No less important than service industries are product-based industries that must provide a service bundle.95 Manufacturers of equipment—small appliances, office machines, tractors, mainframes, airplanes—all must provide product-support services, now a battleground for competitive advantage. Many product companies also have a stronger online presence than before and must ensure they offer adequate—if not superior—service online as well.
Chapter 13 described how products could be augmented with key service differentiators—ordering ease, delivery, installation, customer training, customer consulting, maintenance, and repair. Some equipment companies, such as Caterpillar Tractor and John Deere, make a significant percentage of their profits from these services.96 In the global marketplace, companies that make a good product but provide poor local service support are seriously disadvantaged.
1. IDENTIFYING AND SATISFYING CUSTOMER NEEDS
Traditionally, customers have had three specific worries about product service:97
- They worry about reliability and failure frequency. A farmer may tolerate a combine that will break down once a year, but not one that goes down two or three times a year.
- They worry about The longer the downtime, the higher the cost. The customer counts on the seller’s service dependability—the ability to fix the machine quickly or at least provide a loaner.
- They worry about out-of-pocket costs. How much does the customer have to spend on regular maintenance and repair costs?
A buyer takes all these factors into consideration and tries to estimate the life-cycle cost, which is the product’s purchase cost plus the discounted cost of maintenance and repair less the discounted salvage value. A one- computer office will need higher product reliability and faster repair service than an office where other computers are available if one breaks down. An airline needs 100 percent reliability in the air. Where reliability is important, manufacturers or service providers can offer guarantees to promote sales.
To provide the best support, a manufacturer must identify the services customers value most and their relative importance. For expensive equipment, manufacturers offer facilitating services such as installation, staff training, maintenance and repair services, and financing. They may also add value-augmenting services that extend beyond the functioning and performance of the product itself. Johnson Controls reached beyond its climate control equipment and components business to manage integrated facilities, offering products and services that optimize energy use and improve comfort and security.
A manufacturer can offer, and charge for, product-support services in different ways. One specialty organic- chemical company provides a standard offering plus a basic level of services. If the customer wants additional services, it can pay extra or increase its annual purchases to a higher level. Many companies offer service contracts (also called extended warranties), in which sellers agree to provide maintenance and repair services for a specified period of time at a specified contract price.
Product companies must understand their strategic intent and competitive advantage in developing services. Are service units supposed to support and protect existing product businesses or grow as an independent platform? Are the sources of competitive advantage based on economies of scale (size) or economies of skill (smarts)?98
2. POSTSALE SERVICE STRATEGY
The quality of customer service departments varies greatly. At one extreme are those that simply transfer customer calls to the appropriate person for action with little follow-up. At the other extreme are departments eager to receive customer requests, suggestions, and even complaints and handle them expeditiously. Some firms even proactively contact customers to provide service after the sale is complete.99
CUSTOMER-SERVICE EVOLUTION Manufacturers usually start by running their own parts-and-service departments. They want to stay close to the equipment and know its problems. They also find it expensive and time consuming to train others and discover they can make good money from parts and service if they are the only supplier and can charge a premium price. In fact, many equipment manufacturers price their equipment low and compensate by charging high prices for parts and service.
Over time, manufacturers switch more maintenance and repair service to authorized distributors and dealers. These intermediaries are closer to customers, operate in more locations, and can offer quicker service. Still later, independent service firms emerge and offer a lower price or faster service. A significant percentage of auto-service work is now done outside franchised automobile dealerships by independent garages and chains such as Midas Muffler and Sears. Independent service organizations handle mainframes, telecommunications equipment, and a variety of other equipment lines.
THE CUSTOMER-SERVICE IMPERATIVE Customer-service choices are increasing rapidly, however, and equipment manufacturers increasingly must figure out how to make money on their equipment, independent of service contracts. Some new-car warranties now cover 100,000 miles before customers have to pay for servicing. The increase in disposable or never-fail equipment makes customers less inclined to pay 2 percent to 10 percent of the purchase price every year for service. A company with several hundred laptops, printers, and related equipment might find it cheaper to have its own service people on-site.
Source: Kotler Philip T., Keller Kevin Lane (2015), Marketing Management, Pearson; 15th Edition.