Aftermarket Shouldn’t Be an Afterthought

Have you faced the challenge of maintaining healthy profit margins while exceeding customer expectations? This is a common challenge among original equipment manufacturers (OEMs).

Relying on new equipment sales alone to grow revenue can cause turbulence. Customers may postpone purchasing new equipment due to the economy or shifting priorities. Your business could be in a precarious position without an additional revenue stream.

Aftermarket offerings, such as extended warranties, maintenance contracts, and spare parts, can help companies regain control of the revenue value chain.

Aftermarket products and services connect you with your end customers, dealers and resellers, and other entities within your customer ecosystem, allowing you to develop and nurture relationships. Interactions ranging from simple customer conversations to complex warranty claims provide invaluable insight into customer expectations, which may drive product improvements. Understanding and acting on customer feedback builds trust and impacts loyalty.

Aftermarket can contribute to growing a healthy profit margin. According to Deloitte, the operating margin of aftermarket offerings is 2.5x that of new sales. Furthermore, a substantial portion, ranging from 40% to 50%, of manufacturers' total profits stem from aftermarket services. Manufacturers prioritizing aftermarket service offerings have approximately 80% of their installed base covered by service contracts, demonstrating substantial growth potential.

Don’t make aftermarket an afterthought.

Unlocking Aftermarket Excellence

The aftermarket business model offers a way to transform your business and customer interactions. Focus on three distinct areas for maximum impact.

1. Shift to Proactive Partnerships

Move away from outdated methods of offering aftermarket parts and services. This reactive and transactional approach is no longer optimal for companies or customers. Instead, focus on a proactive and creative partnership with customers.

Machine telematics can provide insight for you and your customers. This information can trigger suggestions for preventative maintenance, productivity boosts, and downtime reduction. You may also establish customer service level agreements (SLAs) to establish expected standards and metrics. 

Guaranteeing performance and reduced downtime will increase customer confidence and loyalty to your company.

2. Capitalize on Your Data

A direct line of communication with your end customer lets you collect valuable customer data, from customer feedback to asset usage. Listen to the customer voice for an invaluable contribution to research and development. Analyze asset performance to predict maintenance needs and ensure appropriate inventory. Account for known variables like environment, usage, and prior maintenance. Finally, uncover opportunities for upselling and cross-selling based on customer interactions at all lifecycle stages, from initial sale through operation to end-of-life of the asset.

3. Optimize Customer Experience

Customers expect OEM-provided service and parts to extend product life and improve performance. Meeting this expectation is crucial. Beyond addressing customer needs, your aftermarket offerings must address customer preferences and performance expectations and compete against cost-saving alternatives. By putting the customer at the center of your aftermarket strategy, you can prevent customer churn and build long-lasting relationships based on trust and satisfaction.

You can also optimize customer experience through innovative technology solutions. For example, AR-based remote troubleshooting or virtual operation manuals overlaying installation instructions can reduce the wait time for asset repair. This feature is useful when skilled technicians are far from the customer or a complex issue requires a second look.

A heavy equipment manufacturer achieved aftermarket excellence by implementing aftermarket capabilities. A gradual approach improved business and customer satisfaction outcomes over several years. Before deploying aftermarket software, the company had 800 service engineers. This number increased by 20% annually to keep up with demand. Within one year of deployment, the OEM reduced the number of service engineers by over 37% without negative impacts on service outcomes.

At the beginning of the second year, machine uptime averaged 40%. The company sought to double this number. Machine uptime increased to 92% within one year, exceeding the company’s goal. Lead time to resolve service requests also improved to a minimum of seven days and a maximum of 42 days, depending on the remoteness of the asset location. Finally, the company doubled its service revenue in year two and reduced its service engineers by 31%. 

The company released mobile apps to provide an optimal customer service experience in subsequent years. Each app focused on service, parts, or sales. The company sought to increase app usage to reduce call center volume and provide more transparency to its customers. The apps reduced customer friction while completing tasks such as:

• Resolving customer service inquiries
• Scheduling repairs for preventative and scheduled maintenance to minimize asset breakdowns
• Ordering parts or new assets
• Tracking asset and maintenance costs

As a result of these changes, the company reduced call center volume by 79% and increased service booking by 122%. By prioritizing goals to focus on one outcome per year, the company was able to attain sustainable changes to its aftermarket offerings.

While the potential benefits of implementing aftermarket strategies are significant, it’s important to acknowledge that this transformation comes with its own set of challenges. As you embark on your journey to aftermarket excellence, being aware of these potential challenges and having strategies to overcome them will be crucial for success.

Overcoming Challenges

As with any business process change, incorporating aftermarket offerings into your business model will likely present challenges. Anticipating these challenges with a plan to overcome them will set you up for long-term success. 

1. Strategy Misalignment

It's tempting to rush into offering aftermarket products or services. Take a step back to consider how it fits into your overall strategic plan. Skipping this step may impact your ability to leverage offerings and earn an adequate ROI. Ensure implementation makes sense from both a financial and practical perspective.

Start by identifying the services that contribute the most to your aftermarket lifetime value. These should be your initial offerings. You must train your sales team to sell aftermarket offerings. Aftermarket extends through an asset’s lifetime, requiring more relationship building than the initial base product sale.

Once you align your deployment strategy with your overall business strategy, keep your expectations realistic and reasonable. The impact will be most dramatic during the first year following implementation. For example, consider the heavy equipment manufacturer that reduced its service engineers by 20%. It’s fair to expect that improvements seen in subsequent years will be more tempered. It’s unrealistic to expect a workforce reduction of 20% each year. This reduction would impact service operations and negate the efficiency achieved after implementing aftermarket software.

2. Change Management

Companies or employees who are happy with the status quo may resist adopting the new technology. Teams may misinterpret the implementation as a question of their integrity and ability to meet current needs. Following change management best practices will reinforce the message that the new technology will improve business processes, drive efficiency, and improve customer satisfaction. These benefits are essential to the business’s success.

Another heavy equipment manufacturer encountered pushback from field service teams after implementing field service management (FSM) capabilities. Team members thought leadership questioned their integrity. The company implemented effective change management to ensure the adoption of new technology and business practices. Within two years, the company received an award for the best company in mining for proactive services.

3. Friction with Channel Partners

It’s fair to anticipate that your entrance to the aftermarket will threaten channel partners. Planning can help you balance what you will sell directly to aftermarket consumers and what you will sell through dealers/distributors. Identify which products or regions are too costly for you to serve due to geography or employee knowledge. It may be best to allow authorized dealers to provide these products, services, and regions.

It is also essential to define an OEM-only value proposition. Your brand name may carry enough weight to justify a premium price. Often, you must establish a non-price value proposition to compete and win market share, such as:

1. Extended warranty
2. Increased parts availability
3. Superior technical support due to in-depth OEM equipment knowledge
4. Proactive maintenance to reduce downtime and increase equipment longevity
5. Bundling or discounts

4. Retaining Customer Mindshare

If you haven’t established an aftermarket contract with customers, you must retain customer mindshare throughout the product lifecycle. Failure to do so risks losing aftermarket parts or service sales to third parties or unauthorized dealers.

Continuous engagement begins with proactive omnichannel interactions reflecting your value proposition. Use these interactions to educate customers about the benefits of using OEM parts, including safety, performance, and compatibility. You must also be conscientious of brand reputation and trust. Leverage brand reputation and customer education to demonstrate your commitment to quality, reliability, and expertise.

Aftermarket software can provide greater insight into assets to drive targeted customer engagement. A German heavy equipment OEM found that many customers either used unauthorized third-party providers to service their machines or didn’t maintain the assets. The OEM gained greater insight into its assets after implementing Aftermarket Cloud Field Service Management software. From here, it increased the number of machines it serviced by 30%.

Find Business Growth with Aftermarket

The journey toward aftermarket excellence is an opportunity to maintain profitability and foster enduring customer relationships. By embracing aftermarket products and services, you can abandon traditional reactive models in favor of proactive offerings. This shift leads to enhanced performance, reduced downtime, and a deeper sense of trust and loyalty among customers.

Rise above your competitors with a strategic, realistic approach to aftermarket implementation. Aftermarket excellence is not an afterthought. It is a strategic imperative to further your business and deliver unparalleled customer experience.

Are you ready to unlock the full potential of your aftermarket offerings? Let HCLSoftware help you achieve business growth with HCL Aftermarket Cloud.