Selling an innovative value proposition means showing the idea has worked for similar end-customers.

Electronics manufacturing services companies have an unusual marketing challenge. Most companies’ core value proposition centers around serving as an extension of their customers’ manufacturing operations and providing expertise and/or economies-of-scale that lower total cost. The challenge is that when your “brand” involves your customers’ reputations, they want to see consistency in terms of services offered, quality levels and organizational culture. Radical shifts in messages or organizational culture can make them nervous.

Service offerings really haven’t changed dramatically from the 1980s. They are simply marketed better. What might have been done quietly for one or two large customers at Tier One EMS providers in the ’80s is now a branded service offering that is widely understood. Examples include private labeling, original design manufacturing, repair depot and third-party logistics services (3PL). Some of these have grown in complexity. The ODM equation is now broadened to include a joint development model (JDM). The lines between contractor and OEM have also blurred a little, primarily at the Tier One level, with a few contractors actively selling proprietary products in retail venues, predominately in China. At the Tier One level, business models are likely to continue to expand beyond traditional EMS and ODM services because multi-billion dollar companies cannot achieve revenue growth targets on EMS/ODM business models alone, even when acquiring competitors. At some point those companies cease to be EMS companies and evolve into conglomerates in which EMS is simply part of a highly diverse business strategy. Is Foxconn an EMS company, an ODM, a shelter provider, an OEM or a component manufacturer?

While consolidation continues, the market continues to have job shops, regional players and multinational companies, in addition to the truly global Tier Ones. This is driven in part by large OEMs interested in having a larger pool of EMS companies competing for their spend and in part because it is difficult for a single company to address the needs of all potential customers, or in some cases even the complete needs of a single customer.

How does one differentiate in a market where too much differentiation can create fear or confusion in your prospect base? The best way is to understand the OEM segments being targeted and promote services or service package clusters that address their specific needs. And, since this is an industry that involves performance over a long period of time, selling sizzle without showing the quality of the steak is likely to fail. OEMs with similar requirements generally have similar issues keeping them up at night. Selling a track record of solving those issues or demonstrating systems and processes that eliminate those issues can be one way to differentiate.
The key to selling an innovative value proposition to a conservative OEM is to be able to demonstrate how that value proposition is solving similar challenges for customers with projects of the same size and scope.

Examples can be selling services not commonly found in a specific region, for example, offering a high-mix, high-project-complexity equation in a lower labor-cost region that has traditionally supported high-volume production.

In structuring the right value proposition, there are several critical questions to ask:

• Does your company have the infrastructure in place to support the service being sold? As an example, some emerging low-cost labor markets don’t have supply bases willing to do small lot sizes or aren’t capable of manufacturing precision parts because market demand hasn’t supported development of those capabilities yet.
• Does your long-term target customer base have a need for it? Selling EMS is like turning an ocean liner. Sell cycles of a year aren’t unusual. The service you introduce today needs to appeal to the customer base you are likely to be targeting over the next two to three years.
• Will your long-term target customer base purchase it? Having a need and being willing to purchase a service that addresses that need can be two different things. I can remember an OEM purchasing manager a few years ago expressing frustration at a management team that kept driving her to look at China, when she had programs whose variable demand, high complexity and lower volume made them a better fit elsewhere. Today, she’d be in the mainstream, but back then she was the outlier. Having the right solution doesn’t always get the sale if a corporate mandate is driving the purchasing team in a different direction.
• Will the service align with the direction in which your company is evolving? “Firing” customers generates really bad word of mouth. Selling a service that makes sense today but might not fit with the customer size or project volumes your company will find attractive two years from now may attract customers you’ll need to fire.
• Can you make a sustainable profit at it? Seems obvious, but a lot of EMS companies have gone out of business as a result of not accurately answering that question. In some cases, industry conditions today support a profit, but technology shifts or consolidation in a niche target segment could change the playing field quickly. Examples include the disk drive industry and the post-sequestration defense market.
• Are the risks acceptable? This often goes hand-in-hand with the next question. I remember one marketing manager at a now defunct EMS division of an OEM telling me that her company had decided to focus on startups since their parent company had deep pockets and could help fledging ventures succeed. She’d noticed most EMS companies didn’t focus on this segment.
• If others aren’t selling it, why aren’t they selling it? Reread the example above.

One other important thing to remember: While there are few truly original service ideas in EMS, the first to market them brilliantly often gets credit for inventing the concept.

Susan Mucha is president of Powell-Mucha Consulting Inc. (powell-muchaconsulting.com), and author of Find It. Book It. Grow It. A Robust Process for Account Acquisition in Electronics Manufacturing Services; This email address is being protected from spambots. You need JavaScript enabled to view it..