business models, the benefits and attributes of products are typically explained to potential customers by specialized sales executives. Without a standard, the sale is highly consultative and involves negotiating from functionalities to prices. In contrast, standardized services standardize their features and differentiate themselves based on post-sales service levels, the quantity and characteristics of these functionalities, delivery frequency, or presentation, to name a few examples. Based on the above, it is crucial for companies to correctly communicate the similarities and differences of their services to facilitate customer understanding and reduce the time executives spend explaining the product.

These challenges can turn into mistakes if not addressed appropriately or if the necessary measures are not taken to overcome them. Here are some of the main mistakes I have observed.


Common Mistakes in Productizing Services and Tips to Avoid Them

Mistake #1: Underestimating Cultural Complexity in Implementation

Transitioning from providing personalized services to creating standardized products can generate internal resistance within your company, especially if you have fostered a culture focused on meeting each and every requirement of your clients.

This resistance often originates mainly in the sales force and support department, as they are more exposed to potential negative impacts on their commissions and performance evaluations, respectively.

This resistance may even escalate if employees perceive a decrease in quality or other dimensions of the new products compared to previously offered services.

How to mitigate this risk:

  • Highlighting the long-term benefits of productization, both for the company and for your employees: This involves explaining, very clearly and with specific qualitative and quantitative examples, how this evolution will significantly contribute to the growth and overall efficiency of each area of your company. You also need to be explicit about the direct impact this change will have on your employees, both in their day-to-day activities and in their commission structures, salaries, etc. (see Error #3).

Mistake #2: Designing Products in Isolation

Several companies invest significant time and resources in designing and building products that may not have a good market fit. This error is undoubtedly the most common one I see when working with companies on the design of their digital products.

In my experience, this error occurs when the design and construction of a product are done “behind closed doors” and by teams primarily composed of the company’s designers and developers, without involving other relevant areas, such as customer service, for example.

This approach to designing products can pose various risks, such as:

  • Creating products or features that do not solve a significant or urgent customer problem (also known as the customer’s “pain”).
  • Designing products that, although solving a significant problem, do so in an unappealing, impractical, or non-functional way.
  • Incorporating biases and assumptions into products that do not truly reflect what the customer really wants or needs.

How to mitigate this risk:

  • Adopting an agile and experimental development mindset, focusing on designing and developing Minimum Viable Products (MVPs): One of the main advantages of MVPs is that they can be extensively tested, both commercially and technically, before deciding whether it is worth allocating further resources. Another advantage is that they will help you minimize risks by obtaining early feedback from potential customers on the new product.

Mistake #3: Not Customizing or Restructuring Incentives for Your Different Business Units

If the incentive schemes for your sales force, for example, are not aligned with the new productization strategy, they are likely to continue prioritizing the sale of personalized services instead of promoting the new products.

This lack of alignment can occur in various areas of your company, significantly affecting the adoption and momentum of your new products in the market.


How to mitigate this risk:

  • Modifying commission structures so that goals and incentives reflect the importance of selling the new products.
  • Creating new incentives for current customers to migrate to the new standardized products.
  • Training onboarding and customer service teams to understand the benefits and key features of your new standardized products.


Unlocking Productization: 4 Real-World Examples and Practical Cases

To harness the benefits of productization, there’s no need to completely redesign your company’s product and service offerings or restructure its operations. You don’t have to be a fully digital-native company either.

Below, I outline four examples that small and medium-sized service businesses, both B2B and B2C, can apply to begin productizing their services into scalable digital products.

I also include cases of companies in Latin America that have successfully increased their sales and expanded their operations by transforming traditionally personalized services into standardized products for mass distribution.

I’ve organized these examples from least to most complexity, starting with scalable content creation, progressing to service bundling, the introduction of subscriptions, the standardization of services, and finally, the creation of a community through a membership platform.


1. Sell Online Training and Tutorials

Looking to package your expertise in a way that’s both lucrative and accessible? Consider turning your knowledge into online courses, tutorials, or training programs. By structuring and presenting these contents as digital products with paid access, you not only open up an additional revenue stream but also provide a user-friendly entry point for new customers.

This approach allows them to interact with your products with low initial risk, offering a stepping stone towards exploring your more advanced or premium services.

  • Real-world example: Lyon Branding, a boutique branding agency, cleverly leveraged its extensive experience in designing brand identities for numerous companies. They created the online educational platform, Brand Inteligente. Through this 100% online platform, Lyon offers branding and visual identity courses at a fraction of the cost of their corporate services, simultaneously promoting their premium services.

2. Create Service Bundles Tailored to Your Clients

Another savvy approach is to create combinations of your services, commonly known as “packs” or “combos.” To pull this off successfully, you need a specific list of your services and a clear understanding of the actual cost associated with each.

Armed with this information, you can craft diverse service combinations targeting a broader customer base. Start with basic plans and progress to more sophisticated ones that may include additional services or extended durations.

One of the key advantages of offering service packs is their ability to cater to a wider range of potential clients and elevate the average transaction value through potential upselling opportunities.

  • Real-world example: Ecopass, a technology company specializing in event-management solutions, underwent a strategic shift after seven years in operation. They decided to stop offering bespoke services and instead focused exclusively on providing technology for companies to create their events. Standardizing their entire offering into three plans sold under a Software as a Service (SaaS) model, Ecopass not only boosted revenue through the recurring business of clients purchasing annual licenses but also realigned their business focus towards high-value corporate clients.
Ecopass tecnología para eventos

3. Offer a Subscription Service

Subscription services, commonly employed by digital platforms, involve providing products regularly, whether physical or digital, on a scheduled basis (monthly or semi-annually), ensuring a recurring source of income for your company.

To make subscriptions more appealing, they often come with additional benefits for the customer, such as special discounts for prepayment or a higher level of service, for example.

Companies in Software as a Service (SaaS), some marketplaces, and streaming platforms are examples of businesses selling services as products distributed digitally under a subscription model.

  • Real-world example: Farmaloop, an online pharmacy, offers a subscription service tailored for chronic patients and those requiring periodic medications. Farmaloop subscribers simply choose the medication they want to receive at home, the frequency, and the delivery date. As an additional benefit, the company ensures stock availability for its subscribers and provides a 30% discount on purchases.
Productización y servicio de suscripción

4. Create Differentiated Customer Support Plans

Service-oriented companies can establish various customer support plans, each priced according to the level of service they provide.

This allows you to offer standardized service levels tailored to the option each customer chooses, giving you the opportunity to stand out from the competition. Standardizing your support plans can also enhance operational efficiency as your company’s support staff can follow predefined procedures, reducing resolution times and operational costs.

  • Real-world example: Awto, a the shared vehicle rental platform, has taken differentiation of plans to the next level by creating a complementary services model that addresses its customers’ primary needs. These services include plans that offer options to extend the rental for a night, receive the car at the airport, or even drop off the car in locations beyond the company’s designated delivery radius.

Conclusion

Transitioning from a service-oriented model to a productized business model poses various challenges and should not be underestimated. However, considering the substantial long-term benefits for service-based businesses and their employees, exploring productization is a strategic move worth considering in my experience. This transition can be approached gradually and kick-started by implementing any of the use cases outlined in this guide.

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Alvaro De la Fuente Reinvencion Digital

Alvaro De la Fuente es un experto en Productización y Posicionamiento Comercial, con 18 años de experiencia como directivo de startups, empresas públicas y transnacionales en Chile, Estados Unidos y Perú. Como consultor, ha guiado a fundadores, socios y CEOs de empresas de diversas industrias, en el diseño e implementación de estrategias de posicionamiento comercial y en el desarrollo de productos digitales innovadores que les permitan diferenciarse y competir exitosamente.

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