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Industry Trends

The rise of the OEM aftermarket business: the strategic benefits of investing in your after sales services

Rory Broadbridge
Head of Customer Success

This article is one of our favourites from around the web. We've included an excerpt below but do go and read the original!

Original source:
  • January 17, 2023
  • Industry Trends

When we think of aftermarket services we naturally think of the automotive industry. A car manufacturer usually offers a comprehensive maintenance package to customers who will more likely return to the manufacturer for servicing and maintenance.

By providing excellent service and support throughout the lifetime of the vehicle they’re also building long-term relationships with their customers who are now more likely to purchase their next car with the manufacturer. 

Subaru using after sales service as the primary value proposition in a recent advertisement

Aftermarket services are a critical component of many other manufacturing and industrial sectors.

They’ve risen in popularity since the 1990’s when original equipment manufacturers (OEMs) started to experience a decline in their revenue from new product sales. As global demands for new industrial equipment slowed and competition intensified, OEMs started offering additional services and solutions that not only delivered value to customers already using their products, but could also provide stable cash flow during periods of slow economic activity. 

Early solutions focused on adhoc maintenance and repairs activities; installing upgrades, offering technical support and providing training services.

Today, as customer expectations also continue to rise, a broader range of OEMs are successfully shifting from a products-first approach to an outcomes-focused products and services combination. 

In fact, the average operating margin from the aftermarket business globally is now 2.5 times the operating margin from new equipment sales. For companies in industries such as aerospace and defence, construction, and medical manufacturing, aftermarket services actually account for as much as 40% of their total revenue and 50% of the profits.

...aftermarket services actually account for as much as 40% of their total revenue and 50% of the profits.

The strategic value of selling outcomes, not just equipment 

Companies who focus and invest in their aftermarket services benefit in several strategic ways. 

1. Revenue stream diversification

This one is relatively straight forward. Providing support generates a recurring revenue stream over a long period of time. Aircraft manufacturers for example can expect additional revenue for as long as 25 years after the initial sale.

The cost of providing aftermarket services is also typically lower than the cost of making and selling new products or finding new customers.

2. Competitor differentiation

Being on par with the competition in terms of price, quality and performance will get you into the game, but superior aftermarket support and services can land the win.

Today, customer experience has overtaken price and product as the key differentiator between brands. According to Gartner research, 89% of companies expect to compete mostly on the basis of customer experience.

Manufacturers who provide aftermarket support also have the opportunity to gain a deep understanding of their customers’ technologies, processes and plans - knowledge that rivals can’t easily acquire.

Competition is likely to become more intense over the next three to five years and the differentiating factor will always depend on who can bring the most value to the customer. 

3. Long standing customer relationships

Aftermarket services provide OEMs with the ability to support customers in personalised ways over longer life cycles.

Today’s equipment buyers not only expect complete transparency, but the best customer experience. They don’t expect products to be perfect, but they do expect manufacturers to fix things quickly if they break down.

The automotive industry continues to do this best and have established a well known direct correlation between the quality of aftermarket service and customer intent to repurchase.

The rise of remote assistance capabilities, particularly in the aftermath of COVID-19 disruptions however, means that any OEM can now maintain a close connection with customers regardless of environmental or operational constraints, ensuring that critical equipment is kept running.  

4. Product innovation

Different customers have different needs and use cases even though they may own the same product.

By building a deep understanding of customer needs and preferences OEMs can create new products that satisfy different customer segments. A medical equipment manufacturer for example can learn a lot from servicing their equipment and talking to customers.

Feedback can be used to design new equipment or improve existing services. Close customer alignment can also facilitate co-creation opportunities as well as opportunities for infield testing of new products before selling them more widely.

Leveraging digital technologies to enhance aftermarket service offerings

Every manufacturer begins its aftermarket services transformation journey from a different starting point and therefore will follow a different path. What is clear from times of crises in the past 25 years is that digital technologies are an immediate and sustainable differentiation for companies looking to build or enhance their aftermarket service capabilities. 

From proactive and predictive maintenance to virtual field support, digital service offerings have been identified as both a big disruptor and significant revenue driver for OEMs in the next decade.

Manufacturers should be evaluating their existing aftermarket service capabilities and starting to make strategic investments in digital technologies across their entire value chain.

As a digital service delivery platform, HINDSITE is well positioned to support advanced manufacturers as they start offering more aftermarket services. Whether it's optimising equipment effectiveness by enabling machine operators to conduct maintenance tasks (instead of a technician) or remotely scaling the manufacturing line with digital training, HINDSITE supports OEMs to get closer to more customers and deliver more connected, outcome-driven services. 

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Industry Trends