15. May 2009 by Aidan.

Why is it important for product manufacturers to offer services in addition to their products ?

1. Services can provide an alternative revenue stream for your business.
2. By delivering services you are brought closer to your customers and you move from a transactional relationship to a long term ongoing relationship with your customer.
3. By working more closely with your customers you can more easily identify their unmet needs and this allows you to develop new or expanded service and product offerings.
4. Adding services to your portfolio of offerings can drive you into other markets that you may have been missing with just product offerings.
5. Manufacturing will eventually migrate to the lowest cost location but service delivery is localised around your customers and is not easy to replicate from remote locations. It can offer protection from off-shoring. 
6. The content, quality and speed of your services offerings gives you multiple opportunities to differentiate yourself from competitors.
7. The service you are providing can fill core competency gaps for your customers. Many customers are looking to outsource activities that are not aligned with their core competencies. You are the expert in your product so you are best positioned to offer superior services that relate to it.
8. Services can be tailored to meet the needs to different customer segments and your back-office can easily support multiple customer segments. Turn some of your cost centres into revenue generators.
9. You need to start offering services because your competitors are going to. Just make sure you are better at it than they are.
10. You are already offering services (e.g. warranty, repair, order handling) you just need to make the strategic decision to design and sell enhanced service offerings.

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15. May 2009 by Aidan.

Hilti is one of the world’s leading tool manufacturers who’s motto is “to passionately create enthusiastic customers”.  

As they go about this, they ensure that they are constantly innovating their products and now innovating the services that they offer also.

Hilti has introduced a “Fleet Management” program that allows customers to purchase the capabilities that their tools can deliver rather than having to buy the tools themselves. As Hilti Chairman Dr. Pius Baschera said in a recent interview, their customers can “buy the holes they have to drill instead of the drill”.

Hilti’s history of innovation and close contacts with their customers helped them identify an unmet need. This was that the management of the tools that they sell is not one of their customers core competencies. As a result they developed their Fleet management program to help customers manage their tool fleet.  Under this program the customer does not have to worry about broken or obsolete tools. The customer simply pays Hilti a monthly fee.

This could be a high risk strategy because Hilti is accepting a lot of the risk in this program however they believe that they can do it because of two key factors. One is their belief in the quality of their products and the other is their close direct relationship with their customers. By being in control of everything from the manufacturing of the tools through to the final customer, Hilti can adequately manage the risk that they are taking.

The introduction of the program led to changes in how their Sales and Marketing staff worked. Now, instead of selling tools, their sales people are effectively selling a financial concept. In addition, they had to ensure that their service and logistic operations were running effectively in order to minimise their costs.

The program has been very successful for Hilti to date, with some markets selling 50% of their tools through the Fleet Management program. It is a great example of the servitization of products to enhance value for the customer and for the product manufacturer.

You can read more about it here.

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