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Servitization - the what, the why, the how, and the when

10 January, 2017
Servitization explained

Servitization – a term that you might have heard being thrown about a lot in the manufacturing industry recently, but also a term that you’re unsure what it really means, and why it’s specifically important to manufacturing. Well, it’s all about changing a way of thinking (and doing), in terms of a focus on service as well as on product. In this blog, we explore exactly what Servitization is, why you should take notice, how to do it, and when to start. Interested? Keep reading…

The what

Servitization is a journey of transformation. It involves manufacturing businesses developing the capabilities that they need to provide services which support their traditional product offerings. Or it can be more formally defined as ‘an integrated product and service offering that delivers value in use’.

Let’s take a look at an example shared in a blog by Andy Neely, Head of the Institute for Manufacturing at the University of Cambridge, about Servitization in practice.

“Rolls-Royce selling "power-by-the-hour". Instead of selling aero engines, Rolls-Royce now contracts with many of its customers for "power-by-the-hour". In essence the customer buys the power the aero engine delivers and Rolls-Royce provides all of the support (including maintenance) to ensure that aero engines can continue to deliver power. This shift in business model is important because it means the interests of clients and providers are much more closely aligned.”

As you can see from the Rolls-Royce example, it’s all about giving value to your customers and ensuring that they stay delighted when working with your business. But why is this important? Why can’t you just keep doing what you’ve always been doing?

The why

With increasingly complex, high-tech equipment, customers are relying more heavily on their equipment dealers for service expertise more than ever before. It is because of this that servitization has become a necessary change in the manufacturing industry. It isn’t only to benefit the consumers however, here are three benefits for incorporating servitization into the manufacturing business model:

Selling a solution, not just a product

Typically, the manufacturing industry sell products, and that’s where offerings end. But now, the demand for a strong and reliable service plan has become more popular and the market, a lot more complex. This results in customers now expecting an entire solution to their problem, not just a product, which means that you can charge more for your services.

Greater financial stability

As you sell long-term contracts, with an all-inclusive service to your customers, your revenue streams will become more secure. This is because service contracts guarantee regularly recurring revenue and increases your chances of upselling and acquiring a loyal customer base.

Stronger customer retention rate

Manufacturers who have already gone through this process have found that they can keep more customers this way. This is because you’re the ones who are the most educated about the customer’s equipment, it’s unlikely that they could find a better support offering anywhere else. By working together to ensure systems are in proper working order, you help to make your customers business more efficient, which means they’re less likely to walk away.

The how

We’ve talked a lot so far about how servitization involves a change to the typical manufacturing business model, but to confuse things slightly, it isn’t just that. It is a chance for manufacturers to realise areas for additional revenue, lock-in and maximise the benefits of customer loyalty while becoming thought leaders due to the highest quality manufacturing expertise.

In order to be successful, it isn’t only about servitizing a product, it’s the overall value chain. As an example, performance monitoring products that are already being used in the field can give a manufacturing business the insight that they need to create a new product at a higher spec that can increase efficiency. Creating a product with a higher spec means that a premium can be charged for future sales, and so on.

As you can see, it isn’t just about giving your customers a support or service contract, it’s about looking at the bigger picture and understanding where it can bring more benefits back into your business too.

The when

The time to explore servitization is now.

The manufacturing sector has never been better positioned to start and implement the servitization strategy. Technology is moving at a rapid pace and there are now many ways to collect, analyse and use product data, and consumerisation is making businesses more accustomed to offering services than ever before.

Servitization is not just an industry buzzword. It is a powerful opportunity to help manufacturing businesses of all sizes to realise more revenue streams, gain a competitive edge and importantly, thrive during times of economic uncertainty.

If you’re looking to see how servitization could benefit your business, and to learn what your next steps should look like. Play our game on servitization here, the results will give you a detailed report showing what you need to do to get started on the servitization journey.


Categories: Manufacturing