The Top Aftermarket Challenges for Manufacturers (and How to Fix Them!)
There’s no escaping the fact that in order to run a successful business shifting to an emphasis on service, meaning customer relations are as important as, if not more important, than manufactured goods.
That shift toward an economy where profits are driven by service delivery rather than products sales presents a formidable challenge for manufacturers, but it also presents a tremendous opportunity.
OEM businesses that know how to leverage their market position to deliver aftermarket services will be well positioned to reap the rewards offered by a service economy.
The Opportunities for Manufacturers
The facts are indisputable. The aftermarket is a great place of OEMs to be.
A recent study by the Aberdeen Group put the amount that companies and consumers spend on spare parts and aftermarket services for their equipment at about 8% of the United States’ gross domestic product. That means this market represents about a trillion dollars that consumers and businesses spend without buying new products.
What’s even better is that the aftermarket represents an opportunity for bigger profit margins for OEMs. A report done by AMR Research estimated that the aftermarket delivers 45% of companies’ gross profits on only 24% of their total revenues, meaning that aftermarket products and services are unbeatable profit generators.
The aftermarket also gives companies a chance to build brand loyalty by creating and sustaining relationships with customers and keeping them happy with their products.
The Challenges for Manufacturers
Of course, it’s not at all easy for a manufacturer to shift from a pure manufacturing frame of mind to a culture that successfully and efficiently embraces an aftermarket strategy.
The aftermarket requires a substantially different set of skills, strengths, and resources, and companies that do not ensure that they’re able to meet the aftermarket challenges before they enter the market are unlikely to succeed.
Manufacturers who deliver aftermarket services often operate in a reactive mode that makes it difficult for them to build aftermarket relationships. They also often enter the aftermarket without having the service capabilities necessary to fulfill their customers’ needs, and they can be slow to acknowledge the need to invest in service capabilities at the expense of manufacturing capabilities.
OEMs also face a challenge with a consumer culture that typically doesn’t place much value on aftermarket services. Both consumers and businesses are often more willing to address service issues only after their equipment breaks down than to work proactively with OEMs to service the equipment.
Tendency to Be Reactive
The traditional service model for OEMs tends to be almost entirely reactive. The company sells a piece of equipment and then waits for the customer call when the equipment breaks down. When the service call comes in, the OEM takes care of it, and that’s the end of the contact with the customer. The equipment works at the end of the change, but the OEM has missed an opportunity to forge a new, potentially profitable relationship with that customer.
A better approach is to create a comprehensive, proactive service model that creates an ongoing relationship with the customer. Contract-driven service plans that anticipate customers’ needs and proactively initiate contact through email reminder campaigns, for example, have the potential to keep customers happier and generate significantly greater service opportunities.
Product-Centered Customer Culture
In addition to obstacles in their own internal service culture, OEMs will also face obstacles to aftermarket services in their customers’ cultures. Customers also have the tendency to let their equipment break down before they think about fixing it, and that culture plays into the same reactive frame of mind that plagues manufacturers.
Here is where service contracts and proactive aftermarket strategies pay double dividends for OEMs. Not only do they help alter reactive cultures in the manufacturer’s organization, they help customers understand the benefits of aftermarket relationships, which, in turn, drive increased customer engagement with aftermarket services.
Insufficient Service Capabilities
OEMs that want to develop strong aftermarket programs often run up against the limitations of their current service-delivery capabilities. They may not be able to offer the services that customers need the most, and even if they’re capable of delivering the services, they might not be able to do it in a manner that’s efficient enough to be profitable.
The answer to this challenge is continuous self-assessment of the OEMs service-delivery capabilities. Assessments should work to identify the services the customer needs the most and determine if the company is currently delivering those services. If they are, conduct surveys to understand how happy customers are with the services, and look for ways to improve service delivery through technological or process upgrades. If the OEM is not delivering the services that customers want the most, now is the time to set new goals for service delivery and work toward them.
Not Enough Investment in Service
Underlying all of the most successful aftermarket strategies is the need for sufficient investment in service capabilities. This can be a difficult hurdle for manufacturers to get over, given that the OEM culture is often focused much more on building products rather than servicing them.
To successfully conquer the aftermarket, though, OEMs must invest in technology, training, and service infrastructure. The investment must not come, however, at the expense of the company’s traditional capabilities, no matter how attractive the promise of big aftermarket profits may be.
Final Thoughts: Meeting the Aftermarket Challenges
At the heart of all the challenges that OEMs face as they attempt to tap into the aftermarket is the need to embrace a new service-oriented culture.
The trick is to embrace that culture while also maintaining the manufacturing culture that has made the OEM successful in the first place. It’s a balancing act, but one that has the potential to pay off in a big way if it’s performed correctly.