New Orders For Consumer Goods Continue To Decline
As new orders for durable goods continue to decline, many manufacturers seek additional top- and bottom-line improvement sources. While some companies are overlooking the potential of after-sales service, leading inventory-dependent businesses are recognizing the profitability and customer loyalty opportunities associated with this area.
After-sales service, which refers to service delivered after the initial sale of a product, can be a valuable source of revenue and profits, with profitability ranging from 35 to 60 percent in some industries. However, optimizing after-sales service requires a new way of thinking, decision-making capabilities, and technology specifically designed for this purpose.
Businesses Must Look To After-Sales Service For Growth
Many industries are experiencing massive transformations in recent years, driven by technological advancements, demographic changes, healthcare, energy, politics, and the economy. Businesses are now looking to transform their after-sales service functions to maximize product uptime, deliver superior customer experiences, and improve financial performance.
Here are some predictions for businesses in the year ahead, along with tips and strategies to succeed:
- After-sales service can significantly increase revenue and profit. Senior executives understand the value of exceptional service experiences and are making after-sales service a strategic focus area. Recent studies reveal that service averages a gross margin of 39 percent, much higher than margins on most new products (27 percent). Manufacturing companies’ service businesses grew by nine percent annually, compared to a five percent growth rate on the product side.
- Service is shifting from a transactional break-fix model to a subscription-based model focused on maximizing product uptime. More customers require service level agreements (SLAs), which often guarantee product uptime. Predictive maintenance, proactively repairing equipment before it fails, is becoming critical. Service organizations must identify common failure points and strategies to guarantee maximized product uptime and customer satisfaction.
- Implementing emerging technologies and sophisticated data management is necessary for success. Businesses that adopt emerging technologies like AI, machine learning, IoT, predictive analytics, driverless vehicles, and 3D printing will win the race to maximize product uptime. Proactive maintenance requires the integration of smart technologies enabling remote performance and smart parts.
- Amazon and other disruptors are forcing change. Major e-commerce players are becoming very aggressive in the service parts space, and Businesses must adopt new business practices and invest in sophisticated cloud-based technologies that enable them to remain competitive. Customers will pay for convenience, and brand loyalty is less of a factor than ever.
- The workforce and organizational structure for Businesses are evolving. The key to success in 2023 is to remember the human aspect of applying new technologies and business practices. Businesses must consider the impact of millennials – the most connected generation – in the workplace and as customers. They must also put strategies in place to keep knowledge from retiring from their organizations. Businesses that invest in their workforce and talent will improve customer experiences and operational advancements.
- Dynamic Pricing is Key. To increase margins and remain competitive, companies must optimize service parts pricing. Using cost-plus pricing strategies or Excel spreadsheets can leave money on the table. Instead, pricing should be dynamic and consider various factors such as weather and time of day. By linking all aspects under one umbrella, companies can adjust pricing in real-time and obtain accurate, actionable data to stay ahead of the pricing game.
- Cater to Millennials. Manufacturers should pay attention to millennials, who make up one-third of the US workforce and are tech-savvy and impatient. They expect immediate gratification, especially when it comes to service. If service is not satisfactory, they may complain on social media, damaging a company's brand. To cater to millennials, manufacturers must solve service problems quickly and effectively, and provide excellent customer service.
- Embrace the Cloud - Manufacturers must forecast and react to dynamic customer needs as accurately and quickly as possible. However, siloed, on-premise after-sales solutions can inhibit workflow and speed, leading to unsatisfying customer experiences. To optimize inventory, increase profitability, and maximize customer satisfaction, manufacturers should migrate to a cloud-based service parts management solution. Cloud computing for the supply chain is expected to be worth $4.4 billion by 2019, making it the easiest way to manage organizational processes efficiently and smoothly. A cloud-based solution that integrates into a company's ERP can provide real-time adjustments and decisions needed to meet today's service demands.
Durable goods orders have been declining, with November's 2022 figures showing a 4.6 percent drop, suggesting ongoing market volatility. While many manufacturers are looking beyond new product sales for additional sources of top and bottom-line improvement, they overlook opportunities to optimize the margin-rich after-sales service organization. After-sales service is a healthy and profitable source of revenue, with a study suggesting that profitability from product sales varies between six and 13 percent, while profitability from after-sales services can reach 35 to 60 percent. To take advantage of this, leading manufacturers are executing service-led growth strategies.
Revamping an after-sales service organization can be challenging. Still, with the right strategies and technologies, manufacturers can turn this area into a significant source of revenue and profits and ultimately boost long-term growth.