Once a foreign business word, servitization is becoming a common strategy for equipment companies to improve customer satisfaction and grow profits in the manufacturing industry.
Servitization is completely reinventing the manufacturing business model. With increasingly complex, high-tech equipment, customers rely on their equipment dealers for service expertise more than ever. Instead of focusing solely on selling a product, manufacturers are redeveloping their strategy to match the increasing needs of customers. Their solution? To sell an entire field service support system around a product.
5 Steps to Achieving a Seamless Servitization Model
Not all service programs are created equal. But you can’t go from 0 to 100 right away. Here are some steps to gradually implement a service-centric business model.
A great example of servitization in action is Rolls-Royce’s TotalCare airplane engine program. Customers pay a set amount of money based on the number of hours the airplane is flown. In return, Rolls-Royce will repair, replace broken parts, modify and monitor the engine remotely. This new package guarantees a long-term relationship with their customers and has brought in more than 50% of their revenue.
“By focusing on the outcomes of their products and services, manufacturers can “servitize” their business – and thereby create whole new systems of value for customers that help lock in long-term relationships and lock out the competition. It’s key to competitive advantage, especially in markets where product differentiation is blurring and customer expectations for product and service performance are expanding.”
Why Should Manufacturers Care about Servitization?
There are clear benefits to incorporating servitization into an equipment manufacturing buisness model.
- Selling a Solution, in Addition to a Product: In the past, the manufacturing industry typically sold products to their customers. Manufacturers used to only worry about the efficiency and quality of their products, and not as much about their service. As the demand for strong service programs has grown in popularity and the market has become more complex, customers now expect an entire solution to their problem, not just a product.
- Greater Financial Stability: As manufacturers sell long-term contracts with all-inclusive service to their customers, their revenue streams become more secure. Why? Because service contracts guarantee regularly recurring revenue and increase chances for loyal customers and upsales.
- Stronger Customer Retention Rate: Some manufacturers are finding they can keep more customers through servitization. Largely, this is because they are the most educated about their customer’s equipment. By constantly tracking and monitoring their technicians, supplies, vehicles and systems, manufacturers and their dealers hold the keys to the data that makes their customers’ businesses more efficient.
How the Shift to Service Could Impact the Future of Your Team
Servitization has the potential to impact the way field service is managed.
- Technician as Lead Generators: In the past, manufacturing companies viewed their field service departments as a “cost of doing business.” Now, manufacturers that have adopted servitization and mobile technology are viewing their field service technicians as vital lead generations.
In the Field Service Europe 2014 report, a third of respondents earned 35% or higher in profits from services. In addition, 44% view field service technicians as qualified lead generators. These findings show the importance of quality service and the potential for technicians to sell new products, services and contracts.
- Greater Need for a Mobile Management System: As manufacturers continue to benefit from service contracts, the need for mobile field service management software continues to grow. Servitization depends on strong customer support, which only comes with high first-time fix rates and immediate help when needed. The only way to manage this data, monitor remote equipment, and manage complex workflows is through a central field service management system.
- Industrial Internet of Things Growing in Importance: As contracts include more advanced service requirements for their products, field service data will become more dependent on the “internet of things.” With services like tracking products remotely and taking preventive measures, manufacturers will rely on the power of IoT to inform their service efforts.
Conclusion – Servitization is Growing in Popularity
As customers continue to expect additional benefits and long lasting relationships with their dealers, more manufacturing companies will add service contracts to their product sales. The industry keeps growing in complexity, highlighting the need for a mobile management system and strong customer service. In return, manufacturers that take advantage of the opportunity in service will become more financially secure and build stronger customer relationships.