Commercialization

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This presentation shows how manufacturing firms can strengthen their revenue and profits by commercializing the service offerings.

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Commercialization

  1. 1. Commercialization of Industrial ServicesPD Dr. HeikoGebauer
  2. 2. Offering services ‘free of charge’ is a common practice inmanufacturing companiesCharging for services Examples0% 20% 40% 60% 80% 100%Employees< 150Employees> 150OverallPercentage of services offeredGoodwill (for free)Cost coverageProfitableBest practicesSecond-hand product servicesTraditional services such as spare parts,repair, inspection, and maintenanceDisassembling, recycling, disposal servicesPreventive maintenance contractsOperational servicesNeed for actionsMarketing servicesBusiness and technical consultingJust-in-Time delivery servicesDesign and construction servicesCost-benefit analysisFeasibility studiesSource: Swissmen – Wachstum durch Dienstleistungen (2005)
  3. 3. ‚Free of charge services‘ limit service profitability and servicerevenuesService profitability Share of service revenue on total revenue26%29%19%14%12%0%10%20%30%40%TotallyagreeTotallydisaggreePercentageService offerings are profitable0%10%20%30%40%0-10%10-20%20-30%30-40%>40%Share of service revenuesPercentageSource: Swissmen – Wachstum durch Dienstleistungen (2005)
  4. 4. Companies need distinct criteria to decided between charging forservices or giving them away for freeCharging services separately47 %28 %9 %NoYesN = 44Relatively highRelatively low14 %Criteria to distinctservices according howto charge themSource: TECTEM (2001): The benchmarking project Commercialization of industrial services - Final report, TECTEM, St. Gallen, Switzerland.
  5. 5. Charging service separetly spans across strategicand operational levelsWe train and reward ouremployees for selling servicesWe monitor the costs &revenues for each serviceWe have formulated a servicestrategyTotallydisagreeServices for feeCharging for servicesTotallyagreeSource: Swissmen – Wachstum durch Dienstleistungen (2005)We have a servicedevelopment processStrategic levelOperational level
  6. 6. How can companies start charging for services ina more profitable way?Selling services more profitable Building blocks for service commercialization1) Recognizing that the company isalready in the service business2) Industrializing internal serviceprocesses3) Creating a service-orientated salesforce4) Focusing on customer processesSource: Adaptedfrom Reinartz &Ulaga (2008, p. 95).Service marketing(externalcommunication)Service culture(internalcommunication)CosttransparencyService pricingSource: Dietrich et al.. 2001.
  7. 7. Selling services more profitable (1)1) Recognizing that the companyalready deals with services2) Industrializing internal serviceprocessesKey issues How do we currently sell servicesacross business units andcountries?What are the best practices insideour organisation?Which services can be moved fromfree to fee?Which services are profitgenerators/drains?How can we ensure cost-efficientservice processes?How can we tailor services to meetcustomers’ needs?Key goals To draw up a list of services wecurrently provide to customers.To generate revenue from easilychargeable services.To appoint a senior executive tooversee the development ofservice capabilities.To standardise service processesand control mechanisms.To establish service platformsflexible enough to meet the needsof individual customers.Source: Adaptedfrom Reinartz &Ulaga (2008, p. 95).
  8. 8. Selling services more profitable (2)3) Creating a service-oriented salesforce4) Focusing on customer processesKey issues Is our sales force ready topromote services along withproducts?Can we explain the benefits of ourservices to customers?Are we willing to move to longersales cycles?Are our offerings aligned with thegoals and processes of ourcustomers?Can we address their problemsholistically?What further expertise do we needKey goals To improve service-selling skills ororganise separate sales forces.To instate incentive systemspromoting the sales of services.To adopt tools for documentingvalue and communicating it tocustomers.To describe in detail the coreconcerns and operating processesof our customers.To shift performance indicators frombeing activity-based to result-orientated instead.To draw up a checklist of thecapabilities necessary toSource: Adaptedfrom Reinartz &Ulaga (2008, p. 95).
  9. 9. How can companies start charging for services ina more profitable way?Selling services more profitable Building blocks for service commercialization1) Recognizing that the company isalready in the service business2) Industrializing internal serviceprocesses3) Creating a service-orientated salesforce4) Focusing on customer processesSource: Adaptedfrom Reinartz &Ulaga (2008, p. 95).Service marketing(externalcommunication)Service culture(internalcommunication)CosttransparencyService pricingSource: Dietrich et al.. 2001.
  10. 10. Service pricing optionsPricing• Competitor• Costs• Benefit / Value• StrategyPricing considerationsPrice differentiationPrice bundlingGoodwill Price premium Separate chargesService pricing: strategic optionsService pricing: operative optionsSource: Schuh, Günther; Friedli, Thomas; Gebauer, Heiko (2004): Fit for Service: Industrie als Dienstleister. München : Hanser Verlag, 2004
  11. 11. Hands-on approach helps companies to improvethe commercialization of services4. Developing solutions forovercoming the barriers andexploiting the enablers3. Identification of barriers andenablers for the commercialization1. Analyzing the existing situation2. Setting objectives for thecommercialization of servicesSource: Schuh, Günther; Friedli, Thomas; Gebauer, Heiko (2004): Fit for Service: Industrie als Dienstleister. München : Hanser Verlag, 2004
  12. 12. Examples indicate the usefulness for applying thehands-on (action-oriented) approach (1)Service Initial situation Key aspects in the service commercializationBringing andcollectingservicesOffered for free (part of thesales visits)Charged separately through a box logistic leasingservices (leasing model)Initial operationservicesOffered for free (or integratedinto the product price)Charged separately, linked to an operation guaranteeTechnicalconsultingOffered for free Charged according to type of technical consulting: (a)remote service consulting or (b) onsite consultingEducationservicesOffered for free, customerscomplain about the long-time ofeducation servicesDistinction into basic and extended education service,basic service offered for free, but extended service ischarged separatelyInternet-basedspare partserviceService not actively promoted,but customer demand theserviceEstablishment of three availability and delivery levels –standard remains free of charge, but extended andpremium level are charged to the customerServicepackagesNo structured criteria for sellingcustomer-specific servicepackagesClustering model for customers (availability of servicetechnicians – preventive versus ad-hoc, & complexity(simple versus high)Hotline Offered for free Charged according to the type of customer (serviceagreement (yes/no) and timing (working hour / nighttime)
  13. 13. Examples indicate the usefulness for applying thehands-on (action-oriented) approach (2)Service Initial situation Key aspects in the service commercializationHotline Offered for free Charged according to the type of customer call: (a) technicalconsulting (first 15 minutes for free, more than 15 minutes fixedconsulting fee) (b) spare parts order – hotline costs covered byspare parts price, (c) troubling shooting integrated into the repaircosts, (d) sales information remains freeDistributoreducationOffered for free (part ofdistributor agreements)Charged according to the success of distributors – (highlysuccessful distributor have to pay for education, but get adiscount for products, whereas less successful distributors payfor the services, but do not get the discount, new distributors getinitial education for free)OperatortrainingOffered for free duringthe installationCharged separately as extended operator training, which is nowprovided by specialists rather than the service techniciansQuickScaninspectionNot offered (newservice)Charged separately (cost coverage, no profit)CustomerseminarsOffered for free Charged separatelyService levelagreementsUnstructured chargesfor individual servicesCharged separately through semi-fixed service level prices(basic, extended, professional), semi-fixed means that there arefix and variable costs (e.g. exchange parts)TechnicalfeasibilitystudyOffered for free (part ofthe sales process)Charges separately, but service charges are credited for theproduct sales
  14. 14. UnaxisService level agreements and service pricingPre-SalesServices- Installations layout- Expositions / Trade fairs- Documentation- Engineering- Professional articlesin magazines- Calculations support- Reference visits- Seminars on professions- Technical consulting(Projects, Installations,Commissioning,Service, Service contracts,Monthly sessions)- Technological tests- Technology consultingSalesServices- Documentation- Spare parts contracts- Warranty services- Installation, Commissioning- Projection- Realisation of projects- Training- Special development- Transport organisation- Transport insurance--Translation of manualsCD ROM DocumentationPre-inspection-After SalesServices--24 hours spare parts supply24 hours hotline- Old machinery maintenance- Adjustments to existinginstallations (Upgrade)--Education: Know-how transferEducation: start-up package--Users trainingConsulting--DocumentationSpare parts warehouse at thecustomer`s location- Electronic spare parts list- Documentation- Sale of spare parts- Professional disposal ofdamaged parts--InspectionsInspection contracts- Technical service within 24hours- Repairs--TrainingsSoftware adjustments- Upgrades, conversions- Maintenance- Maintenance contract(Modules),Maintenance Unscheduled MaintenanceScheduled MaintenanceTrainingTraining duringinstallationSubsequent trainingTraining for new personnelSpare parts ConsumablesOther spare partsExchange programSpare parts recyclingRepair of spare partsGlobal spare parts managementPhase out
  15. 15. Kaeser compressorsSimply define a pricing approach for servicesInitial product price Sales not includingservicesSales DiscountSales including a pricingapproach for servicesSpare parts andpreventive maintenanceSales Discount
  16. 16. DrägerSafetyCommercializing of single servicesBringing and collecting services (the “Pendelbox) Additional revenue: 150‘000 CHF per year Investments – 3 working day (3’000 CHF) and box costs (5’000 CHF)Safety certificates Additional revenue: 30’000 CHF Investment costs: 3’000 CHFEducational services (Tunnel fire fighting) Additional revenue: 1’000’000 CHF Investment costs: 50 working days and 45’000 CHF
  17. 17. Conclusion Commercializing services is very complex and requires the analysisof each single service Services can be turned from offered for „free“ to be chargedseparately Service strategy, service culture, service marketing, and servicedevelopment are important enablers for the commercialization ofservices Charging for services might disappoint customers, can face internalresistance, and can lead to product price reductions Nevertheless, charging for services opens-up new sources ofrevenue and/or can lead to cost improvements „What customer‘s don‘t pay for are not valued“

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