How to Prevent Ongoing Performance Issues

Our Guest Blogger this week is Jan van Veen. He helps technology and manufacturing companies increase momentum for a continuous and quicker adaption to change. Adaptability is a key success factor for sustainable success in an increasingly complex world with rapid changes.  Download his research report “Adapt or Die – How to increase momentum for sustainable success”

Is your company experiencing continuous performance issues? Are your co-workers fixing these problems, adequately and rapidly? Many manufacturing companies often suffer with ongoing performance issues.  Their most common intervention is to do more of the same, in the hope that this will do the trick. In a complex world that is rapidly evolving, it is essential to continuously adapt and drive performance. But is this easier said than done?

Take a regional leadership team for example, that once struggled with reaching their expected growth. As the pressure for them increased, their main intervention was to create a list of potential sales opportunities within their respective countries; in order to meet their objectives, they would only have needed to gain a small portion of these leads. Unsurprisingly however, this  didn’t work out.

Why get Stuck?

As opposed to just a ‘quick-fix’, many performance issues require a more thought-out intervention. This should begin with a thorough root cause analysis, involving different stakeholders bringing in their individual perspectives. Several teams or departments will often need to collaborate, to implement the adequate solution.

In practice, this appears to be difficult for individuals and teams whilst they are in the so-called ‘defensive survival mode’ or in the fixed mindset (as opposed to Carol Dweck’s famous ‘Growth Mindset’). The common “planning & control” management approach is what pushes co-workers into this defensive survival mode. They focus on short-term targets and punish set-backs. They fail to give themselves time to sit back, discover the root cause, and seek alternatives.

Consequently, people in the defensive survival mode will focus on their survival by reducing risk, justifying issues, identifying external circumstances, blaming others for causing problems, and so on. This impacts performance and creates performance issues throughout the company.

The Alternative

Let’s go back to the leadership team from our last example. How different would it have been if they had taken the time to find out why their business was failing to grow? What if they had involved other stakeholders and experts, or interviewed a couple of (potential) clients? The team could have discovered that their company did not have the right brand or proposition for this specific region. They could have solved the performance issue from first principle, at the root cause. This would have resulted in quicker, and more sustainable solutions.

The Solution for ongoing performance issues

To resolve the matter, employees at every level should be confident and eager to adapt, collaborate, try, rethink, question, and most importantly: act! With modern “sense & respond” management practices you can increase the momentum to continuously adapt and drive change. There are a few practical things you could do, to increase momentum in your team:

  • Let them take the time to analyze the root causes.
  • Schedule meetings with team members to discuss these root causes.
  • Engage in strategic dialogue across all levels, to discuss and adjust priorities.
  • When objectives are not met, initiate a forward-looking approach; with a constructive review and discussion, that will lunge your team forward.
  • Introduce shared objectives as a basis for the review, as well as rewards for your team members; this will get them all in the ‘same boat’, and drive collaboration.

Hold them individually accountable, by agreeing on separate objectives that can all contribute towards the overall goal.

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Field Service Management

Current State and Future Outlook

This Q & A first appeared on Mobile Reach as part of their Field Service Management Expert Interview Series. 

In what ways do you think field service management is changing? What are the future areas of growth?
Field service is becoming a technology-intensive business function. Technology enables field service organizations to build “Uber” like service offerings which are always available on-demand and in real-time. The future growth will come from adopting disruptive technologies like mobile, augmented reality, GPS, IoT, etc., to make this happen.

Speaking of IoT, what role do you see it playing in field service management?
I see the Internet of Things playing a very important role in field service management. It provides field service organizations and individual field service engineers with real-time visibility into status, health, and the condition of equipment they must support within their installed base. With this knowledge, field service organizations can be more effective at solving issues remotely, and field service engineers can be certain to have the right skills and resources (e.g., spare parts) with them when they arrive onsite to resolve an issue.

How are mobile technologies changing the way FSM organizations interact with their customers?
Mobile technologies provide field technicians with instant access to information about equipment history, spare parts availability, and technical knowledge. This helps them be more effective in doing their job for customers. In addition, they can use the technology to receive real-time updates and alerts about customers’ equipment. Furthermore, field technicians can utilize mobile technology to capture business intelligence about their customers that can then be utilized to upsell and cross sell additional services.

You mention upsell and cross sell. How can field service organizations use mobile technologies to drive revenue and competitive advantage?
Field service organizations can use mobile technologies to capture information about their customers’ machine population. For example, they can record data about what equipment they own, how long they’ve owned it, whether it is under a service contract, when the service contract expires, and their level of satisfaction with their current service provider. This information provides market intelligence that can be used to upsell and cross sell additional products and services. Companies can also drive revenue and competitive advantage by using mobile technology to capture customer satisfaction data and other relevant market research that would help improve performance and lead to the development of innovative products and services. Organizations should coach and train field technicians on how to sell and establish sales oriented KPIs for the organization.

How is the broader economy affecting field service management? How do you see this changing over time?
The current economy has a very positive impact on field service management. In an “up” economy, such as the one we are currently in, customers usually invest heavily in new equipment which means more service in the form of installations and service contracts. They are also more likely to spend more on services by purchasing premium service offerings that they may have not purchase in a down economy. I see the economy and the field service industry remaining strong for the next several years. However, even a down economy can have a positive impact on field service. Investors view field service as a defensible business in the sense that it is not hurt by cyclical economic trends in the way that industries like automotive or luxury goods are. Customers still need field service even when the economy is performing poorly. In fact, they are likely to increase their dependence on field service to extend the life of the equipment they currently own instead of buying new products.

What is role of the Chief Service Officer and how will this position evolve going forward?
The role of the Chief Service Officer is to drive customer satisfaction by managing service delivery against KPIs. In addition, their role is to serve as an internal advocate/champion within their organization for service. This means they work toward obtaining investments and resources when needed to improve customer satisfaction and service delivery performance. The role is evolving in the sense that CSOs are being tasked with responsibility for managing field service as a profit center as well as taking a leadership role in developing business strategy and driving innovation within their organizations.

What are the top three KPIs that you recommend FSM organizations focus on now?
My top three KPIs are First Time Fix (FTFR), Mean Time To Repair (MTTR), and customer satisfaction (CSAT). In the future, as field service generates greater value for companies, the KPIs are more likely to focus on financial metrics and customer outcomes such as gross margin, uptime availability, contract attachment, and renewal rates.

How can FSM organizations integrate big data without becoming bogged down with information overload?
They should consider the problems they are trying to solve before trying to find a big data solution. Once they have a clear understanding of the problem, they can determine if a large data set is required to solve it and, more importantly, identify what types of big data analytics are required. Does the problem require descriptive, diagnostics, predictive, or prescriptive/cognitive analytics? Lastly, they must understand that from a data solution perspective these analytics build upon each other. In other words, you can’t run until you learn how to walk. Trying to implement a prescriptive/cognitive big data analytics solution is pointless unless you have effectively addressed problems that can be solved through descriptive, diagnostic, and predictive analytics.

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Customer Service Success or Failure

customer service

Any company wishing to succeed must strive to provide great customer service.  With today’s culture demanding instant gratification, customers do not hesitate to take to social media to inform everyone of a company’s failure. So how does an organization arm itself not only to provide great service but to know what to do if they fail?  Here are some articles which discuss both success tactics and also give examples of failures and how to avoid them.

10 Reasons Organizations Fail To Deliver Great Customer Service
By Shep Hyken

Customer success or failure starts from company leadership.  This includes the company’s vision of how to provide great service, the training process including onboarding and ongoing training, and how employees are treated. In addition this article discusses the importance of hiring the right personnel to carry out the mission of great customer service and then celebrating their successes.

How Service Companies Can Earn Customer Trust and Keep It
By Leonard L. Berry

In this article Leonard Berry focuses on the idea of customer confidence which can be lost through poor customer service. Berry specifically cites the recent United Airline customer service incident which clearly failed on all accounts. He goes on to discuss ways to gain and to keep trust and also how to recover  that trust when it may be lost. He stresses the idea of being aware of and meeting a customer’s “perceived contract” and not just the actual contract.

NIGHTMARE: 7 Customer Service Blunders That Went Viral
By Patricia Laya

Patricia Laya outlines 7 customer service failures of both worldwide and regional companies who deal directly with consumers. She outlines how the companies responded and in many cases how their response changed after these consumers took to social media to get their story out to the public. Specifically she details the case of a musician who continued to write songs and make music videos about his terrible experience long after the incident.

The Power of Prevention In Customer Service
By Len Markidan

Len Markidan’s premise is that most customer service failures do not happen just once. If you are able to recognize the issues that recur and not only fix the individual situations, but also look for and fix the root problem, then you will experience greater success. Doing so gives your customers a better experience and saves your company time and money in the long run.

Why reactive service is a thing of the past?
By Sarah Nicastro

Historically, “service” had been viewed as something provided as a reaction to a problem identified by a customer.  More recently, we have seen a move to proactive service.  This article, first published on Field Technologies Online, was posted as a guest post from Sarah Nicastro on my blog site.  In the post she specifically discusses the importance and advantage of Machine to Machine (M2M) and Internet of Things (IoT) as tools valuable to both the service provider and the customer.

First-Time Fix Rate: The DNA of Field Service
by Michael Blumberg

In this blog post, I discuss the importance of First-Time Fix Rates, (e.g., the rate at which a field service company can resolve or fix an issue on the first attempt). This important Key Performance Indicator can not only make or break the relationship with a customer but also have a tremendous impact on the company’s cost of providing the service. I also discuss ways to improve this rate.

I welcome you to join the discussion. Do you have any customer service failures or successes to share? What lessons did you or your company learn? How have you been able to make changes to give your customers a better experience?  If you are looking to evaluate your own company’s customer service capabilities or looking to find ways to improve your service, contact me and schedule a free 30 minute consultation.

Should Technicians Sell to Your Customers?

I attended a very interesting session at WBR’s Field Service USA 2017 Conference a few weeks ago.  It was billed as an “Oxford Style Debate: Should Technicians Sell to Your Customers?”  The debate about whether technicians should sell has been around for decades.  I know that has been a hot topic of discussion since I’ve been in the industry and I started working as a consultant in 1985.   While the topic has been discussed in countless articles and conference presentations, this was the first time I’ve heard it presented as an open debate.  I found it refreshing because it gave conference participants the opportunity to ask questions and challenge conventional wisdom which helps in formulating one’s position on a subject.

Arguing for technicians as sales people were Tom Vorin, VP of Customer Services, ISCO International and Ron Zielinski, VP, Global Customer Service Coherent.    Arguing against Technicians as salespeople were Andrew Kovach, VP US Lifecycle Services, ABB and Chris Westlake, VP & GM of Services & Electrical Businesses, RK.  Each side did an excellent job in presenting their case.

The argument that Vorin and Zielinski presented was that companies who have technicians sell create additional value not only for their company but for their customers.  In other words, their customers appreciate the fact that their technicians can identify new products and services that help improve their situation and/or business.  Since they already view their technicians as trusted advisors, customers are more likely to listen to technicians’ suggestions than if a sales person approached them directly about buying more products or services.  Basically, technicians are perceived to be objective when advising customers of their options and thus carry an air of credibility around themselves.

Kovach and Westlake’s argument against technicians as sales people centered around three issues. First, technicians are not comfortable in a sales role. If they like to sell, then they would have pursed a career as a sale person.  Second, putting technicians in a sales role can hurt the brand and jeopardize the level of trust that already exists.  After all, customers are not stupid and will quickly catch-on that they are being sold too.  Third, and most importantly, technicians must stay focused on their job of solving problems and keeping customers happy.   Anything else is a distraction and disruptive to the customer relationship.

Of course, each side had an opportunity for rebuttal and the audience had a chance to express their opinion and vote on which position/argument they favored most. The vote occurred before and after the debate.   Although a larger percentage of the audience were in favor of technicians selling before the debate occurred, Kovach and Westlake changed several people’s opinions about whether technicians should sell.  Ironically, after the debate Kovach and Westlake revealed it was staged, that they were asked by the conference organizers to take the against position, and that they do involve their technicians in the sales process.  Basically, they have them identify opportunities and refer them to the sales force.  In describing the sales role of technicians, Vorin and Zielinksi also implied that their technicians work in a similar capacity.    Both sides agreed that the “debate” was all in fun and it provided a fantastic opportunity to present ideas on the best way to involve technicians in the sales process.

In case you are wondering, I agree that technicians should not be selling to customers.   However, neither side of the debate was really arguing that technicians should sell.  They were basically suggesting that technicians can play a role in the sales process by uncovering customer pain points, identifying solutions, and referring business opportunities to the sales force.    Quite frankly, unless, a technician has a sales quota, can overcome objections, and close the sale they are not actually sales people.  I also think that if their compensation is not based in part on some form of sales incentive or commission for closing business then they will never be fully committed to sales.

However, I would not argue for placing technicians in a direct sales role as it could be disruptive or damaging to business.  On the other hand, any company that is passionate about growing their top line revenue, increasing customer satisfaction, and improving their market share needs to adopt a “sales” oriented approach where everyone in the company plays a role in the sales process.  That’s why I agree with the proposition that technicians should be play an important role in uncovering customer pain points, identifying solutions, and referring business opportunities to the sales force.   Bear in mind, the systems, performance metrics and processes need to be in place, and the proper training and coaching needs to be provided if they are going to realize success in this role.

I’d love to read your perspective on this subjective. Do you think technicians should sell to customers?  If yes, please share your experience in the comments section of this post.   Let me know what works and doesn’t work.  If you want some advice or suggestions on how to make it work then schedule a free consultation today.

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What’s on Service Director’s Minds

Nick Frank is a Co-Founder of Si2 Partners and this article is based on one first posted in Field Service Matters.

With customer expectations on the rise, field service organizations are constantly fighting to keep up. The service industry has shifted from a cost-centric and reactive approach to a value-centric and proactive approach. But aside from more demand from the customer, the transformation has also opened up new opportunities for service technicians, process, and technology.

Recently, I met with service and operations directors from the United Kingdom’s biggest organizations gathered at Field Service Summit. Field service leaders from manufacturing, telecommunications, and utilities met to exchange ideas and discuss opportunities and trends. Here are the most important topics they addressed.

On dealing with near-impossible expectations

Thanks to on-demand services such as Uber, customer expectations are higher than ever. Your customers want faster resolutions, more visibility into their service, and real-time communication with their technicians. But disruptions happen, and sometimes the customer wants more than you can give them at that moment. Here’s how the experts are managing customer expectations:

Set realistic expectations & don’t over promise

What do you do when the customer wants more than you can handle? Start by setting expectations. Before the service visit, know exactly what the customer wants accomplished and when. You always want to strive for a quick, first-time fix. But don’t over promise if you can’t deliver.

Let’s say a customer wants a tech to fix their washing machine the same day they call, but your techs are already booked for the day. Since it’s not an emergency situation, let the customer know they’ll have to wait, and schedule them for a different time slot. They might be upset that you can’t help them as soon as they’d like, but they’ll be more upset if you’re unable to deliver on a promise.

Let the customer set their own (controlled) expectations

Better yet, give your customer a range of options so they can set their own expectations. Most field service directors at the summit found that their customers want to be partners during the service process. Involve customers by allowing them to set their own expectations for the service visit. Just make sure to do so within in a controlled environment.

For instance, give them open time slots to choose from before they decide on their own. And if they want a higher level of service that will take more time and labor, let them pay more for it. This way you’re giving the customer more control throughout the process, but maintain manageable expectations.

On developing service technicians

Most of the experts at Field Service Summit agreed that the people side of the service delivery is crucial. In other words, your techs, along with their attitudes and capabilities, determine the successful delivery of solutions for your customers. Think about it. Your techs make up most of your company’s interactions with your customers. As the face of your organization, it’s important that the tech makes a good impression. Here’s what the experts advised for developing technicians:

Help your techs become brand ambassadors

It’s crucial for technicians to have the right technical skills, but attitude and image are just as important. Coach your techs on how to represent the brand and company values during their service visit. They should be courteous, engaged, and dressed appropriately. Your customers should feel confident in their tech’s ability to solve their problems and think of them as trusted advisors.

Make customer feedback part of the service process

The best way to learn how your techs are performing is by asking the customers. Consider making customer feedback part of the field service process. Send your customers a survey immediately after the service visit so they can respond with the visit fresh in mind.

If the feedback is positive, send it directly back to the tech. In addition to learning what he or she did right, the tech will also feel good to know they had a positive impact on their customers. If the tech gets a negative review, have a manager deliver feedback. Set a meeting to discuss their performance and talk about ways they can improve for next time.

On the importance of service value over price

As products are commoditized, quality service and positive customer experiences become main competitive differentiators. Field service directors at the summit noticed that customers today are less competent technically, and care more about the outcome. Being said, it’s important to constantly communicate the value of your service, especially if you have not been as visible to the customer. Make sure they know what’s been happening in the background, and throughout the service process.  Here’s what the experts advised:

Demonstrate value with proof

As your company grows, be sure to document a service portfolio. Get your customer support team on board with your company’s value propositions and demonstrate them. Work with your customers to build case studies (with numbers) to use as proof points for potential customers.

Be a business partner

Just as customers should see techs as trusted advisors, they should see your company as a partner invested in their success. Customers are looking for more than just a fix — they want solutions. And they want advice on their assets in case the problem arises again. Let them know you’re always there for them, even when they’re not due for a service visit.

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Driving Revenue Growth without Losing Sight of the Customers

CUSTOMER SATISFACTION

Several months ago, Derek Korte, the editor of Field Service Digital solicited my opinion for article titled “Expert Roundtable: Never Lose Sight of Customer Satisfaction”.    The basic question that Derek asked was “How do service leaders ensure the important work involved in managing a service business get done while still keeping the needs of customers involved?”  After all, Derek pointed out, Field Service leaders have a lot on their plate. They must continuously balance the need to improve the quality, productivity and efficiency of service operations with the strategic objective to drive revenue and growth; all while never losing sight of keeping customers happy.

This dilemma is a challenge facing all businesses not just Field Service.  When it comes to practical advice, Peter Drucker said it best, “the goal of any business is to get and keep customers.”  This quote provides a good lesson for Field Service leaders.  Driving revenue and growth, and maintaining customer satisfaction is not an either-or proposition.  They are one in the same.

To achieve superior outcomes in these two areas, Field Service leaders must view themselves as business owners.  They must view themselves as owners of a business franchise called “service” whether they are equity owners or not.  In other words, they must adopt an “ownership” mindset.

To succeed as business owners, Field Service leaders must first have the right “seats on the bus” otherwise known as the right functions that manage their service business.  This includes functions such as service delivery operations (i.e. dispatch, field service, parts management, etc.), accounting & finance, sales & marketing and others.  Without the right functions, the business cannot perform.

Second, Field Service leaders must make sure they have the right people in those seats. This means they must find talented people to manage these functions.  The people can be groomed from within the organization or recruited from outside.  Regardless, field service leaders must develop performance standards by which personnel must adhere.  These standards should consider the characteristics, skill sets, experience and behaviors that service personnel must possess.

Third, Field Service leader must have clear outcome of where they are heading.  If they are going to drive growth, then they must have a map to help them reach their destination.  In business, another term for a map is a strategy and/or plan.  Without a clearly defined strategy or plan to follow, a business can’t go very far.

Fourth and finally, Field Service leaders need to make sure their bus (i.e., their organization) is running efficiently. That it has a clean engine, good tires, etc. They also most make sure they have a GPS or dashboard to help them monitor their performance, the direction in which they are heading, and the speed at which they are going.  The engine, tires, etc. are a metaphor for state of the art service delivery infrastructure and related technologies that make superior service possible.  The GPS and dashboard are the Key Performance Indicators (KPIs) and operating benchmarks that help Field Service leaders keep course on their direction.

Now it’s your turn to answer the question: “How do service leaders ensure the important work involved in managing a service business get done while still keeping the needs of customers involved?”   What have you found that works and doesn’t work? If you’d like to read about other experts’ perspectives on this topic then read Derek’s online article.

Please also feel free to schedule a free strategy session with me today if you need more insight and guidance on how to improve service operations and drive revenue and growth while maintaining a high level of customer satisfaction.

Still looking for answers?

 

 

Protecting Your Brand in the Secondary Channel

A True Case Study

This week’s blog is a guest post by Fizah Jadhavji, CEO of Vivitech Solutions, Inc. — a major player in Reverse Logistics, closeout, excess and obsolete products marketplace.

Every major OEM brand selling to big box retailers such as Walmart, Target and Costco must accept customer returns- this is a challenge that all companies in today’s marketplace face. Poor return management practices can easily eat up your bottom line as well as damage a brand’s reputation. Many OEM’s are apprehensive about liquidating returned products due to fear of channel conflict, interference with sales of new products and dilution to the brand’s reputation.  In fact, top-tier branded products that are sold within online channels deeply discounted as “new open-box” often are the result of ineffective return procedures.

When these “at-risk” and returned inventory stocks that are liquidated for 10 cents on a dollar show up on Amazon and eBay, it opens the door for the end-user to claim warranty for a product that you already liquidated! Consequently, many OEMs are left in a position where they may issue return credit on the same item twice!

How do you efficiently manage the product return cycle if you are a major brand selling thousands of products and multiple categories across the USA? How can you best handle returns without having to spend more capital just trying to control your exposure in the market?

THE MILLION DOLLAR PROBLEM
This was the million-dollar question an OEM client of Vivitech Solutions was facing in managing their returns. At issue, the OEM was offering advance return allowance to retailers, which in-turn allows the retailer to charge back a certain percentage to the OEM on every invoice to cover returns. This initially seemed like an economically feasible solution because the OEM was able to cut costs. Retailers constantly need space and by receiving advance return allowance, they have the right to dispose of unwanted returns anywhere they choose. However, the OEM soon realized their product kept popping up everywhere at extremely low prices. They were constantly competing against themselves, and they were being double-dipped on the warranty side as well.

The OEM also noticed that some products being returned that had already come through their return center once, meaning that the OEM issued a refund or exchange twice for the same unit. Their legal team did some research and found that returned products were starting to show up online as “new open box” products with prices below market value. Thus, the OEM’s warranty center started receiving phone calls from customers who were misled into buying a used product as new. The OEM’s’s first reaction was to immediately stop the bleeding – so they stop offering advance allowance and asked all their customers to start shipping the product back to the OEM’s distribution center. The OEM would audit the RMA’s to ensure accuracy, and then destroy the units – allocating additional time, labor and financial resources to ensure that returned products were being properly reported and disposed of.  The OEM quickly realized that this process was not financially feasible, and was directly cutting into their profit margin. As pressure started building for our OEM client, top management realized they needed to find a creative solution.

THE MILLION DOLLAR SOLUTION
Vivitech Solutions solved the OEM’s problem by creating an end to end solution for managing returns. Vivitech was appointed the exclusive National Return Center and authorized repair center for the OEM.  All shipments from the retailers where sent directly to this location where they were audited.   In addition, Vivitech provided  a data-driven approach which allowed for  a triage analysis of the product, costs, and market prices to achieve the highest return by refurbishment and servicing. Vivitech also remarketed  these refurbished goods in secondary channels and smaller retailers. This helped to prevent channel conflict and protected the OEM’s primary product line.

THE MULTI-MILLION DOLLAR RESULT
This solution has been in place for  three years and the OEM is very pleased with the program’s performance. The OEM was once spending six figures annually just to handle the logistics of the return process, only to end up destroying these products in landfills afterwards. They have now off-loaded the headaches of handling returns themselves and  significantly reduced overhead costs in exchange for benefiting annually from a seven-figure secondary source of revenue.

Basically, Vivitech created a secondary market and constant revenue stream for their OEM partner. In fact, the OEM’s sales team & outside reps now offer and sell Vivitechs’ “factory-serviced” products to customers as second-chance discounted products.  This case study shows how by outsourcing the reverse logistic function, a process that was once depleting profit margins,can result in a higher profit margin, recurring  revenue, and higher ROI.  Truly a win-win for all parties involved.

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Extended Warranty/Extended Service Best Practices

Attachment Rates and Renewal Rates

Recently, Blumberg Advisory Group and Giuntini and Company conducted a study about the Extended Warranty/Extended Service Market.  We looked at various aspects of sales process and specifically evaluated the Warranty Attachment rate (i.e., customers signing up for these programs) and Renewal rate (i.e., customers renewing their agreement during the warranty or at the end of the term)  as they are Key Performance Indicators (KPIs) that measure how successful a company is in marketing and selling extended warranties and extended service programs. Best in class performance would equate to companies achieving an attachment rate of 50% or higher and renewal rates of 75% or better.

We saw that only a small percentage of companies have been able to achieve these targets. Specifically, the survey results indicate that only 30% of companies have achieved attachment rates of 50% or more. In fact, 16.7% have achieved attachment rates of 70% or better. While the majority (59.5%) of companies experience renewal rates of 75% or more, only 22.5% have achieved renewal rates greater than 90%.

For companies who wish to improve their performance, there are several best practices that they can pursue to achieve best in class performance on KPIs related to marketing and selling extended warranties and extended service programs. Most significantly, service portfolio design plays a critical role in influencing attachment and renewal rates. The truth is that customers will purchase these programs if they see value, i.e., feel that they will effectively meet their needs. That’s’ why it is important to specify what’s included in the program from the perspective of features, resources, and coverage.

It is important to include both basic and value-added services as part of the program. The more extensive and focused the services, the more likely the customers will be to buy. Nearly all the companies surveyed (93.2%) provide basic corrective failure as part of their program. Only 50.4% include preventative maintenance. Less than 40% offer a broader array of value added services such as calibration, inspection, recalls, and disaster recovery as part of the portfolio.

Indicating the level of service commitment, the customer can expect to receive is also important when it comes to selling extended warranty and extended service programs. Only 58.1% of companies have defined onsite response times as part of their programs, 39.3% specify parts delivery times, 29.9% and 31.6% respectively commit to the repair time and remote resolution times, and 15.0% will provide a loaner unit if repair time target is not met. These components to the program provide added value to the customers as it offers a guarantee as to when the service will be delivered. With respect to selling extended warranty programs, almost half (49%) of respondents indicate that they sell extended warranty and extended service programs any time after the original product sale.  Making this option available at any time naturally increases sales of the programs which equates to higher attachment rates.

The way in which these programs are promoted can also impacts KPIs. Most companies surveyed rely on direct mail (74.8%) and brochures (68.0%) to sell extended warranty and extended service programs. Most respondents (58.5%) indicate that direct sales have been very effective when it comes to impacting attachment rates while only 26.6% believe that brochures are as effective. Interestingly, survey respondents agree that other tactics are just as effective. For example, 50% of respondents indicate that endorsements and testimonials are very effective as is reputation management (49.1%), telemarketing (32.0%) and public relations (28.9%).

Frequency of communication is also a critical driver when it comes to influencing attachment and renewal rates. Almost half (49%) of respondents indicate that they sell extended warranty and extended service programs any time after the original product sale which means the can capture revenue at any point in time during the product’s lifecycle.

Only 28.0% notify customers 90 days or more in advance of when their programs are up for renewal and 36.0% provide more than 3 notifications that there contracts are about to expire. More importantly, most (60%) respondents upsell their programs during the warranty entitlement process. Reminding customers of the opportunity to renew or extend their agreement provides results.

In summary, the survey findings suggest that best in class companies follow a structured and disciplined approach to marketing and selling extended warranties and service programs. They do not view sales of these programs as a one-time event to be made only at the product point of sale. Indeed, they sell beyond the original point of purchase and align attachment and renewals with the customer entitlement process. Furthermore, they promote their programs through a wide array of marketing communications tactics and rely on frequent and timely communication to get their message across. Most importantly, they ensure their programs are designed to meet the needs of their customer and are very specific about what the customer can expect to receive in terms of service feature, resources, and coverage.

Do you have a success story with marketing or selling Extended Warranty/Service programs? Share it with us and be part of the conversation.

The 8 Solutions & Benefits Driving the B2B Extended-Services Marketplace

This week’s post were are pleased to share an article by Ron Giuntini, Principal and Remanufacturing/PBL/Outcome-Based Product Support Subject Matter Expert. Blumberg Advisory Group and Giuntini & Company recently performed an in-depth global survey of the configuration and marketing of Extended-Services agreements, with a primary focus upon the B2B marketplace. 

Ron Giuntini

As defined in this post, an Extended-Service is a:
  • B2B standard or customized agreement bundled as a
  • portfolio of services engaged in the
  • maintenance management of
  • specified-machines for a
  • defined-period at a
  • fixed-fee with
  • entitlement-assurances
A brief example of an Extended-Service agreement:
  • commercial buyer will be committed to a 3-year agreement at
  • $1,000/month fixed-fee in which the
  • seller will manage a portfolio of services engaged in the
  • maintenance management of
  • 3 specified-machine units located in San Diego
  • Two of the services within the portfolio are:
    • Supplying all technicians, parts and tools employed in the correct-failure (e.g. break/fix) unplanned maintenance process, but the buyer will be overseeing the process. There is an entitlement-assurance that the resources will be on-site within 2-hours of a buyer’s request, within any 24/7 period.
    • Supplying technicians and tools employed in the annual inspection planned maintenance process, as well as overseeing the process. There is an entitlement-assurance that the resources will be on-site within a 2-week window of the planned event and that the process will be completed within 4 hours during a period other than 0700-1600 from Monday to Friday.

Extended-Services are not only applied to the top level of a Bill Of Material [BOM], a machine model, but as well as for lower levels (e.g. subsystems, components). Note that the parts suppliers of an Original Equipment Manufacturer [OEM] often have developed their own Extended-Services solutions independent of the OEM or the OEM’s distribution channels. For this post, all Extended-Services will be referred as applying to the top BOM level of machines, though they will as well often be applicable to lower level BOMs.

The 8 Solutions Driving the B2B Extended-Services Marketplace:
  1. Attachment 
    The sale of the Extended-Service is “attached” to the transaction supplying a specified-machine to the buyer (e.g. machine sale, lease, & sharing). The limited manufacturer’s warranty is bundled into the Extended-Service.
  2. Warranty-In-Effect Conversion 
    An Extended-Service is offered to an enterprise without an Extended-Service agreement attached, but with specified-machines under a limited warranty that has yet to expire. The remaining life of the limited warranty is bundled with the Extended-Service.
  3. Warranty-Expiring Conversion 
    An Extended-Service is offered to an enterprise for specified-machines without an Extended-Service agreement attached; machines are under a limited warranty that is expiring.
  4. Warranty-Expired Conversion 
    An Extended-Service is offered to an enterprise for specified-machines without an Extended-Service agreement attached; machines are under a limited warranty that has expired.
  5. Up-Selling 
    Extended-Service revision in which deliverables have been expanded.
  6. Down-Selling 
    Extended-Service revision in which deliverables have been reduced.
  7. Cross-Selling 
    Extended-Service revision in which an expansion of specified-machines has occurred.
  8. Renewal 
    Extended-Service agreement expiring in which a new agreement is developed for the specified-machines covered by the previous contract; up/down-selling and or cross-selling may occur as part of the renewal solution.

Recently, Blumberg Advisory Group and Giuntini & Company performed an in-depth global survey of the configuration and marketing of Extended-Services agreements, with a primary focus upon the B2B marketplace.

Below is the survey’s key findings related to B2B Extended-Services solutions:
  • 36.5% of the machines supplied by an enterprise are attached with an Extended-Service agreement.
  • 19.9% of Extended-Services sales occurred after the attachment period; when a limited warranty was either still in effect, expiring or expired.
  • 56.5% of machines supplied were covered by an Extended-Service sometime during their lifetime.
  • 72.4% of expiring Extended-Service agreements were renewed
  • 59.6% of existing Extended-Service agreements were revised as a result of an up-sell, down-sell or cross-sell.
  • Majority of the sellers of Extended-Services anticipate higher sales over the next two years as a result of intensely targeting renewal rates and configuring more customized solutions.
  • Note that some of the statistics above would need to be modified if the Extended-Services seller also engaged in cross-selling specified-machines that they did not supply to the buyer.

It is my belief that an enterprise should strive for at least a 75% of the specified-machines they have supplied being engaged in an Extended-Service agreement throughout the lifetime of the machine; the caveat is that to reach such levels there are many strategic and tactical issues that the seller of Expended-Services must address.

The Seller’s Benefits of Extended-Services are the following:
  1. Recurring Revenues 
    Provides a significant repeatable source of cash flow; a hallmark for investors to favorable assess the financial stability and in turn market value of an enterprise.
  2. Profits 
    Provides a level of profit margins that are higher than that of the transaction supplying the machine; again attractive to investors.
  3. Relationships 
    Creates a long-term relationship between the seller and buyer. Increases the “stickiness” of the relationship that enables greater opportunities to sell a stream of Extended-Services throughout a machine’s lifetime.
  4. Production Learning Curve Mitigation 
    Provides the recurring revenue positive cash flow to support the production losses of machines in their early production life cycle stage due to the “production learning curve.”
  5. Data Collection 
    Provides a stream of valuable detailed information acquired from the seller’s service operations; design flaws employed by design, poor parts quality from suppliers for purchasing, poor quality of assembly for production and more.
 The Buyer’s Benefits of Extended-Services are the following:
  1. Operating Expense [OpEx] assurance 
    Expenditures incurred in machine maintenance processes defined in the agreement are fixed. Note that “supplemental” charges, incurred as a result of activities performed that are outside of the activities defined in the agreement, can often become a point of contention between the buyer and seller.
  2. Investment reduction
    Direct investment in parts, and indirect investment in facilities, tooling, test equipment and more involved in managing maintenance processes are often materially reduced.
  3. Machine employability increase
    Incentive of seller, through entitlements related to machine uptime/availability, to achieve high levels of employability through robust management of maintenance processes.
  4. Regulatory compliance assurance 
    Seller’s Body Of Knowledge [BOK] regarding federal, state and local regulations is often more comprehensive than that of the buyer; avoids potential fines for buyer.
  5. Adjusted machine asset value increase 
    Seller’s records management of work performed and entitlements to manage adjusted machine values can decrease depreciation, and resulting in a favorable impact upon the income statement.  
In conclusion Extended-Services has evolved from a “minor” factor in the capital goods machine marketplace to one that is obtaining greater visibility within the financial community, in turn resulting in a greater focus by the C-Suite, and in turn resulting in a greater tactical focus of an organization.

Rethinking the Value of Warranties

I have had a problem with the media for a long time.   My issue is not their coverage of politics but the attention the media give to service and support.  I am talking about the mainstream business media like Forbes, Business Week, and The Wall Street Journal, not industry specific publications like Field Service Digital, Field Service News, and Field Technologies.  I think these latter publications do a great job.

My problem with the mainstream business media is that while they like to make it appear as if they understand the service economy, they really don’t.  It’s all lip service.  They blow any and every chance they get to promote the value of service and support to their readers.   It seems that in their minds the service economy is not important, or worse yet, doesn’t matter.  Come on now! This is how many of us earn a living.

A good example of how the mainstream business media miss the point is a recent blog and video post in Forbes titled, Warranties Are Not Part Of The Modern Customer Experience.  The article was by Blake Morgan, a writer, speaker, and adviser on Customer Experience.  The premise of Ms. Morgan’s blog is that warranties are no longer relevant in today’s business environment. After all, she claims, people can use their social media accounts as insurance. If they have a bad experience with a product, they can complain about it through social media. The brand owner of the product will of course see it and send a replacement product free of charge to satisfy the person with the complaint.

Given this business practice, Ms. Morgan questions whether warranties and extended warranties are good for business.  She postulates that it is better to be nice than right.  By enforcing warranty terms, the warranty provider is taking the we’d-rather-be-right approach.  The nice thing to do is to take care of the customer and replace the product.  Wouldn’t it create more long-term value to just take care of the customer, rather than rely on the money that could be made or saved from the warranty? After all, companies like Zappos and Nordstrom provide a replacement product if a customer is unhappy.

In my opinion, warranties and extended warranties are more important than ever. While I agree that you should always take care of your customer, you must also understand who your customer really is and what they bought.   For example, a large secondary market exists within consumer electronics markets like smart phones.  This means consumers can purchase a smart phone from someone other than the retailer, carrier, or manufacturer, such as through a company that re-markets or liquidates distressed inventory.   Does this mean the original equipment manufacturer must replace the phone if it is broken?  They may go out of business if they did!

Another issue is that both economists and our court system agree that service is a separate and distinct market from product.  Just because someone purchases a product it doesn’t guarantee service is part of the sale.  Lastly, the provision of extended warranties can generate significant amounts of profits for manufacturers and retailers. These profits may in fact subsidize the business and enable it to continue serving customers. Without this income stream, the company may no longer exist.  Where would the customer turn for support if that were to happen?

While I disagree with the basic premise that warranties are no longer relevant, the trend toward “servitization” may in fact support the argument for taking care of the customer regardless of the costs.  Under the servitization model, the customer pays for the output or outcome created by the product.  In other words, they pay for the right to use the product but not to own it.  This means the product must work properly.  If it doesn’t, the customer doesn’t pay.    In such cases, it may be in the manufacturer’s best interest to replace the product.  However, this is a different scenario than what Ms. Morgan seems to have in mind.

The real question manufacturers should be asking is not whether warranties are relevant but whether customers understand the value of a warranty.   It really comes down to a marketing issue.  Customers are more likely to purchase warranties once they understand the features and benefits of the specific warranty program and how it will help them if they have a problem.  Sure, there will always be complainers who use their social media accounts as a form of product insurance.  I think these are the exception rather than the rule.

Now it’s your turn to share.  Are warranties relevant? Do they create market value for manufacturers and retailers?  Let me know your thoughts.

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