Businesses looking to differentiate themselves in the industrial manufacturing industry should consider combining traditional products with new services (servitization). By learning how to derive value from servitization, manufacturers can rise above the competition.
Manufacturers today live in a very competitive, price sensitive and crowded world. Today’s companies that operate in developed economies can no longer compete on cost alone and are looking at how they can have a more stable revenue forecast. Also, the need to differentiate is a key priority, too. One way that this can be done is to look at servitization (the shift from selling just a product to selling a product and a service) as a way to provide a complete solution to your customers by combining traditional products with new services.
Why manufacturers are servitizing their businesses
The reason for this approach, as told to me recently by a customer, is that while they continue to develop new products and try to be as innovative as possible, other companies are quickly copying them and producing similar products at a lower cost. Therefore, they need to look at how they can build a closer relationship with their customers while boosting profitability.
Due to technology advances that we have seen in recent years, specifically around cloud and the Internet of Things (IoT), manufacturers can now look at using these (plus other digital technology) to add new services/offerings to their portfolio. These technologies can and do include predictive analytics to forecast future breakdowns, remote monitoring of usage and allowing updates to be proactively pushed out.
The main benefit for companies adopting this approach is that it will introduce a brand-new revenue stream for them, one of selling services and/or service contracts. If performed well, the customer loyalty will increase as well as further opportunities to sell more service-orientated offerings.
However, manufacturers now need to change their mentality from a “Let’s make it and then sell it.” to more of a “Let’s support it throughout its lifecycle.”
There are risks with this approach though since it needs to buy in, and it needs to be driven by top management. This conscious shift in mindset and strategy is easier said than done.
Companies will need to invest in skills training since a more customer-centric approach will be needed, new departments may be created and existing job roles may evolve.
How to servitize your business
So, if servitization is something that you have yet to embrace, then you need to start planning for it now. To help on your journey, read the Manufacturing: Transforming mindsets to embrace the opportunities of servitization eBook.
If you have any questions about servitization or disagree with any of my comments, please let me know in the comments section below.
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