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Servitization. A funny sounding word, yet holds serious potential for benefiting the trending urgency for manufacturers to shift their business models from being product dominant to a customer-centric organization in order maintain or recover a competitive advantage.
Servitization is quickly becoming a key strategic factor in manufacturing innovation. As organizational structures and business models evolve, the starting point is putting yourself in the shoes of the customer. Value added services are beginning to integrate with traditional product lines at each touch point of the customer value chain. It’s not enough to just produce a high quality product anymore and wait for the orders to roll in. Customers are looking for consistent and positive experiences at every touch point with potential partners. This is a radical change for the way many manufacturers market and offer their products.
By putting on the shoe of the customer, manufacturers will understand how integrating service based offerings with traditional product lines can help them achieve a business model that is sustainable and achievable. By leveraging new technologies, performance-based contracts, and creating new models for best practices, manufacturers will be able to provide a higher level of value in multiple ways for the customer and improve bottom lines at the same time.
At it’s core, servitization is an organizational and internal cultural shift made by companies from selling products to solutions and service based models.
A great example is Rolls Royce. While most know them as a luxury car maker, they also produce jet engines. When a customer buys an engine from Rolls Royce, the customer is not buying just an engine. They are buying the power that engine can deliver along with an engine and accessory replacement service complete with maintenance and diagnostics tools. They’ve been offering and expanding these services and solutions for over 50 years and now creates more than 50% of their revenue. Testament to the notion that making and marketing a traditional product is not enough. Rolls Royce figured out a long time ago that offering more will help them create higher customer satisfaction levels while creating extended revenue streams.
With more tools, technologies, and data at their fingertips, customers are more savvy than ever. It’s imperative that a company understand their customers’ evolving needs and craft strategies built around the goal of magnifying the customer experience. This shift no longer rests on the shoulder of marketing. All levels of the organization must be aligned with the customer – from finance, to sales, operations, and through the supply chain.
More than any other industry, manufacturing is a glaring example of a sector that must force itself to rethink and reshape their strategies around their customers. As the industry has become more competitive, and therefore saturated, more and more manufacturing companies are attempting to compete in commoditized markets.
So, if a manufacturing company wants to be more forward thinking and shift their strategy to become laser focused on the customer, what does it take?
Manufacturers not only need to understand their own customer data, but they need to identify trends that may impact the future of their business. This includes internal data but also includes researching trends outside of your industry.
Gathering data and analytics are great start, but not enough on its own. You have to know what to do with it to drive action. Many companies invest in customer research, but translating this valuable information can be complex. In other words, they don’t know how to interpret the insights into broad organizational strategic initiatives in a conclusive manner.
Using visualization tools to uncover insights or holding brainstorming sessions which aid in telling the story behind the data can start to inform strategic action. Investing in action planning, workshops, or execution tools can increase the chances of success and move the needle.
When sales slump, it’s not uncommon for manufacturing leaders to slash pricing in order to stay competitive. This is dangerous and compromises profitability. Quite often, price is not the even the core driving purchase driver.
Overcome traditional thinking and ask new questions: What do our customers value other than just price? What value can they gain by using our product and services versus our competition? What are we offering that no one else is able to?
In commoditized markets that many manufacturers find themselves in, it’s more important than ever to understand what the customer values and use that knowledge to drive strategy. It’s about listening to customers and tailor solutions to meet their needs.
Instead of asking, “How can we make more sales?” re-frame the question as “How can we delight customers or overcome pain points?” By listening to customers and simplifying their experience, manufacturers can create a stronger brand affinity that is not based on price or market share.
Southwest Airlines is a great example of this. They use the mantra of “people first, profits second.” They understand that customers want fast, hassle-free travel, complimentary checked bags, and a unique approach to travel. By doing all they can to mitigate travel woes, Southwest is rewarded with repeat business and brand loyalty.
It’s not easy to influence organizational change or internal processes. And that’s ok because it is not easy for your competition as well. In a highly competitive industry such as manufacturing, those who adapt quickly will survive and more importantly thrive. Ask the tough questions, challenge thinking, create new processes. Start leveraging what makes your company unique Doing so requires transformational thinking at all levels of the organization. You must challenge the status quo. When done correctly and applied with an iterative, measurable, and disciplined approach, your differentiation will deepen while enhancing the authenticity of your customer experience.
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