For several reasons, new machine sales for many sectors of the manufacturing industry are struggling to rebound fully to pre-recession levels. Why aren’t people buying as many new machines as they once were? The MAPI Foundation lists several factors contributing to this “perfect storm” post-recession slump: high levels of inventory, falling oil prices, investment fears due to stock market declines, and foreign trade issues precipitated by the sustained increased value of the U.S. dollar.
In their 2016 report, US Industrial Outlook: Manufacturing Production Growth Is Disappointingly Slow, MAPI predicted the continued deceleration of manufacturing production within many manufacturing segments including mining, oil and gas machinery, construction machinery, engine, turbine and power transmission equipment, metalworking machinery and more.
Caterpillar’s recent profit losses bear out MAPI’s gloomy forecast. In 2016, this leading heavy equipment manufacturer experienced a 48% drop in sales profits, with little relief in 2017—imputing “global economic weakness and an abundance of used equipment” to lower-than-expected third-quarter profits.
Farming Equipment also suggests that a reduction in new equipment sales may occur over the next few years (particularly for combines and 100+ horsepower tractors) due to “high quality, low-hour lease equipment” entering dealers’ inventories for resale.
How are companies (such as Caterpillar) whose top-line revenue once depended on new equipment purchases mitigating the damage caused by slacking new machine sales?
The answer lies in the aftermarket; manufacturers and dealers are focusing on parts sales, long-term service contracts, inspections and monitoring, consulting, and more to fill the gap of lagging new machine sales.
Industry Week reports that leading Original Equipment Manufacturers (OEMs) drive an impressive “50%-90% of their gross margin” from aftermarket services and sales. GE Power, Tenneco Automotive, Otis Elevator, and our friends at Caterpillar got the nod from Industry Week as examples of OEMs that are making strategic investments into growing their aftermarket business.
Indeed, a successful parts sales strategy may well have been Caterpillar’s saving grace, being responsible for what gains it did make in Q3 2017—as the mining and construction equipment giant reported an increase in equipment part sales and machine rebuilds.
With customers’ lower demands for new equipment and their desire for predictive service to maximize uptime, manufacturers and dealers need to incorporate and elevate aftersales service offerings within their business models.
This focus on service can drive parts sales, but the landscape for service has changed. Let’s examine what this means for manufacturers.
Customers Now Expect a Connected Service Experience
Today’s connected customer expects an experience that is immediate, intelligent, and personal. Companies that are successful in this digital age are constantly innovating, predicting, and finding ways to serve these customers in ways that appreciate and leverage their awareness and connectedness.
Here are five things customers expect from a connected service experience:
A Memorable Experience
Making great experiences with customers often comes down to going the extra mile to give them favorable memories about their experiences and how well their problems were solved. Entrepreneursuggests that it can be the smaller details—attentiveness, recognition, and consideration—that add up to a memorable experience and customer loyalty.
Even though technology has permeated every aspect of our society, and connected customers are accustomed to using it throughout their day, they still want to be seen as a human being, with personal preferences—and not just a field on an email list. In fact, a recent survey of over 7,000 consumers and business buyers found that 2/3 of their respondents will switch brands if they have the perception that they are “treated like a number instead of an individual.”
Instant Confirmation and Rapid Response
That same survey reports that 64% of consumers expect real-time interaction with the companies they do business with. Mobile technology and smartphones have changed the way people communicate, and do business. Because of this modern expectation of immediacy, customers expect to receive instantaneous response and confirmation.
Think like a customer for a moment. What do they really want? They are interested in the overall outcome or ultimate result, not necessarily the product or service alone. Demonstrating value gives the customer an understanding of benefits, as opposed to features. When a company can demonstrate the positive results that are being achieved, the customer will realize they’re making a good investment, and appreciate the value they are receiving.
How Can Manufacturers Deliver Connected Service?
Now that we’ve identified what these customers are looking for, let’s take a look at the steps for manufacturers to take in order to create a winning strategy for providing connected service: guide, track, grow, and automate.
Playbook for Manufacturers
Step 1: Guide
Winning in the aftermarket and creating a successful parts and service sales strategy is only possible with a shift in paradigm towards servitization. This begins by creating a culture of service from the top down through collaboration, continued focus, planning, and investment.
Service processes should be documented to identify methods that are successful in helping customers do business with the organization, as well as those that aren’t. Service processes should be looked at from the customer’s perspective. Is service is a reason for customers to choose this organization?
Problems should be identified, and solutions created through collaboration and research. Best practices need to be clearly communicated and distributed throughout the enterprise. Both short term and long-term strategies should be considered to build more effective, scalable processes.
Step 2: Track
Key Performance Indicators and metrics should be established. Bill Pollock, an expert in service industry standards, advises that KPIs should be linked to “critical factors that drive the performance of the organization.”
Specific goals making service a priority need to be targeted, with concrete strategies to achieve those goals. Organizations must be willing to make any monetary and personnel investments necessary to bring these plans to fruition, and properly track incoming data.
Step 3: Grow
Speaking of investments, a successful strategy to grow aftermarket profitability largely depends on advanced field technology. Through IoT, manufacturers can collect valuable field data to not only drive service contracts, preventive maintenance, inspections and parts sales, but help innovate future product developments and create intelligent service offerings that grow the business and serve customers more effectively.
As Harvard Business Review explains, the information manufacturers glean from smart products “enhances a company’s ability to segment customers, customize products, set prices to better capture value, and extend value-added services,” giving them a competitive edge in an industry most effected by the structural changes brought on by IoT technology.
The Aberdeen Group concurs with HBR’s assessment of the strategic benefits technology provides to support aftermarket sales and be competitive in their 2016 study, Service Parts Management: The Aftermarket Can’t Be An Afterthought. Aberdeen’s survey finds that best-in-class organizations “invest in technology which empowers and enables better visibility into the current state of the field organization AND the future of service demand”.
Step 4: Automate
Field Service Management software helps improve service performance for both manufacturers and distributors while eliminating antiquated paper-based methods of field service operations.
Mobile & Cloud-based solutions streamline field service management, offering automated processes for service contracts, spare parts, service dispatching, asset tracking, work order creation, safety inspections, field asset management, and more.
Boosting profitability through predictive after-sales service offerings is overwhelmingly seen as having the potential to “revolutionize manufacturing.” However, to sustain success, the ultimate goal must be to provide connected services that keep equipment running with no disruption in operation for the customer.
Download a free guide to learn how IoT is revolutionizing field service and manufacturing service initiatives.
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