Come see us at SOLIDWORKS World 2017 from Feb. 5-8 at the Los Angeles Convention Center. We’ll be onsite in the Partner Pavilion providing live demonstrations of Documoto, and our team will be available to answer your questions.
SOLIDWORKS World is a 3-day conference where attendees can learn about the latest technologies and select from more than 200 breakout sessions on topics ranging from design automation and electrical design to simulation and product data management.
Stop by Digabit’s booth (#200) in the Partner Pavilion and learn how to:
Streamline publishing with SOLIDWORKS – Composer – PDM – Documoto
Convert BOMs and illustrations into structured data for search and re-use
Enable online sales using Documoto Cloud Storefront
Over 20 years ago, the Harvard Business Review published a commentary by the CEO of Caterpillar, website Donald Fites. The article is titled, “Make Your Dealers Your Partners,” and it discusses foreign competition, the importance of after-sale service, and the huge role that Caterpillar’s dealers play in maintaining Cat’s market leader position. It’s illuminating to read this decades-old perspective and realize that, with all our technology and the incredible growth of global trade, not that much has changed in the fundamental distribution strategy for heavy equipment OEMs. While some may view these arrangements as antiquated or archaic, there are many good reasons why OEMs choose to maintain traditional dealer networks as their primary distribution channels.
Over the past several years, all the business pundits, management consulting firms, and enterprise software sellers have jumped on the same bandwagon when it comes to the future of B2B sales…
Younger buyers are digital natives, and they want to buy online
Multichannel (or omni-channel) sales are necessary to retain or gain market share
Global competition is commoditizing products of all types at a faster rate
Digabit understands this mentality. Many manufacturers are interested in direct-to-consumer sales, similar to a B2C retail eCommerce environment. It means customers can order any time and anywhere, using any payment method, with a choice of shipping alternatives and other buyer-friendly options.
This idealized business model appears to cut out the traditional roles of distributor and dealer. In the hypothetical model, customers know exactly what they want, and they want to satisfy their needs at the lowest cost, with the least effort.
But for manufacturers of complex, expensive equipment, this “ideal” is a mirage.
Whether a company makes trucks, industrial robotics, or a 200,000-lb. wheel loader, the real world of capital equipment sales and after-sale service and support is a lot messier than the ideal scenario presented in a consulting firm’s strategy recommendation. Some manufacturing verticals still receive huge value from the physical presence of a dealer network.
Benefits for OEMs that build strong dealer relationships
Dealership employees are the OEM’s human face, for everything from warranty management to promotional collaboration. It’s true that everyone gets frustrated with phone support, help desks and impersonal customer service. But we’re clearly not at the point where apps and artificial intelligence can replace those functions…and some people still prefer face-to-face communication.
In spite of the hype about drone delivery and other futuristic fulfillment methods, having a tangible product in inventory within a reasonable driving distance is important to some large equipment owners.
Nobody aside from the OEM knows as much about products and how they’re used as dealers who work with actual owners and operators every day. From providing service and maintenance, to cross- and upselling other OEM products, a great dealer’s product knowledge is still more relevant and accurate than online sources.
Customer loyalty and retention are highly influenced by dealer performance. Rather than being archaic artifacts, dealers provide assurance for buyers who spend millions on equipment. Does anyone want to buy a $1,000 part for a $500,000 machine from an anonymous website? I don’t. That type of sale still requires a level of trust and accountability that you won’t get from slick websites or one-click processes.
In short, the OEM-dealer relationship is neither dead nor dying. The model needs some refinements that are readily achievable by modern technologies. For example, OEMs need better visibility into dealer activity and inventories. And dealers need better communication tools and higher quality product information from OEMs. Technology is poised to tighten and strengthen OEM ties to their distribution channels, rather than alienating—or outright eliminating—their most effective support system.
As always, Bruce asks insightful questions and provides his own expert perspective. And Alan shares his predictions on the future of online and aftermarket sales for manufacturers who traditionally relied on dealer/distributor networks to generate orders and revenues from part sales and service.
Alan and Bruce discuss the increasing difficulty for manufacturers to maintain or increase revenues in light of global economic volatility, the proliferation of 3rd party suppliers, and greater competition from non-domestic manufacturers. The competition for aftermarket part sales has become even more challenging, with resellers on eBay, Ali Baba and other online channels vying for the same market share.
The solution is to create an effortless buying experience for online users, akin to the Amazon.com experience that private consumers have come to expect. That is, the ability to buy anywhere, any time, and have confidence that you’ll receive the right parts in a timely fashion.
Listen to the entire show and learn more about Alan’s actionable takeaways:
Manufacturers’ proprietary information (this includes parts catalogs) gives them a competitive advantage over non-OEM aftermarket providers, so figure out how to leverage this information.
Customers will pay more for convenience and reliability, so don’t make the mistake of trying to compete only on price when you can truly add value to a transaction.
Bruce McDuffee has proven to be an innovative voice in the world of marketing for manufacturers, applying concepts from B2C and other arenas to the unique challenges and needs of manufacturers. From content marketing to eCommerce to search engine optimization, Bruce stays on top of the latest.
If you’re a manufacturer wondering about the trend toward more transparent online B2B sales, or a marketer looking for advice on best practices for manufacturers, you’ll get something of value from this exchange of ideas.
In a world of Big Data, manufacturers of every size must come to terms with how to best market their products. No longer can companies rely on outdated business models or traditional sales methods. Rather, manufacturers must forge a new type of relationship with customers that maximizes each transaction and adds value to each product.
In many ways, the manufacturing industry is undergoing a revolutionary change in real time, with both the roles and pain points of manufacturers and consumers shifting. A report from Accenture noted the companies that succeed are those that best understand this new relationship.
“Today’s customers are constantly moving, always connected and more informed than ever before; the purchase experience is now dynamic, accessible and continuous,” the report stated. “By the time buyers meet sales representatives for the first time, they are often more than 50 percent through the buying process. To keep pace, companies must move their marketing, sales and service functions from an analog front-office to a digital one. They also need to understand the myriad of ways in which customers want to interact with their organization.”
To fully optimize data for its intended purposes, manufacturers must realize marketing goes beyond just identifying patterns or navigating a sea of customers. Instead, sales and marketing departments can actually meet buyers on the customers’ terms and increase the chances of closing a sale by integrating data-driven, customer-centric solutions.
Target buyer personas
One of the most meaningful avenues for marketing teams to exploit is that of buyer personas. Using data, manufacturers can shape and narrow down the ideal customer base that they gear products toward. This process enables each product to more quickly attract its associated target buyer, which makes parts ordering and transactions more efficient for both customers and manufacturers.
By analyzing gathered customer data, IT teams can optimize the information and create appropriate market segments among buyers. Research and advisory firm Gartner indicated data pertaining to buyer behaviors can be aggregated and repurposed to create upselling opportunities. This helps manufacturers understand exactly what each specific customer needs before he or she may realize it. With this strategy in place, cross-selling and parts bundling can become key tenets of sales models.
Limit trial and error
By utilizing the data at hand, manufacturers can have a much more seamless flow of products throughout the supply chain. Since every part is manufactured with a particular customer in mind, data allows manufacturers to connect products with end-users with less interruption and fewer mistakes. However, planning the rollout of these new products is never easy.
Before investing too much time and money in a project, manufacturers can collect and analyze data when trying new strategies or product demonstrations to determine how successful certain ideas will be. Internal or limited trials of products can provide key insights into future sales and performance potential of products. This insight can be expanded upon to include how fast a certain product can be manufactured, assembled and shipped to a warehouse. By nailing down the logistical issues of product performance and delivery, manufacturers can avoid sales mistakes.
This reduces trial and error and excessive back and forth between internal departments while also fine-tuning products more thoroughly before they ever reach customers. Consumers are rewarded with products closely tailored to their demands, and manufacturers benefit from more comprehensive and effective planning processes, leading to real-world operational savings.
Close inefficiency gaps
Throughout manufacturing, parts ordering and shipment processes, there will inherently be inefficiencies along the way, which creates gaps in service. Whether it’s a disruption in distribution or a miscommunication between dealers, data can help close these gaps and overcome technical challenges every step of the way.
With access to the same information in real time through a cloud-storage system, suppliers, operators, sales teams, dealers and customers can all work cohesively together. This heightened collaboration capability enables orders to be fulfilled faster, with all channels of operation moving in tandem.
More lines of communication and targeted, structured marketing plans ensure manufacturers can make every decision the right decision. Forbes reported data also allows manufacturers to produce custom and built-to-order equipment without deviating too far from standard operating procedures. Although these specialized orders require more time and innovation, which can delay normal operations, negative impacts on production can be minimized through advanced analytics, efficient scheduling and streamlined delivery.
According to the Harvard Business Review, by implementing consumer data into everyday marketing strategies, manufacturers can reduce churn rates and retain their most loyal customers, thus solidifying future revenues.
“Looking at churn rates by customer segment illuminates which types of customers are at risk and which may require an intervention,” said Jill Avery, senior lecturer at Harvard Business School. “It’s a nice, simple metric that tells us a lot about when and how to interact with customers.”
By consolidating the vast amount of industry information into actionable, forward-thinking metrics, manufacturers can generate a clearer picture of how to achieve their business goals. And by employing analytics as a company-wide marketing plan, manufacturers can position themselves to be stronger competitors in the marketplace, better able to meet the demands of today’s ever-changing customer base. Not only can manufacturers deflect risks and potential financial pitfalls through efficient data use, but they can also propel their companies into a new realm of economic success.
In an effort to increase customer satisfaction, differentiate from the competition, and achieve higher margins, the vast majority of OEMs have integrated some level of after sales service into their business model. For the most part, these forays into the service business go no further than spare parts supply for faster dealer repairs.
While spare parts management is critical, it has become a new baseline level of service, and customers are calling for more preventive measures, like the incorporation of smart technology, product-as-a-service models, consulting services, and customized warranties.
In recent years, market research firms have been strongly advising manufacturers to shift their attention towards these predictive after-sales service offerings, and early reports are overwhelmingly optimistic about the potential for this approach to revolutionize manufacturing.
Some leading manufacturers are already generating half of their revenue from the service business, thanks to the disproportionately high profit margins of services compared to new-product business.
However, what these reports and predictions leave out of the dialogue is how manufacturers can position these service offerings to truly help customers and enhance loyalty.
Selling The Outcome
The secret to successfully implementing an after-sales service strategy lies in transitioning from selling physical products to selling outcomes delivered by products.
Legendary Harvard Business School professor Ted Levitt famously quipped, “People don’t want quarter-inch drills – they want quarter-inch holes.” In other words, when customers are faced with a problem, they search for something that will solve that problem better than other alternatives.
Your customers didn’t pay you for a top-of-the-line riding lawn mower, they paid you for a beautiful, freshly mowed lawn that didn’t involve the discomfort of pushing a piece of equipment around the yard for 60+ minutes in ninety degree weather.
When equipment is down, it’s not solving the problem. Customers can’t make quarter-inch holes or maintain a manicured lawn. The product isn’t delivering on its promised outcome, so customers don’t feel like they’re receiving tangible value.
Downtime gives the customer two choices: get the equipment back up and running – and fast – or search for something else to solve the problem. This is why the most effective after sales services initiatives are geared toward, not just repairing equipment, but preventing the need for repairs in the first place.
If manufacturers want to keep customers happy, encourage brand loyalty, and drive repeat business, they need to maximize equipment uptime through predictive service efforts. It’s the only way the product will continue delivering its promised outcome.
Preventive maintenance is the new frontier for after sales strategy. More than 70% of manufacturers are evaluating, planning or implementing smart technologies for maintenance and optimization of their assets and their customers’ assets, according to a recent IDC report.
The application of smart technologies like sensors and data acquisition systems promise greater efficiency, cost reductions, and customer retention. In terms of preventive-focused after sales services, smart technology could prove especially useful as an early warning system, predicting when service events need to take place and enabling more responsive networks of service parts.
The movement towards product-as-a-service approaches is also gaining speed. Manufacturers share in the risk of the equipment’s operation by, essentially, renting out the equipment and assuring uptime to the customer.
As Heather Ashton, Research Manager of Service Innovation and Connected Products at IDC Manufacturing Insights, described, “In the coming years, manufacturers will continue to provide both competitive differentiation and higher margins by bundling or providing added services with products, including product-as-a-service business models where customers pay for product operational uptime and performance, over time.”
While the advent of smart technology and product-as-a-service in manufacturing is exciting, these trends won’t increase profits unless they are successfully translated into services that keep equipment up and running throughout the product lifecycle. To take a page from Ted Levitt, “people don’t want smart technology – they want continual uptime.”
While the aftermarket used to be an afterthought, leading OEMs have started to recognize the effect of parts sales on their overall financial health.
Not only are these sales less cyclical, but also they also frequently generate more profit and revenue than original equipment sales. According to Industry Week, sales from spare parts comprise 40% to 60% of total manufacturer revenues.
This is no surprise, considering American businesses and consumers spend approximately $1 trillion every year on assets they already own.
But the challenge – and it’s a formidable one – lies in devising and adapting a spare parts sales plan to ensure your dealers and customers buy OEM parts to help maximize profit margins.
Let’s go through a few of the ways you can drive growth, encourage customer retention and create a competitive advantage with your aftermarket strategy.
It’s All About Loyalty
As we’ve mentioned before, success in the aftermarket depends primarily on catering to your established base of customers. Delivering impeccable customer service and emphasizing the values you share with your customers are surefire methods to build customer loyalty.
Maintaining your customer base also depends on the durability of your original equipment. Every equipment replacement is an opportunity to lose your customers to a competitor.
On the other side of the coin, however, Sheila Brennan, program manager for Smart Service and Aftermarket Strategies at IDC Manufacturing Insights, cautions that “OEM executives must keep in mind that increased reliability of equipment is a double-edged sword when it comes to customer intimacy. Fewer service events mean fewer opportunities to create brand loyalty and form a customer relationship.”
For your aftermarket strategy to work, you have to find the middle ground between unreliable and over-durable. Providing extended service warranties and discounted equipment upgrades can help reduce the likelihood that customers will switch to competitors.
Lock In Your Customers
Third-party aftermarket parts suppliers will almost always win when it comes to price, so OEMs have to give customers a compelling reason to go with their parts. While this can come in the form of greater quality assurance or a better service experience, the most foolproof way to ensure customers will choose your part over the competitor’s is to give them no other option.
Patented part designs, service expertise, convenient replacement kits or warranties are all proactive offerings that lock customers into your aftermarket. You are supplying something they simply can’t get anywhere else.
Predictive analytics company Forio offers the basic example of a patented three-prong stapler and staples. While the original product – the stapler – itself may not have a huge market, in order to derive any value from it, every customer will also need to buy a few boxes of three-prong staples on a repeat basis. Over time, sales of staples will far surpass sales of staplers.
The Importance of Technology
To manage and grow aftermarket parts sales effectively, manufacturing executives have to put the proper tools in place.
Warren Smith, global industry director at Infor, suggests that you utilize fast, agile technology that is specialized for the equipment industry. “It will need to span the entire lifecycle of the equipment, from manufacture to aftermarket service, in one integrated solution.”
Incorporating manufacturing-specific products like Documoto into your aftermarket mix empowers dealers and customers to make real-time decisions based on accurate information and order the spare parts they need in a fast, convenient and electronic way. This enhances expert technical support and delivers unprecedented value to your customers, boosting spare part sales and driving repeat business.
Learn more about using Documoto as an integral solution for aftermarket parts sales.
Thanks to new developments in technology and major supply chain shifts, the manufacturing sector is changing at a rapid pace.
In the past year, manufacturing production has increased faster than real GDP growth for the first time in over a decade, and, according to the Institute of Supply Management, revenues are expected to increase across 15 manufacturing industries in 2015.
While manufacturing activity has rebounded and there’s a more optimistic outlook for the future, original equipment manufacturers still report a number of concerns and business challenges weighing on their minds for the year ahead.
Let’s take a closer look at three areas OEMs are worried about in 2015:
1. Labor Costs & Retention
77.1% of manufacturing executives cited rising health insurance costs as their top challenge in this 2014 National Association of Manufacturers/Industry Week survey. With benefit costs climbing an average of 6.3% over the next 12 months, the majority of manufacturers are planning to increase copays, deductibles and premiums.
These changes may make it even harder to attract and retain a high quality workforce, which concerned more than half of the survey respondents. Not only are companies hesitant to hire due to healthcare costs and federal regulations, but many simply can’t find a capable labor pool of skilled workers.
As manufacturing and supply management consultant Patricia Moody explained on the AME blog, “We have a big problem with the labor base — nobody wants their kids to put tires on Buicks, and nobody wants to work in a factory. Factory owners can therefore only do one of two things — outsource or automate.”
2.Changes to Taxation & Regulation
Taxation, regulation and political unrest around the world can make production planning and capital investment extremely risky.
In the U.S., many OEMs are deeply frustrated by recent federal proposals. Regulatory compliance costs are skyrocketing, complex tax rules are becoming business prohibitive, and the Department of Labor is planning to revise overtime regulations.
According to Industry Week, “If federal agencies maintain their current pace of regulatory activity, the load will reduce manufacturing output by up to 6% over the next decade and by as much as $500 billion this year alone.”
3. Adoption of New Technology
OEMs are looking to boost efficiencies and productivity by implementing a variety of new technological tools. The IDC FutureScape for Worldwide Manufacturing predicted that, in 2015, customer centricity will require higher standards for customer service excellence, efficient innovation, and responsive manufacturing, which will motivate 75% of manufacturers to invest in customer-facing technologies.
Though the top technological trends for 2015, ranging from the Internet of Things to SMAC (social, mobile, analytics and cloud), present exciting opportunities, the challenge becomes getting employees, distributors, dealers and customers to adopt these technological advancements. If the intended users don’t recognize what the software can do for them, manufacturers will be hard pressed to get full engagement.
Manufacturers have little control over the rising healthcare costs and regulatory changes of today, but a successful software adoption is one concern that can be alleviated with proper planning.
Having the full commitment of senior management, setting expectations for deployment upfront, and investing in change management can fast-track user adoption. When considering the right technological solution, see what training and implementation services your software provider can offer. Digabit, for example, has a dedicated Services Team that helps manufacturers smooth the transition from the old to the new.
If you want to learn more about our technical services and implementation assistance, contact us today.
At Digabit, we spend a lot of time talking to our customers, and I’ve found that one of the main reasons manufacturers love Documoto is that it creates a rich aftermarket experience for their customers and their dealers.
Manufacturers use our solution to enhance coordination between their warehouses and dealers, update and distribute accurate parts information in a timely manner, and, above all, give their customers an easy way to identify and order the right part. READ MORE