February 27, 2024

How service can help OEMs achieve revenue goals in challenging economic times

The last few years have been a roller coaster ride for Original Equipment Manufacturers (OEMs).

First came the recovery from the two-year-long COVID-19 pandemic. 2022 saw demand for durable goods rising by 19%. Manufacturing output increased beyond the pre-recession levels. But that growth period was short. OEMs are again grappling with recession, labor shortage, and the effects of an aging population. Global trade tensions and supply-chain disruptions are posing additional problems.

According to the National Association of Manufacturers (NAM) survey, these issues have reduced manufacturers' confidence. Only 68% of respondents have a positive outlook for their company. 62% of them had already anticipated a recession in 2023.

While it might take time for the economy to recover from the turmoil and for consumer demands to rise, OEMs can continue to generate revenue if they focus on after-sales services.

What is after-sales services?

After-sales service supports OEMs’ customers after they purchase a product or a service. It’s provided to resolve customer complaints, offer technical support, address break-fix issues, and ensure regular maintenance.

After-sales service offerings include technical support, installations, maintenance, upgrades, onboarding, self-service portals, video guides, and more. This service could be delivered by in-house staff or through a network of aftermarket partners and contractors.

According to Deloitte’s analysis, 71% of industrial companies in 2022 were talking positively about after-sales services.

Why should OEMs invest in after-sales services?

Traditionally, the relationship between OEM and customer was often contractual and transactional. The OEM would sell the product to the customer and propose after-sales services as a value-added offering.

But the situation has changed since the pandemic and unprecedented economic downturn.  According to Deloitte’s study, the revenue share from new product sales has declined over the past decade. Even the margins earned from these sales are less than after-sales services.  

These factors prompted several large OEMs to increase their focus on after-sales service. After-sales services can help OEMs in:

-Improving operating margins

They realized that unlike new product sales impacted by external conditions like the pandemic, trade wars, and recession after-sales services remain largely unaffected. They generate stable revenue and improve cash flows even when the economy is down. Deloitte’s analysis shows that the operating margins of after-sales services are 2.5 times more than those for new equipment sales. It means that maintenance of existing equipment is a better strategic move than investing in production during uncertain times.

-Generating recurring revenue

Deloitte’s study also reports that many OEMs have started earning a profit of 40% to 50% from after-sales services. They generate recurring revenue through service contracts. This fact propelled many large OEMs to focus on services and expand their offerings.

-Improving customer loyalty and retention

Delivering continuous after-sales services enabled OEMs to build long-term, trusting customer relationships. New initiatives like performance and outcome-based contracts improve the equipment’s performance, reduce downtime, and enhance the customer’s confidence in the company. It deepens the customer’s loyalty and significantly boosts the company’s reputation as a customer-centric business. It also allows the company to generate repeat business during economic downturns.

-Cross-selling and upselling products

The service agents can identify the customer’s pain points and recommend new products and service offerings or upgrade them to better services to solve their problems. The cross-sell and upsell strategy helps OEMs deepen their relationship with the customer and generate additional revenue.

-Gaining a competitive advantage

Good after-sales services show that the company cares for its customers even after completing a sale. Unfortunately, many OEMs struggle to position after-sales services beyond a transactional “break-fix” service offering. Companies can change this perception and differentiate themselves from competitors by delivering superior after-sales services to customers. Promising fast and timely resolution and service is always best for winning and retaining customers.

Limitations of the after-sales services strategy

Although there’s a lot of potential in after-sales services, companies could face various challenges, such as:

-Difficulties in execution

Since OEMs are typically product-focused companies, shifting to services can take time to execute initially. To transition from a transactional after-sales service organization to a customer-centric one, companies require new processes, different technologies, and new roles.

-Shortage of skilled workforce

OEMs and their partners are struggling to find skilled technicians who can understand the customer’s problems and solve them quickly. As an aging workforce retires, OEMs must train new field engineers and enable their aftermarket partners with the appropriate training, tools, and processes to fill these knowledge gaps.

-Lack of service culture

Many OEMs still have a product manufacturing mindset. They don’t prioritize a service-oriented culture. Becoming customer-centric requires a comprehensive understanding of the customer throughout the product lifecycle. A piece of the customer puzzle is missing when customer service is not prioritized or left to third parties. When that happens, delivering effective after-sales services is difficult.

-Traditional service offerings

The pandemic showed that many customers contemplated switching to self-service to resolve problems. Most OEMs still use traditional service delivery, such as planned maintenance methods, which could impact customer experience.

How Can Digital Solutions Improve After-sales services?

-Fast issue resolution

With digital solutions like remote assistance, OEMs don’t have to worry about assigning the one field service technician they know will solve the customer’s problem. When service skills vary, remote assistance enables most technicians to address the customer’s issue by tapping into experts from anywhere. It reduces the customer’s waiting time and is especially useful during crises—when no technician is available or a complex issue needs resolution.

-Better maintenance services

Traditionally, after-sales services were reactive. The customer would call every time there was an issue. With digital sensing and monitoring solutions, OEMs can predict potential breakdowns and provide proactive maintenance services to minimize downtime.

-Greater transparency

Digital solutions can help OEMs create and standardize processes to improve transparency, for example, a process for service partners to check the status of a warranty before servicing a piece of equipment. Mobile apps can simplify these processes for third-party field engineers working remotely, so they don’t have to wait till they reach the office to ensure their work is covered.  They can do it from anywhere using a mobile device.

Digital solutions also help OEMs onboard technicians, train them, and ensure they comply with health and safety processes using guided tutorials and checklists.

At Atheer, we provide OEMs with digital solutions to improve their after-sales services when delivered through a network of aftermarket partners or hybrid teams of internal and external service providers. We understand OEMs’ challenges in meeting increasing customer expectations, equipment complexities, and skill shortages.

That’s why we have built a mobile-first digital solution for digitizing service workflows, enabling remote and self-service capabilities, making teams job-ready, and resolving customer issues faster.

Are you an OEM interested in adopting and maintaining an after-sales aftersales service strategy? Request a demo. We will be happy to help.

Micki Collart

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