Should I offer a cheaper service?

[ldjames]

We started offering a specialist remote maintenance package for web servers, aimed at small businesses and priced so that it offers small business value for money. That's doing well but I'm looking into ways to offer a similar service with different service levels cheaper, to accommodate the interest we've had from hobbyists, and more expensive, to accommodate the more demanding needs of larger companies.

I'm confident that we can offer different service levels and that there will be enough interest to make it worthwhile. I'm concerned about how a prospective customer might see it though, e.g.:

1. Customer would have paid the standard price but sees the cheaper option and buys that
2. Customer would have paid the standard price but finds the availability of a better service at a higher price frustrating
3. Customer sees the various options and isn't sure which is best for him, delays buying
4. Customer would have bought the higher service but finds the availability of a cheap service concerning

I notice that most small businesses tend to increase their prices as they grow and price out the hobbyists and, sometimes, also small businesses. Is this the right thing to do or should we provide different service levels for different budgets? How can we solve the problems introduced by choice?

 

[HazelC]

All I can do is tell you what happened with me, I used to go in very low and lost a lot of work, then I went up and got my arm bitten off by small businesses / one an bands - now I charge a tad more and I still get a lot of work that is worth my time and effort and is well received. The clients that pay the least are often the biggest problem?

- Hope that helps?

 

[KM-Tiger]

Been there, done that, yes you can make that work.

People are used to the idea of selecting a service level that suits, eg Economy, Business, or First when flying. They choose according to their budget and needs.

You do need to put some thought into what you do, and do not, offer at each service level. Aim to get most into the middle level, which will best suit you and them.

 

[Alan]

Apparently people need points of reference, to help them make decisions. If you only have one price it is hard for people to assess if it is the right value for them. Ideally, you should have 3 prices / service levels, and in theory in the main people will chose the mid point.

 

[joeptsearle]

The main thing you should be considering is how much value you are giving relative to the price you are charging on different levels. People buy based on where they place your product/service on the value scale. If you have 3 tiers to your services you need to place the value and emphasis on the middle package, people often like to find the middle ground so to speak.

If you offer a lot of "bang for your buck" on the middle package and make that a recommendation, you are guiding people on what they should purchase. If you clearly define each of your packages and the benefits of the middle and higher packages, and possibly even point out the drawbacks of the lower package, you will find people with a smaller budget will not be put off, because you are giving them a clear reason to buy by listing all of the benefits of what you offer, benefits sell. Those businesses with a higher budget may even upgrade later on along the line when they see what you are offering and how good the service is in relation to what you are charging them.

 

[Connexions]

You could create case studies on your website, and then link the service levels to the appropriate ones. That would make it much clearer.

 

[primrose]

3 levels of service good - eg Gold/Silver/Bronze etc and clearly outline what is covered by each service

 

[ldjames]

Thanks for all of the excellent comments. There seems to be a consensus of having 3 tiers, which is what we are doing now. @NetConneXions' idea to have case studies will also make it much easier for customers to choose.

 

[RLlewellyn]

You're pretty much describing the basic of a Service Level Agreement.

Come up with three or four names for each service package, for the love of all things mighty don't make them Bronze, Silver, Gold or Small, Medium and Large, then come up with descriptions or specifications of these packages.

After this, a small "This package is ideal for" then be concise, don't say "small businesses" - people have different views and see tunnel vision, I've heard; "Just because I only have 5 staff members doesn't mean I'm a small business, we're pretty big in <insert area>". Be very, very concise. E.g. "This package is ideal for businesses actively using between 1 and 10 computer systems who will require assistance at least once per week" - this could be for the lowest price package.

Seen and managed quite a few of these, as long as you're extremely concise and completely transparent with your customers you'll be grand!

 

[xnstandy]

Cheaper service doesn't mean worse service. if they can provide examples or proof that they are good in service,you can consider them,thus, Profit is important for your business.

 

[Henry Cook]

If you don' have much customers, it will be a great idea. This will make you gain customers the you can gradually increase the service fee.

 

[Barnes Thomas]

You can also make your business socially engaged to get more customers, I think this is one of the easiest and best way to gain more customers.

 

[amphis software]

we've been in business for 22 years and the biggest mistake we made was charging too little for our products and services.

 

[Deleted member 244558]

I almost spat out my breakfast when I read your headline.

In my opinion NEVER drop your price for a cheaper service.

If people are buying on price alone then I walk away because experience shows these have been the worst clients for me.

Not only to they want it cheap but they still want the quality which just isn't possible when you undersell yourself.

 

[toastking]

Oh no I cannot disagree more that the general consensus on this. I'd guess most of these people don't sell or work in IT support for a living. In 99% of cases it is criminally undervalued as people think when it works you're doing nothing, when it doesn't they again think you are doing nothing... and believe me if you have a service that equals the power of my last lot then you have a real business on your hands (I think they turnover £40-50 million a year on this type of service)

As such I can say from experience, if you offer three tiers your sales of the lowest service will go up and with it the expectations of the customers will go up. People will undervalue your time and you'll get greater numbers of customers who are far too demanding!

I would strongly recommend not offering a cheaper option unless you firmly want that to become your only option.

I can say this with experience of responsibility for millions of £ of these services over the last 5 years (only recently left the role), when we tested lower value services customers just expect the same. It defies logic but its true.

 

[ldjames]

Thanks for all of the comments. This was interesting to explore and not pursued. We will be keeping the old tier and adding new higher tiers.