In the December Reverse Logistics Today blog, Michael Blumberg (president of the Blumberg Advisory Group) wrote a post titled, Competition in the Aftermarket Never Hurt Anyone in which he claims that competition in the aftermarket is good for an OEM's business. He is talking about independent service organizations (ISO) in the IT space but during a recent conversation he insisted that aftermarket competition is good for every industry. In the blog Blumberg writes, "The fact of the matter is that independents provide value to manufacturers by the mere fact that they force manufacturers to be proactive and innovative in serving their customers." Given that parts and service generates significant profits for most OEMs, and their dealers, Blumberg's assertion that aftermarket competition is good for OEMs begs the question, "How so?" How is competition good for an OEM? It makes no sense.
In today's economy, profits from product sales are abysmally low. Looking at the automotive industry, when car buyers brag about paying less than a hundred dollars over invoice, you know that parts and service have become the keys to an OEM's survival. This situation didn't come about overnight; product prices were driven down by fierce competition and so, to remain viable, OEMs had to generate profits on the back-end. (Just like the razor and blades business model.) Automotive OEMs, and their dealers, are now struggling against ISOs who use knock-off parts and quick-fix service techniques. And this is supposed to be good for OEMs?
Automotive OEMs have valid concerns regarding 3rd party service and parts. For instance, how will OEMs recoup the profits lost to competitors? Will they raise prices on the initial customer purchase? Blumberg makes the point that customers like choice, but does that require OEMs to put profits at risk? Without profits there is no company, without a company there are no products, without products there is no aftermarket—investments, jobs, customers and partners all go away. In light of this, unless the lack of aftermarket competition is hurting new product sales, or risking customer safety, what is the rationale for OEMs to embrace competition and give away business? It may appear to be a nice thing to do for customers but is it fair to the owners that invested money, or the employees working toward a raise, or the partners hoping to expand operations?
Looking beyond profits, what impact does aftermarket competition have on an OEM's brand loyalty and customer satisfaction? One reason for OEMs to maintain a dedicated service channel (dealer, distributor, repair facility, etc.) is to ensure that high quality service and parts are being installed on their equipment. This is important because liability, warranties and repeat business come into play, and when a repair goes wrong, customers may or may not blame the ISO but they almost always blame the OEM. (Anytime equipment is unavailable for customer use the OEM's brand is tarnished.) OEMs know that positive brand experiences before, during and after a service visit are the key to generating brand loyalty and repeat business. With that in mind, I don't understand how ISO competition helps the OEM's owners, employees, partners or even their customers.
I think Blumberg's larger point is that competition, in general, is good for markets. He writes that, "Most companies win market share and create sustainable, profitable revenue growth through a business model built upon a commitment to customer satistaction, quality processes, highly effecient systems, and well trained people" [sic]. In principal, I tend to agree. However, when it comes to aftermarket parts and service I think it's too easy for ISOs to criticize OEMs and imply they're taking advantage of customers. (We see this in Massachusetts where attack ads advocating for the automotive "Right to Repair" legislation are currently running. This proposed law was critiqued here.) While I won't claim that OEMs always operate with the purest of motives, neither do their smaller independent competitors. It's just harder to blame the little guy.
Should OEMs, from any industry, embrace aftermarket competition for parts and service? Despite Blumberg's post, I'm still not sure how that can be good for them.