This guest blog was written by Ted Fellowes, President of Fellowes Research. It represents an update and refocus of a blog posted earlier on the Fellowes Research website.
Premise
The growing importance of Warranty and Service Contracts for Manufacturers
Over the past several decades, durable equipment manufacturers have experienced an evolutionary shift with respect to how they manage service interactions after the original product sale. Manufacturers originally considered the warranty as a necessary cost they had to contend with in order to keep the customer happy, resolve product failures, and obtain critical data required to improve product quality. Manufacturers no longer view the provision warranty and aftermarket service as a cost of doing business that must be controlled but as an opportunity to add value, obtain critical insights to drive product innovation, and generate incremental revenue and profits.
The results from Strategies For Growth℠‘s (SFG℠‘s) 2019 Warranty Chain Management (WCM) Tracking Survey Update reveal that nearly two-thirds (63%) of respondent organizations currently offer an extended warranty agreement or service contract to their respective customers. In fact, this percent would actually increase to nearly three-quarters (i.e., ±73%) when reallocating the “don’t know/unsure” responses into the “yes/no” categories (Figure 1).
| This article first appeared in the November 4, 2019 edition of Field Service News |
Much has been made of the potential benefits of adopting at least some Servitization strategies within a service portfolio. However, the processes that need to be put in place are complex and a delicate balance between increasing profitability and overcommitting on contractual obligations needs to be struck. Here, Michael Blumberg, CMO of Mize, offers his guidance as to what systems of support are required to achieve a successful path towards Servitization...
It is important that any company, regardless of where they are on their Servitization Journey, has the right systems in place to support this journey.
These systems must not only manage service delivery but also enable the service provider to scale their business.
Essentially, there are three (3) types of systems or applications that need to be implemented. These are:
Let’s examine these systems in more detail.
Systems that manage contractual obligations
Companies on their Servitization journey must implement system functionality that tracks and manages service contracts and obligations to customers. Without this type of functionality, service providers may find that they are either giving too much service away for free and losing money or not providing enough service and jeopardizing customer satisfaction.
Ideally, this functionality will provide information about what level of service this customer is entitled too. More specifically, it will provide specific business intelligence about the type of processes covered, the types of resources available/utilized, and the level of performance provided.
For example, a Durable product manufacturer or service provider will need to know if the customer is entitled to field service or only remote support. If field service, then are spare parts included in the contract. Does the contract include a response time or uptime commitment guarantee?
This information can be tracked and maintained through Service Contract and Warranty Management software functionality. This type of functionality is critical regardless of whether the service provider or Durable Products Manufacturer is providing basic services such as break-fix/field service, or more advanced outcome-based services such a “pay-for-use”. Managing customer expectations and meeting commitments and obligations is required no matter what offer the customer purchased.
Systems that manage service delivery
Don’t overlook the importance of your service delivery infrastructure in the Servitization journey. It is the engine that delivers on the promise of Servitization. The infrastructure must be aligned with current and future needs of your customer base Some companies are in the very early stages of their Servitization journey, providing only basic support services, and require service management functions such as field service, remote support, and service parts. Others may offer more advanced, outcome-based services such a “pay for use” or “cost down” commitment. These companies are likely to benefit from IoT and AI-enabled solutions that help anticipate and avoid downtime.
It is important to implement systems that are agile enough to support your long-term Servitization Journey. An advanced service offering, such as “pay for use” may not be practical or feasible today. However, your service system of record must be able to support these requirements in the future through add-on functionality or the ability to connect with third-party solutions.
Likewise, advanced service offerings often build upon basic offerings.
Even though your company may be ready for IoT enabled solutions, a robust service parts logistics or field service management functionality will still be needed to deliver outcome-based services.
Systems that manage recurring revenue growth
Building a profitable, recurring revenue stream is the name of the game when it comes to achieving the ultimate outcome of Servitization. As such it is important that service providers implement systems that support the marketing and sale of services. One of the ways they can do this is by implementing functionality that facilitates the ability to configure, price, and quote service offerings.
To ensure high attachment, service providers need access to functionality that facilitates their ability to modify or customize contract coverage, entitlements, pricing, billing cycles, terms, and conditions, etc. Since many companies enlist service technicians in the business development process, the systems must also be designed to make it easy for technicians to sell service plans, parts, and accessories.
Customer retention is also critical to building a sustainable recurring revenue stream. Staying in touch with customers on a periodic basis keeps your company top of mind. This is where marketing automation can be effective.
For example, automated email notification to a customer that an outcome was met or that a contract is up for renewal all help to ensure high renewal rates.
In summary, systems of support are required when embarking on any journey. This is no different for the Servitization Journey. Without these systems, companies will never get to their destination. Ultimately, the Servitization journey will result in building a profitable recurring revenue through the provision of a broad portfolio of basic and advanced services.
That’s why it’s critical that service providers implement a triad of systems that manage service obligations, service delivery, and service revenue growth.
| This blog post was written by Sam Klaidman, Founder and Principal Adviser at Middlesex Consulting. He helps clients grow Service Revenue and Customer Satisfaction by defining service contracts and other services that meet customer’s needs and create value for them and their customers. |
When we talk about customer satisfaction, we eventually arrive at talking about how experiences compare to expectations. The more the two are aligned, the more satisfied and trusting your customers feel.
On the other hand, we like to work with companies who “empower” their employees to take care of the customer. Sometimes this works and sometimes it turns out really badly for either the customer or the business.
Mize recently hosted a workshop at the ENG Automotive Warranty Summit USA titled Enabling suppliers to manage claims, returns, and quality for all OEMs. Ashok Kartham, Mize’s Founder and CEO, kicked off the workshop by posing the following question: What is one key factor that drives warranty performance improvement?”. Of course, warranty performance is broad, consisting many measures such as claim automation rate, supplier recovery rate, cycle time for Detection-to-Correction, and related factors such as COPQ. As such, the question is not easily answered. However, the experts at Mize’s have reached a conclusion is that the key factor is the “Connectedness” of the warranty process.