Michael Blumberg, President of the Blumberg Advisory Group discusses recent research his organisation worked on with Giuntini and Company on the processes being used to effectively sell extended warranty programs and argues that if you adopt the right approach, moving from customised service contracts to selling outcome based services isn’t such a huge leap of evolution...
No one can dispute the fact that manufacturers are placing increased attention on growing top line service revenue. Typically, this revenue is captured through the sale of EW/ES programs.
Given the level of focus place on this subject by manufacturers and service providers, Blumberg Advisory Group and Giuntini and Company partnered to conduct a study among professionals involved in selling extended warranty and/or extended service programs. To qualify as a survey participants, respondents had to influence, recommend or make decisions about these programs.
The objective in conducting the survey was twofold: To identify best practices involved in marketing and selling extended warranty and/or extended service (EW/ES) programs and to evaluate the impact of these practices on key performance indicators (KPIs).
As field service leaders may recognise, contract attachment and contract renewal are the most important Key Performance Indicators (KPIs) associated with marketing and selling of EW/ES programs.
The factors that drive contract attachment rates are warranty configuration and the types of marketing tactics employed.
Configuration refers to the length of coverage, level of customisation, processes engaged and resources employed in delivering the warranty, and entitlement levels offered. The survey results suggest that the more distinctions a company can make about its EW/ES program, they more likely customers will be to purchase it.
In other words, customers consider the value of a service contract before they purchase it.
This is an “eye-opener” because many companies have the view that a warranty is a warranty. The management within these companies believe that just because customers purchase their product they’ll also purchase the extended warranty.
Most of the companies we surveyed rely on traditional marketing tactics like sales aids (e.g. brochures) and direct sales to sell EW/ES programs. Usually, these tactics are employed at the product point of purchase.
Companies who continue to sell service contracts after the product sale are likely to experience a 20% improvement in attachment rates on average.
Manufacturers who experience high EW/ES contract attachment and renewal rates understand that the activities involved in marketing and selling these programs is separate and distinct from those involved in selling products.
In other words, service leaders in these best in class companies put as much time and effort into configuring, marketing, and selling service contracts as their counterparts in the product organisation place on designing, marketing and selling products.
Effective field service leaders recognise that service won’t sell itself. They understand that just because the customer owns the product doesn’t guarantee they’ll buy the service. In addition, field service leaders in these service organisations make sure they have the right systems and processes in place to market and sell service contracts.
While 87.5% of companies surveyed have a formal process in place to configure and price service programs, only 13% employ a Configure, Price, and Quote (CPQ) software application.
The trend toward customers wanting to buy outcomes as opposed to services or products will place even more pressure on field service leaders to become proficient at configuring, pricing, quoting, and selling service contracts.
While recent technologies like IoT, AI, and Big Data will make it easier for companies to deliver outcomes, manufacturers still need to provide customers with a contract that specifies exactly what is include in the “outcome” they have purchased.
For example, it defines the terms and conditions, the hours of coverage, the level of availability, the resources provided, and the processes engaged in delivering the agreed upon outcome to the customer. It also describes the level of entitlements and roles and responsibilities of the party providing the outcome as well as the party receiving the outcome.
Furthermore, it is likely that outcomes may differ from customer to customer.
Manufacturers who have not mastered the fine art of selling traditional service programs may find selling outcome based services a real nightmare.
Yet in many ways, selling an outcome based contact is no different than selling a customised extended warranty or extended service contract.
That’s why companies need to start investing in systems and processes that facilitate configuration, pricing, and quotation of services contracts today.