Global manufacturers of complex equipment know their products well. They know how to manage their products from concept to design, through production, distribution and sale. They know how to bring their products to market. They are experts in commanding the resources to produce highly complicated, highly valued equipment to meet specific and exacting demands and customer preferences.
Although manufacturers take great pride in the craftsmanship of the product itself, they have often left the servicing of that aircraft, medical equipment, car, or piece of construction equipment to others. That paradigm is changing. Manufacturers are now looking to ‘service after the sale’ as the next logical place to uncover hidden pockets of revenue that are proving to be lucrative.
What’s motivating them?
Earnings and stiff competition. Aberdeen Research, in their State of Service Management, Outlook for 2013, reports that “margins on service are 10.7% higher than those on products”. So while all other manufacturers squeeze earnings from low product profit margins, best-in-class manufacturers are realigning their business structures to include service as part of their revenue stream.
External competitive market conditions are also pushing manufacturers toward service. Aberdeen points out that in tight economic conditions, improved service and support can serve as a strategic differentiator. “Fifty-four percent (54%) of organizations see service as a means to fend off competitive pressures from other manufacturing or service organizations”.
Who are some of these product and service giants?
Recognizing that service plays a vital role in the total customer solution, many global manufacturing firms are re-examining the value of service revenue and are including service as part of the entire customer experience rather than just providing a product. Others have understood the value of service for a long while.
BMW – the ultimate driving machine. BMW is introducing a new electric vehicle for urban mobility, the i3. Designed with eco sleek design, great gas millage and BMW’s trademark driving comfort, the car introduces the BMW i Remote App, an iPhone application that continues the drivers experience outside the car. Using the app, drivers get direction to their destination on foot, bike or public transit, encouraging the use of alternative modes of transportation. Millennials will love this feature.
In a recent Popular Mechanics article, BMWi's Manuel Sattig was quoted as saying:
"We used to say we wanted to be the most successful manufacturer of premium cars," Sattig says. "That was our strategy, and we changed it to say we want to be the most successful provider of premium products and premium services, which means you put the product and the services on the same level." That's a pretty big statement from the maker of "the ultimate driving machine."
BMW has made a decision to rewrite their definition of premium to include not just the ‘driving machine’ but the service surrounding the experience of the drive.
Rolls Royce – Trusted to Deliver Excellence. Enigma customer Rolls Royce has long known what others are just learning – that service is part of the overall product experience, provides solid value, and is a powerful revenue generator.
Last year they celebrated 50 years of one of their most successful programs – “Power-by-the-Hour”. According to their website, “Power-by-the-Hour” is a complete engine and accessory replacement service offered on a fixed-cost-per-flying-hour basis. This aligns the interests of the manufacturer with the operator, who only pays for engines that perform well. It is core to their CorporateCare® program that also includes engine health monitoring and a global network of authorized maintenance centers to ensure that world-class support is readily available to customers.
As a global power systems company their pioneering approach to engine maintenance has become common industry practice with many others following suit.
Despite opportunities for manufacturers to reap service revenue by providing service throughout the life cycle of their products (or service lifecycle), shifting to a service for revenue model is a daunting challenge that not everyone can master, nor is willing to try. A study by Xerox and Aston University revealed that servitization – the process of adding services to a product – has a low adoption rate among manufacturers. For those best-in-class-organizations that are able to make the leap however, there is a lucrative reward, with early adopters achieving an annual growth rate of up to 10 percent.