I believe great marketing can transform aftermarket service products.
This past week in Chicago, I had the chance to speak at The Service Council’s Smarter Services Symposium (whose eponym pays no respect to anyone with a lisp), a gathering of executives responsible for service products - aftermarket purchases - such as service warranties, contracts, parts, and more.
My discussion focused on addressing one of the biggest challenges facing service executives - service marketing.
The emerging role of aftermarket services.
This service function is facing a period of immense change (what department isn’t?)
The days of field service, parts operations, call centers etc. as a cost center which is solely the result of a product sale are nearing their end. Today, there’s a growing idea that there should be revenue driven from a service business.
This department no doubt faces a perception problem - something we can empathize with in marketing - one that limits it to a “cost center” vs “profit driver.”
The reality is, this function can drive tremendous strategic value within the organizations it serves. (TSC found this year that 92% of Champion organizations consider service to be a competitive differentiator compared to 42% of the entire community.)
Sure, NPS will increase and CSAT scores will improve, but I’m talking about cold, hard cash.
Training, installation, and consulting offer another method by which to exceed customer expectations and differentiate the organization. With many companies now looking for an advantage in competitive markets, aftermarket services can offer an edge - one that is sustainable, high-margin, and low-risk.
One McKinsey analysis across 30 industries showed that average earnings-before-interest-and-taxes (EBIT) margin for aftermarket services was 25 percent, compared to 10 percent for new equipment.
Summarized succinctly in One HBR article:
“Being on par with your rivals in performance, price, and quality gets you into the game; after-sales services can win you the game.”
A massive opportunity to shift perception.
Historically, these after-sales services have been seen as a burden, not an opportunity.
I recently spoke to the fabulous Claudine Bianchi, CMO of ClickSoftware, who markets to service executives. She described this perception challenge, saying, "many executives still don’t look at customer satisfaction in terms of the valuation it can have on a company."
In the aforementioned HBR article, its authors revealed many “perceive after-sales services to be a necessary evil… like taxes.”
This problem of reputation is due in part to the legacy of services businesses. Seen as a reactive team, many demonstrate their success on the basis of solving a customer's problem - historically measuring (if at all) impact in terms of customer satisfaction.
That’s a really limiting way of demonstrating value, when the true potential of this team lies in a term well-adopted by marketers - Customer Lifetime Value. In this case, Service Executives should focus on the aftermarket lifetime value of their customers.
For some industries (gas turbines, helicopters, data storage) the aftermarket lifetime value of a customer can be 40-75% of the initial sales price of the product. In others, it can be 5x more. See more in this detailed benchmarking study by McKinsey.
Talk about leaving money on the table.
A fundamental switch from reactive to proactive.
To achieve these kinds of growth potentials, Service Executives need to switch from their reactive nature to a proactive culture.
This was the crux of my recommendations at TSC's event, and I leveraged their own data to make this point.
- 58% of champions frequently educate customers on products/services compared to 17% of the entire community.
- 91% of champions consider it a priority to increase the coverage of their installed based, compared to only 50% of the community.
Proactive Services Marketing is an enormous opportunity for services teams to dramatically improve their perception by unlocking the value of their aftermarket services.
ServiceMax (another vendor in this space) found that proactive selling can increase revenues by up to 160% within a year.
Does the future of aftermarket services depend on marketing?
I think the way to look at it is that we are in this together.
Marketing is increasingly responsible for the customer experience, of which post-sale is certainly part. We are seeking differentiation in competitive markets, and are held accountable for more and more revenue. The insights gleaned from the front lines of field service technicians can be a gold mine for improving our customer understanding and intelligence. A feedback loop between our teams can help us to tailor products and messaging accordingly.
Marketing needs the aftermarket services function.
Services, on the flip side, should consider marketing to be an important ally in the business. We can drive growth with engagement marketing that earns trust and compels buyers to take part in services programs. We can leverage your incredible amount of data coming from IoT and connected devices to better segment and personalize our efforts. We can help build the foundation for a cohesive customer experience by helping to integrate service data with sales and marketing systems so that each touchpoint is… the magic word... consistent. We can help to segment customers by their role in the buying committee, or by their specific need based on their usage or product history.
Marketing can maximize the potential of services, and in turn, drive more impact in our organizations. This is truly a win win.
And, while we can be your best ally, we can be your worst enemy. “The best service intentions can be derailed by poor sales and marketing activities.” (TSC).
Now is the time to invest in proactive service marketing.
In an informal poll of the room this week in Chicago, 50% of the audience had a dedicated team of service marketers on staff. The other half, did not.
One attendee from an electronics company followed up with me after the show, sharing that he was the very first product marketing manager for their services department in the organization’s history. That’s 84 years without one.
The need for marketing services is here - and while many organizations aren’t there quite yet, those that win are waking up to this reality.
Champion organizations are 2X as likely as others to have dedicated service marketers in place to support commercial business growth - TSC.
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