Achieving Growth Through Aftermarket Products and Services: Strategies for OEMs
November 29, 2021
If general managers of industrial equipment OEMs and Tier 1 suppliers were offered a new source of profitable revenue growth shielded from end-market demand cyclicality, a pathway to strengthen ‘stickiness’ with end customers, and a moat against the low-cost competition, few would turn it down. And yet, for many, their aftermarket parts and services franchise – which offers all these strategic benefits and revenue results – is an ‘after-thought’ to their whole goods (products) business.
Market leaders recognize over 20% of their total revenues from aftermarket parts and services have maintained or expanded profitability. In many of these case examples, aftermarket revenue growth has outpaced whole goods growth by two to three times over the past three years.
Through our experience working with market-leading industrial OEMs and suppliers, T&Co by Cherry Bekaert has identified five key elements to making the shift from selling products to maximizing customer lifetime value and realizing outsized growth results:
- Install base visibility to track, monitor and predict demand across the fielded equipment population (including and beyond the first owner)
- Golden Rule: Every piece of equipment in the field represents a potential profit
- Common Challenges: Tracking fielded equipment beyond the first owner – availability and accuracy of data to predict parts and services demand and yield-loss to competitors
- Implement breadth of offer innovations to address customer needs beyond basic break-fix and maintenance parts and wrench-turning services
- Golden Rule: Deeply understand and tailor offers to address each stakeholder’s needs and wants across the lifecycle
- Common Challenges: Extending portfolio of offers to include lifecycle services (kitting, vendor-managed inventory, etc.) and performance services (alt. ownership models, jobsite solutions, etc.)
- Proactive, omnichannel demand generation to stem controllable yield-loss to “will-fitters” and non-authorized services
- Golden Rule: Customer engagement through the product lifecycle beyond regular break-fix events
- Common Challenges: Driving multiple touchpoints across different channels to create awareness, consideration and triggers for purchase
- Efficient supply chain network to deliver the right part, at the right time
- Golden Rule: Superior customer satisfaction at efficient cost and services levels
- Common Challenges: Optimizing network of owned and third-party suppliers, distributors, field delivery and customer service to meet service levels at the lowest cost
- Practical ROI-backed use cases to drive technology adoption of telematics and IoT/connected offers
- Golden Rule: Keeping the learning curve for new technologies ahead of the investment curve
- Common Challenges: Getting caught in the hype of IoT/connected and smart technologies with low customer ROI and niche vs mass-market adoption
Client Case Example: Driving $100m+ of Core Growth from Aftermarket Upgrade Kits
T&Co by Cherry Bekaert recently worked with a market-leading Tier 1 component supplier in oil and gas hydraulic fracturing fleets in North America. With a dominant installed base advantage and a strong network of third-party distributors, the client was confident in their bold plan to drive double-digit new unit sales growth with its existing national accounts and regional fleet conquest programs.
Then, oil prices declined to less than $50/barrel. In response, the client’s core customers and conquest prospects drastically cut their capital spending on new units and parked much of their existing field capacity. Caught at the bottom of the market cycle, the client could no longer rely on its new unit sales plan to deliver its growth plan and turned to the aftermarket and Cherry Bekaert’s Strategic Growth & Innovation (SG&I) team.
Our SG&I team partnered with the sales and marketing team on a Voice of Customer program to understand deeply fleet CapEx and OpEx spending priorities, which we learned included reallocating spending into maintaining and rebuilding existing fielded capacity in anticipation of a market recovery in 18 to 24 months. With this market-back insight, we collaboratively designed, tested and launched an aftermarket kitting program to rebuild and convert fielded hardware and controls software to the latest specification. Complementing the kitting offer was an upgraded commercial model, including seed units and volume-based incentive discounts to win early adopters, dedicated field resources (versus third-party distributors), and testimonial-driven marketing to drive mass-market adoption of the upgrade kits.
The Results?
Within 18 months of launch, the aftermarket upgrade kitting program delivered $100m+ of incremental parts and service revenue and favorably positioned our client for new units sales of its next-generation offer – that already had customer acceptance in the oil field – as the market recovered.
Guiding You Forward
Contact our Strategic Growth & Innovation team if you need help designing a plan to grow through aftermarket products.