Many companies, especially in the area of machine and industrial plant construction, concentrate mainly on product sales and put little emphasis on the topic of service. The topic is also complex and includes the areas of aftermarket, after sales services, technical services, support and customer hotlines.
Unlike after sales services, product sales yield far higher instant turnover. However, the income from after sales services are more long-term and considerably more profitable.
Here are three good reasons why it is worth paying attention to the topic of service:
- Revenue from service and aftersales is generally immune to the business cycle
- After sales helps offset weak product margins
- It is relatively easy to optimize revenue with the help of the service business
How is it possible for you to be successful in the service business?
Clearly defined service processes help improve service profitability. Roland Berger has through numerous customer projects identified 3 areas that contribute to the optimisation of service margins: service revenue; service costs; service contracts.
Increase revenue, ajust replacement part prices, focus on existing services
First of all it is advisable to test the price model for own services.
- What pricing components are included?
- When and by how much were the prices last adjusted?
- What is the pricing strategy of the competition?
- What added value can your business offer its customers?
It is often the back office services, just to give an example, that are forgotten and not charged to the customer, and this is exactly where there is real potential for generating additional sales.
Despite increased competition, there is mostly no consistent, smart pricing strategy for replacement parts. This is an unsafe approach considering the ever increasing competition from digital suppliers such as Amazon and Alibaba. Businesses should therefore ask themselves the following questions:
- Is there a consistent pricing strategy across all product categories?
- Who are the competitors, and what is their pricing?
- What spare parts are strategically important for the respective customer?
- Are there particular spare parts that are always bought in combination with others?
When seen in this light it is clear that most companies focus on offering new products and services while paying little attention to their existing portfolio. But it should be obvious that existing products and service models are easier and quicker to optimize and will lead to measurable profit increases much earlier.
Analysis of costs and expenses
The next step on your checklist should consist of taking a closer look at all costs and expenses. You should identify situations where certain support services are not charged for. An example would be calls to the support hotline: many of your service hotline employees and your technicians spend a lot of time on support calls with customers who often no longer have a valid service contract.
During this time, it is not possible for your employees to do any other work, and their “lost time” cannot be compensated for.
Also inefficient internal processes, as well as unnecessary travel costs and expenses, should be reviewed. As part of this it is recommended that plans and reports from the service technicians are checked to find out how often they visit a customer, and how quickly they carry out their work while there.
Service contracts generally represent safe repeat revenue and ensure regular income – also, and particularly during, financially insecure times for businesses. There is a lot of untapped potential here, since only between 10 and 30% of all customers have service contracts.
The margins of service contracts should be reviewed regularly. Companies often offer many different services bundled at a fixed price. This price is often too low and has not taken all internal and external costs into consideration.
Gain added value and growth with digital solutions
Many of the measures and steps described here requires information about the customer, his replacement part order history as well as knowledge about his after care service history. This often presents companies with major challenges.
This is why it is a good idea to introduce digital tools that give the customers added value while simultaneously providing the producer important information to help optimize own services.
What examples can we give?
Using parts recognition on the smartphone it is possible for the customer to identify defect parts and order replacement parts in a matter of seconds. Service technicians are spared long and cumbersome searches and get their job done much faster. For you as the manufacturer there are also advantages:
- The identification of parts that are often searched for but rarely ordered from you
- The identification of seasonal search peaks
- Dynamic pricing through component recognition
Warehouse and logistics:
- Time between part identified and ordered, corresponding to appropriate optimization of the warehouse
- Optimization of the logistics chain, for example, based on location data
- Direct communication with the customer per app
- Targeted placement of packages, bundles and special offers
As you can see: with the help of digital tools for smartphones and tablets you create added value for your customers, teach them to use your tools and simultaneously collect important information about your customers’ service needs.
The ecosystem of your own app also makes it easier to bill for services delivered: if a customer still needs support after having successfully identified a part, it is possible to use the support call-function to automatically charge for the cost of the call.
Further options for expansions are things such as the linking of existing solutions like condition monitoring, your online store and predictive maintenance.