This article is the last in a three-part thought leadership series focused on unlocking the potential of the service supply chain for enhanced revenue potential. Click http://bit.ly/xTks1h to read Part I and http://bit.ly/v3uUl6 for Part II.
In our first article, we focused on the important aspects of selling the service contract at the start and introduced three key areas of opportunities for profit within the supply chain which are achievable without significant capital investment. The three key areas are: Selling the service contract at the time of sale; changing focus away from service as a cost-of-business and embracing its potential for revenue generation; and protecting the installed customer base with service contract renewals.
Our second article focused on how to maintain a satisfactory experience for the customer. We examined methods for evaluating and improving the service process from the ground up, while exploring the tactical and strategic elements of reverse logistics. We also explored key requirements to more effectively manage and execute service contracts during a product’s lifetime. Lastly, we discussed ways to optimize the repair and replenishment process making it easier on the customer.
As we continue our exploration for optimizing the Service Supply Chain, we focus on the service renewal strategy, customer service as it relates to renewals, and protecting the installed base via improved tracking and customer notification. By implementing a more efficient and effective process for managing renewals, up to and including the end of the product’s life cycle, companies can improve service revenues, build greater customer loyalty, and expand opportunities for future product sales and service revenue growth.
Align the product upgrade strategy with support services offerings
Product and service pricing should be aligned to drive desired customer buying behavior to optimize hardware/software and services revenue. This can result in a challenging calculation. Some customers may not upgrade to the latest release, but elect to extend their service contracts and in doing so, extend the life of their technology. From a service margin perspective, the company does well because, most, if not all, parts have been fully depreciated, carrying little-to-no book value.
To provide continuing service to a fundamentally discontinued set of products, a provider must take a myriad of steps. This includes ensuring its support staff stays “current” with the operating characteristics of discontinued offerings and by examining their product life cycle and customer migration strategies. If timed properly, working with sales and marketing to proactively target key installed base customers for upgrades can significantly reduce or eliminate the need for costly last-time buys for support. Often, these last-time buys are scrapped later as excess material, having never been used and saddled with the extra burden of carrying costs.
Supporting an aging installed base requires inventory. If a product is at the end or past its life cycle, but some customers continue to use it, the seller needs inventory to service those customers. To counter such situations, technology providers can develop a range of incentives to migrate existing customers to current or next-generation products. For example, rather than replenish old hardware or maintain code on old software, the company can provide incentive credits toward the purchase of new products. Moreover, the sale of new products and their attendant software support requirements can lead to additional high-margin service contracts.
Enable systematic tracking of up-to-date entitlement details
Knowing when a service contract is up for renewal can be challenging, given that the data can be generated by several sources, including distributors, value-added resellers, or an internal sales staff. It is possible that the necessary data resides on an array of disparate systems in a variety of formats. The primary challenge often is standardizing the information and ensuring that it can be collected and managed from a single database.