Machinery and automation: Driving value through service excellence

In the machinery business, companies face the challenge of adapting their service monetization models to meet diverse customer needs. Traditionally, machinery such as tractors were sold as a capital expenditure (CapEx), with customers purchasing equipment outright. However, as technology advances and business models shift, there's an increasing trend towards offering machinery as a fully serviced solution, with costs linked directly to outcomes like crop productivity. 

This concept, known as performance-based pricing, is nothing new. It was popularized by General Electric in the 1980’s-1990’s on equipment ranging from locomotives and wind turbines to medical devices and jet engines. In each case, customers were charged based on actual usage and performance of equipment rather than a flat purchase price. 

This shift necessitates a rethinking of value metrics and the implementation of sophisticated value calculators to accurately reflect the benefits of flexible pricing models. This article explores how to adapt value propositions and pricing strategies to remain competitive and cater to evolving customer preferences.

Embrace the future with service excellence and equipment as a service (EaaS)

GE’s EaaS model highlights the pinnacle of service excellence, ensuring shared benefits and risks, fostering deep partnerships, and improving service outcomes. This level of excellence requires robust service offerings, from traditional maintenance to advanced digital services with IoT-enabled and customized solutions. The future lies in integrating these services to drive differentiation and customer loyalty, leading to stable, recurring revenues and significantly improving company multiples.

Many industry leaders are transitioning to higher service excellence and recurring revenue models, implementing new value metrics as they do. Our recent study shows 78% of companies agree products will be priced based on actual customer outcomes within the coming years.

Unlock the benefits of service excellence

Transforming monetization models towards service excellence and “equipment as a service” is challenging and often requires multiple steps. However, companies with robust service strategies are better positioned to handle market fluctuations and maintain long-term profitability.

• Differentiate and lead: Stand out with advanced services like IoT-enabled predictive maintenance and optimization solutions. These offerings not only attract new customers but also justify premium pricing.
• Enhance customer value and longevity: Build stronger relationships through tailored service agreements and proactive maintenance. Satisfied customers are loyal customers, leading to reduced churn and positive referrals.
• Lower entry barriers: Transition to subscription or pay-per-use models to reduce initial financial burdens, simplifying the adoption of new solutions.
• Boost operational efficiency: Use data analytics and IoT to optimize equipment performance and predict failures, minimizing downtime and reducing maintenance costs by up to 30%.
• Secure stable revenues: Offer maintenance contracts and operational support to ensure steady, recurring income, with opportunities for upselling additional services.

Strategy for success

Many companies struggle with implementing service excellence. Here’s how leading firms succeed:

Strategic market approach: Know your competition, installed base, and go-to-market strategy. Cargotec used IoT and predictive maintenance to become a digital leader in cargo handling, enhancing their market position through partnerships with Cloudera and Tata Consultancy Services.

Customer segmentation & prioritization: Segment your customers based on value potential and specific needs. One international machinery manufacturer prioritized high-potential segments, revamped its service portfolio, and focused on predictive maintenance, IoT, and rapid response time. This led to increased customer satisfaction, service contract renewals, and reduced operational downtime.

Comprehensive service portfolio: Offer a range of services from basic maintenance to advanced analytics. Siemens’ Advanced Maintenance Diagnostics added remote monitoring and advanced analytics, meeting diverse customer needs, and boosting service contract renewals and operational efficiency.

Clear, modular offerings: Design easy-to-understand, scalable service packages. Many industrial companies follow service bundling approaches, allowing customers to choose based on their preferences, e.g., providing options for uptime assurance, efficiency improvement, and output maximization.

Innovative monetization models: Develop effective monetization strategies like subscription-based, usage-based, or outcome-based pricing. Continuously challenge and adapt your monetization model to capture maximum value and stay ahead of new innovations.

Effective marketing and retention: Combine strong marketing with robust retention strategies to build long-term relationships and ensure continuous revenue streams.

Streamlined processes and incentives: Optimize workflows and create employee incentives that prioritize service quality and customer satisfaction.

Advanced IT infrastructure: Invest in systems, tools, and IT infrastructure for high-quality service delivery and operational efficiency. Siemens’ Insights Hub platform, a cloud-based IoT operating system, connects sensors, enabling comprehensive analytics, predictive maintenance, and real-time data insights, incl. standardized applications and a developer environment for diverse industries (i.e., PaaS). 

Unlock the future of service excellence

The path to service excellence is challenging but rewarding. Top performers in the machinery automation and plant engineering industry show that mastering service excellence fosters deeper customer relationships, drives innovation, and boosts financial performance. Innovative monetization strategies are crucial– constantly challenge and refine your approach to capture maximum value.

Trends and predictions for the next 3-5 years

Several key trends are expected to shape the landscape of service excellence:

• AI and IoT boom: Advanced analytics and predictive maintenance for proactive, customized services that boost satisfaction and retention.
• Cheaper sensors: Real-time performance tracking becomes standard, cutting downtime and maintenance costs.
• Outcome-based models: Significant shift to outcome-based service models expected, aligning interests of service providers and customers, and driving better performance and value creation.
• Subscription-based services and EaaS: Subscription-based models will become more prevalent. The market for EaaS is experiencing significant growth, expected to reach around USD 23,853 million by 2030, with an impressive Compound Annual Growth Rate (CAGR) of 46.7% until 2030 (Cognitive Market Research Report).
• Sustainability focus: Sustainability will play an even more crucial role in service excellence strategies. Companies will focus on developing eco-friendly services, meeting regulatory requirements and end customer needs.

Contact us to support you on your journey towards service excellence and growth in 2024. Let us be your trusted partner in navigating this ever-changing market landscape, where doing nothing is not an option. Embrace the future of service excellence to unlock the full potential of your business and achieve sustainable growth.

Thanks to contribution from Burak Polat.