Aftersales & Service: Lifeline for growth and performance?

Services as a profitable growth engine

In one of our previous articles, Make Services the Catalyst for Industrial Products’ Recovery, we reviewed how Services had helped industrial product manufacturers be more resilient through initial COVID-related sales dips: Companies with a higher revenue share from Services suffered less impact, as measured by their total shareholder return (TSR), compared to peers with a smaller Service business.

With most publicly listed companies having recently released their 2022 results, we analyzed how they have recovered from this crisis. We tracked the sales evolution from ~25 engineered products companies that report their Services business (including labor and spare parts) separately from their new machinery/equipment business.

As expected, it shows that the Service business has been twice as resilient as the new equipment business during COVID (comparing 2020 and 2019 annual data). Moreover, the significantly higher underlying profitability of Services has been key to providing stability for companies’ results during hard times. This echoes what we saw in the other large crisis since the turn of the millennium: During the Great Financial Crisis, the more Service-focused companies suffered far less than more equipment-dependent companies.

Detailed analyses of the past three years show that the Service businesses of engineered products companies have not only suffered less during the COVID crisis, but they have also taken off just as strongly as equipment once the crisis started to be under control, thus being a key driver for companies’ resilience, growth, and performance.

How to maximize Services' potential

To capture and maximize Service’s growth potential, companies can pull several levers that have proven to be very effective in the past. Some companies are also getting a second wind thanks to digitalization, not just from “traditional” AI, but from Generative AI (GenAI).

• Sales tools: To cover an ever-growing portfolio of clients and equipment, today’s sales teams need to be supported by easy-to-use, digitally enabled sales tools. GenAI tools can support sales teams through training, drafting pitch material, and working up customer information to prepare sales discussions.
• Operational support tools: An increasing shortage of field Service staff can create a bottleneck for executing (and selling) Services. GenAI tools can provide step-by-step instructions to technicians on installations and repairs, thereby reducing the qualifications and experience required, and facilitating the availability of personnel to execute the growth.
• Customer journey digital experience: The trend toward more a digital customer experience is widespread, and many companies are doubling down on developing their e-commerce platforms. By generating a purchasing experience that responds to the needs of different personas, they can capture this digital sales space and even capture share from their competitors. GenAI chatbots make the interaction at the initial customer interface scalable by automating both the collection of information from potential customers and answering basic questions.

In other Service business levers, traditional AI solutions play a significant role in enabling and accelerating the required groundwork of processing and structuring large amounts of data inherent in past sales and installed base performance.

• Digital Services: New digital Services need to complement the existing Service portfolio to open new revenue streams, protect existing ones, and differentiate companies from competitors. We will cover this topic in more depth in our next few articles, where we will share the insights from a study covering >90 companies in different industry clusters.
• Pricing of spare parts and field Services: By applying a more systematic approach to pricing, companies ensure they capture all the value they can. This includes reflecting inflationary pressures, leveraging analytics to discriminate segments of parts/Services and customers, supporting discount decisions for sales teams, and more.
• Lead generation: Proactivity is key in ensuring a strong Service sales pipeline. Companies can plan sales targets based on their clients’ needs and equipment lifecycle and proactively push Service topics that a larger share of their clients might be interested in. Effectively using data on the installed base is a key prerequisite to structure and prioritize proactive sales efforts along the value pools in regions and applications.

Beyond AI, organization is a very effective lever to scale the Service business:

• Specialized inside sales teams that excel in their customers’ product and market knowledge can be set up to generate opportunities that the sales team can later capture. These teams are a very cost-effective solution to develop commercial opportunities and initiate conversations with customers on their Service needs.
• Sales incentives: It also pays off to develop differentiated incentive systems for Service sales teams to ensure the right focus on growth and to structure their sales efforts—for example, by focusing on specific campaigns, customers, applications, or regions.

If you’d like to learn more about GenAI possibilities for Services, please continue reading here, and reach out to us if you’d be interested in knowing more about our Services offer.

I’d like to thank Francisco Salmerón, Michael Dahle, Katharina Meidert, Laura Jacobey, Juan Fernández, and Ane Ayani for the help that they provided in developing the insights shared here.