Faced with limits to growth for new industrial products and systems, managements have begun to appreciate the importance of the installed base and the potential for revenue streams over the product lifetime. It has been recognized that actual product sales constitute only a fraction of the total revenue opportunity – the rest being services such as customer support, repairs and maintenance, spare parts, upgrades, productivity services or, in fact, product disposal. Estimates have shown that total service revenues associated with an industrial product over its lifetime amount to between 5 and 20 times the sales value of the product, creating a large market opportunity.
After-sales services now constitute a strategic anchor for many manufacturing and industrial companies aiming at a mix of maximizing customer loyalty and retention, generating additional revenues and profits from the installed base, defending against lower cost competitors and protecting the brand. Yet still, strategies are mostly defined in defensive terms, such as improving squeezed margins, providing buffers in economic downturns, locking out competitors, locking in customers and resisting price pressures. There is less focus on innovation and new offerings creating new opportunities.
As a consequence many companies self-limit service investment and simply rely on too high prices for proprietary parts for profit. Hence service units within many manufacturing companies underperform, both operationally and financially, lack management capacity and coherent strategy, or knowledge of markets, competitors and data on installed base. Others advocate strong services and set high objectives, however strongly subordinate services to products and effectively disallow service growth initiatives. Still others confuse their service opportunities investing too much in skill based businesses which cannot be scaled or approaching businesses which require scale for profit with too little investment in automation and systems.
Furthermore, as technology and the Industrial Internet of Things become ubiquitous, data is emerging as a new asset class, key for asset performance and customer productivity. Manufacturers and OEMs who lose control over their products’ field operating data run significant risks of commoditization. After-sales service applications and solutions using connectivity, data and analytics to drive performance become crucial in this competitive environment, as do strong customer relationships developed mainly through quality after sales services and good cooperation between product and service units.
We help our clients develop best-in-class after-sales service businesses. We help them clarify and articulate service intent, optimize service positioning within the organization and enhance product-service relationships. We work with service units to strengthen management capacity, understand their markets and competitive threats, develop compelling strategies, grasp opportunities and drive operational performance. And we help them make the case for technology, improve investment allocations and introduce and sell new, technology enhanced offerings.