Sam Klaidman, Principal Advisor with Middlesex Consulting, reflects on the drivers behind why your customers buy the service service contracts you offer, and outlines if and how that has changed since the pandemic...

For over 20 years, I was the Vice President of Service for two companies. In one company I had global responsibility and in the other I was responsible for the Americas. To keep up to date with industry trends, I attended local, and some Global, AFSMI meetings and I read as many service-related articles as I could find.

I was always jealous of people who published articles and got their name “out there.”   Then I retired and started my own consulting business. I felt like the time was right for me to share my ideas and collected information with my peers.

Thanks to an introduction from a friend, I was able to get an article published in the September 2008 issue of American Laboratory. The topic I chose was “Why Companies Sell Service Contracts and Why People Buy Them.” Since then, I have written 16 articles and whitepapers and posted approximately 220 blog posts. Most of these were about some aspect of the business of Field Service. Yet when I searched through the 220 post titles, I realized that I had never updated my original article even though our industry has gone through major changes since the original piece was published.

 

Buying a service contract pre-COVID

Before COVID, the people who purchased service contracts were Manager level. They had day to day responsibility for whatever their equipment was being used for. In that first article, I listed the four reasons why people purchased contracts:

• Maximize Uptime
• Predictable costs
• Peace of Mind
• No hassle

When I have an assignment to grow service revenue, I survey customers and ask them to rate these same four characteristics in declining order. Here are the results of three of my pre-COVID engagements:

The first and last columns are part of the same survey for the same client. The last column is for a small number of customers with many instruments that provide the company with excess testing capacity. Yet the managers were interested in a service contract for all their instruments! Not because they were worried about maximizing equipment uptime, but because they were interested in minimizing their daily hassles. They were willing to spend company money to reduce their job-related stress.

 

 

Changes in customer’s wants and needs now

Today, the reasons people want service contracts are more varied than ever before. When it comes to buying hardware service contracts, we are seeing two significant changes:

1. The purchasing decision is being made by a more senior individual than the department manager.
2. The reasons to buy a contract are frequently based on more and different strategic factors than in the past. They are as varied as the reasons they purchased your product as well as the high-level strategic goals of the company.

Here are some of the challenges that most business executives (including your customers) are dealing with today and which will continue for the foreseeable future:

• Grow revenue and reduce costs
• Minimize CapEx
• Digitize their business
• Introduce a servitization business model
• Mitigate known and unknown business risks
• Provide a safe and secure environment for their employees
• Figure out how to retrain key employees
• Deal with an aging workforce

Your customer’s challenges will result in changes to how you create, price, and deliver your services in 2021 and beyond. Here are a few well know changes:

• Enable customer self service
• Move to a blended workforce of direct and contract field engineers
• Migrate from a transactional to an outcome driven service organization
• Innovate to embrace the notion of touchless service
• Personalized and multichannel services

 

Changes in the Sales environment

These three snippets from a recent report, 2021 Predictions for Sales Leaders: THE YEAR OF VALUE, highlight some of the changes that sellers must be prepared to manage. These conclusions are generic and impact both product and service selling:

1. In 2020, CFOs got more involved with every purchase being made and every dollar of spend was scrutinized. Those who were able to quantify the outcomes associated with their spend were able to get their projects completed. Those that were not able to articulate value saw their projects overlooked by those who had a higher level of perceived value to the business.
2. To succeed in virtual B2B sales cycles in the coming year and beyond, it’s critical that CROs (Chief Revenue Officers) work with their sales leadership to ensure that their teams are intentional in discussing and quantifying value early in buying conversations and that every opportunity is substantiated with the strongest business case possible based on true economic impact and outcomes. To thread the value conversion through the full customer journey and ensure retention and expansion remain positive, sales leaders will also need to work with the customer success leaders to ensure that the company is proactive in communicating the outcomes of their solutions in order to maintain renewals NRR (Net Recurring Revenue) remains high.
3. Unlike in the beginning of 2020, sellers can no longer take clients to hockey games or dinner to build rapport. Instead, all information sharing happens digitally, via email or a web conference. You have minutes, not hours, to make an impact. According to McKinsey, “digital self-service and remote rep interactions are likely to be the dominant elements of the B2B go-to-market going forward, when selling to both SMBs and large enterprises.” And 89% of companies expect these changes to stick, anticipating they will need to sustain these virtual go-to-market models for 12+ months, per McKinsey.

 

Selling services now and post-COVID

The best time to sell a service contract is at the time of equipment sale. This is because your product sales teams are dealing with customers with the same issues your service sellers are experiencing. But the product people have successfully addressed their prospects challenges when presenting and closing your product sales. Therefore, the sales team can integrate your services into the overall justification (use case) and close the product and service sale at the same time if they are professionally trained and properly compensated. Also, adding services into the use case will likely differentiate your company and help close the deal.

Obviously, we all have a sizeable number of service contracts which are already in place and renew every year or so. If you are experiencing difficulties in securing renewals on a timely basis, then I suggest you spend some quality time with your sales management peer and get some help on how to dig out customer’s most pressing challenges. You can then present your solutions in a way that shows the customer how you can help them achieve their objectives while feeling that they are minimizing their personal risk.

If you find that there is a large gap between what you are offering and what you believe the customers want, then you have to put on your service marketing hat and find out their needs and the price they are willing to pay. Then you must update your offerings and create new value propositions for each customer segment and the services and contracts you want them to buy. Sometimes you can do it all by yourself and sometimes you will need a more experienced consultant to interview a representative number of customers and find out what your customers are willing to pay for. The consulting investment is generally minor compared to the contract sales you achieve.

Whatever you do, you must make sure that your contracts and other services create enough value for your customers so they will find it exceedingly difficult to move to a time and materials model or worse, move to a third party vendor.

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Further Reading:

• Read more about the impact of COVID19 on the field service sector @ https://www.fieldservicenews.com/hs-search-results?term=covid
• Read more about Service Innovation and Design @ https://www.fieldservicenews.com/blog/tag/service-innovation-and-design
• Read our exclusive series of articles exploring the findings of our research study on the pandemic @ https://research.fieldservicenews.com/
• Read more exclusive FSN articles by Sam Klaidman @ https://www.fieldservicenews.com/blog/author/sam-klaidman
• Connect with Sam Klaidman on LinkedIN @ https://www.linkedin.com/in/samklaidman/
• Find out more about Sam Klaidman's work with Middlesex Consulting @ https://middlesexconsulting.com/

 

Post COVID-19 customers are looking for their equipment service providers to minimize their risks by deploying a touchless, or low touch, field service system.  Fortunately, a change like this can be quickly implemented and if you price and market them properly, you will likely enjoy higher revenue, profit, and customer satisfaction.  Sam Klaidman, Founder and Principal Adviser at Middlesex Consulting, makes his debut as a Field Service News associate columnist with an extensive look into the subject.  

I just finished participating in an IFS webinar titled “How COVID-19 Has Permanently Changed The Future Of Field Service” featuring Tom Paquin.  There was a great message on one of Tom’s early slides . 

It read: 

Yesterday: Your empowered customers demanded that you service them  

Today: Your empowered custoemrs are looking for the tools to serve themselves.  

I believe the message in Tom’s this slide is spot on and correctly describes the pre- and post- COVID challenges that Service Executives are and will be facing for years to come.

In this article we will look at the following:

• The high-level role of the service organization 
• The customer’s new challenge 
• Touchless support - how service delivery will change 
• How service marketing should respond to these changes 
• The impact of the new model on service revenue 

THE HIGH-LEVEL ROLE OF THE SERVICE ORGANIZATION

Think about why people buy a product or service. It's not because the product or service is cheap, looks cool, or they know someone who has one and loves it. No, they buy a product or service because they want the benefits they will get from using it. These are their desired business outcomes and what the customer value creation experts call “value from use.” 

Now, why do they buy from you instead of from someone else?  Easy.  They buy from you because you deliver the greatest value when compared to all other alternatives.  And value is defined in two ways: 

• The difference between what they get and what they pay, measured in money ($, €. £, or ¥). 
• Their internal quantification of intangible benefits like great service, peace of mind, and ego boosting. 

What is the role of customer or field service in this discussion?  Service’s role is to allow the buyer to continue to generate desired business outcomes plus the intangible benefits after they pay for the product and continue to use it during the complete product lifecycle. When service does this well, the customer will not change suppliers, will repurchase when they again have a need, and will buy add-ons that create additional incremental value. 

No matter how your service delivers on these outcomes, the end results must meet the customer’s expectation at the time of purchase. 

THE customer's new challenge

In March 2020, OEM’s services businesses starting hearing lots of new pushback:

• From the end user customers they heard “My XXX is down and I need to fix it but we cannot bring any outsiders into our facility”

• From customer Purchasing people they heard “WTF - Your travel costs are over the top plus you can’t get here for 3 days”

• From your company’s best salesperson they heard “Our key customer needs to find a way to service our products remotely and you have not come up with anything useful…”

• And from their service technicians they heard “I can’t go to that customer.  I hear they had 20 COVID-19 infections just this week and I have a sick grandparent that lives in my house.” 

Yes, customers are demanding a new way to service their equipment, and this will probably be the new normal when we come out of this current pandemic.

TOUCHLESS SUPPORT - HOW SERVICE DELIVERY WILL CHANGE

Almost all end users are looking for what the media calls “touchless support.”  This means no outsider must come into their facility to diagnose and repair any of their products.  And that is not such a strange concept considering the risk of bringing an outsider into what the customers believe is a controlled environment.  Also, these days everyone is risk adverse and is looking for ways to mitigate all future risks, no matter how unlikely they are.  However, please note that the end-users are fully aware that this kind of support has a price and they are prepared to pay a fair price if their value delivered exceeds their costs.

This means that customers want a form of enhanced self-service for break/fix service and possibly external help for scheduled events like preventative maintenance and upgrades.  Here is a quote from an August 2020 McKinsey and Company article From defense to offense: Digital B2B services in the next normal: 

Now let’s briefly look at each of the tools and technologies listed above. 

Simple knowledge base (FAQs)

Every product focused website should have at least these three types of separate FAQs for current customers:

• How do I work with the OEM? – This list covers subjects like reaching scheduling an installation, technical support, getting and RMA number, finding out the latest software and firmware versions, upgrading software and firmware, location of service centers, buying consumables and spare parts (with a link to your ecommerce site), and warranty terms. 
• For each product, answer the basic and medium complexity how do I…questions. In addition to answering questions, this section should contain links to manuals, training videos, checklists and other documents that can be downloaded, and parts lists and drawings. 
• For each product or application, answer questions about available service contracts with a chat feature or a link to service sales.

These simple knowledge bases have been around for many years and yet many businesses do not even have the most basic type of FAQ’s -the how do I work with the OEM? page.

Merged reality virtual assistance

Merged reality is the simplest digital application imaginable, which is why it so popular these days.  I know of one supplier that helped an OEM purchase and deploy a merged reality application for over 1000 field engineers in six days with no capital expenditure other than making sure these engineers have either a smartphone or a tablet.

In its simplest form, the field engineer and the tech support person each use their smartphone or tablet to stream a video image to the app.  The app them merges them together and send it back to both parties.  The field engineer’s video stream shows a view of the product being worked on and the support person shows either a finger, a tool, a meter, or something like that.  The support person places his finger to point at something he wants the field engineer to work on, which they both see.  And they also talk to each other while this is going on.  For example, the field engineer can transmit a picture of a control panel and the support can point to an adjustment knob and say, “turn this knob about ¼ turn clockwise.  There is no ambiguity about which knob to turn.

Another notable feature is that the whole session can be recorded and linked to the appropriate work order.  This is important since the videos can also be uploaded to either a YouTube channel or to a robust searchable knowledge base so other technicians or customer’s maintenance technicians can easily visualize the troubleshooting and repair process.

Of course, these applications have many other equally simple features. To learn more, I recommend that you look at either Help Lightning or Sightcall.  They have both made a major impact on field service delivery.

Remote computer support

Remote computer support has also been around for ages and once set up, it is as easy to use as merged reality virtual assistance.  Using something like LogMeIn Rescue, the support engineer can take over control of the client computer, run diagnostics, direct the computer operator to perform specific keystrokes and see what happens.  This makes troubleshooting desktop problem easy to handle remotely.

Other solutions come bundled into the computer itself.  For example, Google Chrome and Windows have remote control included while Apple technical support people can access Apple computers with the user only granting access during a support call.

Robust, and growing, multi-media knowledge base

For most products, it would be extremely difficult to store and list all troubleshooting and repair videos.  Just think about how difficult it would be to describe a problem the way a customer would.  That is why good knowledge bases are built with an artificial intelligence (AI) engine to instantly search a multimedia data base indexed with tabs and that works like Google search.  Yet that is what is needed when a qualified end user technician is trying to repair a system that has an intermittent fault she has never seen before.

This is why I said that the stored videos from a merged reality virtual assistance session can be so useful.  While these videos should be edited to eliminate standby time, repetitions, and side conversations, it is especially useful to go through all the trial and error troubleshooting since the same symptoms may have different causes and the more thorough the video, the more likely it will be that the system gets repair quickly. 

AnswerAnywhere is a database designed to be used by field technicians and appears to offer many of the capabilities I described above.  It is worth looking into as you start building out your robust service knowledge base.

Embedded diagnostics, Remote diagnostics, and Internet of things (IoT)

These are three variations of the basic data collection and transmission scenario.

Embedded diagnostics is used when the product has an onboard processor, sensors, and data transmission capabilities.  The embedded diagnostics look at information available inside the product and determine if it is working properly or has a fault.  We are all familiar with this from our cars.  When the air pressure inside our tire goes below a preset limit, the car displays an icon of a tire and a message.  When we travel more than a set limit without changing our engine oil (assuming we drive a car with an internal combustion engine), we get a “change oil” message.

In the mid-1980’s, I was the VP of Service for a data communications company.  Our product was nearly completely redundant, and our internal computer monitored the status of each module.  When any module sent an error message to the internal computer, it compared both like modules and if they differed by more than a set amount, it compared each module to the expected output.  When it determined which of the pair had faulted, it took that module off-line and notified the user.

Remote diagnostics is like embedded diagnostics only in reverse.  A remote computer interrogates sensors, on-board memory, and a devices control system to determine if the system is working properly. The advantage of remote diagnostics is that the computer is generally more powerful that the computer in the machine.  This means there is a good chance it can track accurately sensor outputs and detect any subtle changes.  The computer can also have AI software and perform machine learning (ML) so it can identify when a true failure is likely to occur.  It also may be able to determine the likely fix and so it can schedule a repair at an off-shift time when there is no substantial cost of downtime.

The diagnostics I just described are not easy to create and program and therefore are expensive.  But in the right circumstances, they can me unbelievably valuable.  Consider the case of the jet engines that power an Airbus A350 or a Boeing 787.  On a transatlantic flight, each engine can produce about 1Terabyte of data.  The data can be transmitted in real time to a central location when the software looks for anomalies and, when it finds one, can notify the repair people at the destination so the repair can be made (sometimes) in the turnaround period.  Not having a mid-flight engine failure can be priceless!

Internet of Things is like the remote diagnostics that I just described except that the IoT computer can easily import data from any other device or website to make a more robust calculation then just looking at one product.  In the jet engine example, an IoT system can also import weather data, flight parameters, airplane weight and balance data, and data from all the engines on the same route with all their related data and come up with a strong recommendation about what to fix and when.

Today’s technology for identifying equipment problems and solutions is getting both incredibly power and seriously expensive.  But, for the right product and use case, these software systems can save lives, lots of money, and jobs.

HOW SERVICE MARKETING SHOULD RESPONDE TO THESE CHANGES

Each of the technologies has a unique cost/benefits equation. That means that each implementation has a unique value proposition and should have a unique cost.  And when you combine multiple solutions the customer value can increase dramatically. This is where service marketing comes into play.  They should be charged with answering the following questions:

• How should our latest offers be structured? 
• What should we charge for each offer? 
• What happens went we replace a free offer (e.g., telephone support) with a higher value offer (telephone support + virtual assistant)?  Do we remove the free telephone support or charge for all non-warranty calls? 

• How do we sell the offers? 
• How do we get product sales on-board?  
• How do we train all out International channel partners? Do we charge them for supporting the customers? 
• What metrics do we want to use to evaluate our decisions?

This is when you will be glad you have a service marketing professional to help solve all these non-technical challenges.

THE IMPACT OF THE NEW MODEL ON SERVICE REVENUE

Of course, we all want to know how using these tools and technologies will impact our revenue and profit.  The simple answer is “It all depends.”  It depends on:

• What services you currently sell and which you do at no charge. 
• What services your customers are willing to pay for and you do not currently offer. 
• How much business you are losing or how much money you are earning because your field engineers must travel from a great and expensive distance. 
• How much growth the product side of your business will enjoy because you were able to best satisfy the needs of prospects. 

• How many contract truck rolls you can avoid while fixing a problem in a shorter time then when you dispatch a service technician.

Overall all, if you implement only the first three items on the list (simple knowledge base, merged reality virtual assistance, and remote computer support) and price and market them creatively, you will generate higher revenue, profit, and customer satisfaction.  Not a bad set of outcomes from investing in satisfying your customer’s desires for a touchless, or low touch, field service system.<

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Further Reading:

• Read more about Leadership and Strategy @ www.fieldservicenews.com/leadership-and-strategy
• Connect to Sam Klaidman @ www.linkedin.com/samklaidman
• Find out more about Middlesex Consulting @ www.middlesexconsulting.com
• Read more from Sam Klaidman @ middlesexconsulting.com/blog