Accessing the long-tail with the right incentives

Roy Chikballapur

September 18, 2020

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Apologies for the delay in getting this piece out. Summer weather and the birth of a baby make focusing on writing articles a lot harder.

In my last article I promised to discuss incentives that OEMs can deploy to encourage the end users of their machines to contact them to “declare” their machines. This is critically important for OEMs who sell through middle men, dealers and EPC companies. It is also the only way to discover where used machines end up and squeeze service revenues out of such machines as well. Before I do get down to doing so, let’s address why this makes sense from a business perspective.

The customer acquisition cost (CAC) is an important metric for companies in the “repetitive revenue”/”subscription” business. While known customers of an OEMs equipment represent a “captive install-base”, these are often large customers with a disciplined procurement organisation, an organised operations division with many trained engineers in their technical and maintenance department. The portfolio of services that can be sold to such companies not only tends to be limited because they can procure many of the 3rd party parts and execute many of the services with their in-house teams, far more efficiently than many OEMs do (I am talking about the Nestlés and Bayers of the world here), they also tend to be less profitable because of the leverage such companies enjoy through their scale. Despite this, in their search of the pareto advantage, most OEMs actively ignore their smaller end users who own 2-3 machines.

There is good reason for this – historically, it was significantly more expensive to serve such customers. Digital, however, changes everything – reducing the costs of service delivery significantly. If only the “acquisition” of such small customers could be capital-efficient, it could change the equation altogether. If companies could deploy an inbound sales approach to recruit such customers, the massive investments that they have made in trade fairs and print media would become unnecessary. Unfortunately, most machine builders have no experience with inbound sales and marketing. Inbound is built on a strong foundation of incentives, of responding to the “what’s in it for me?” impulse of prospective customers.

I remember a conversation many years ago, with a friend who told me whey he decided to switch from Android to an iPhone. He said “Apple took the thinking out of what to do if anything fails or doesn’t work on the phone. You simply walk into an Apple store or an authorised reseller handover your phone and they know everything about you, your phone and they simply just give you a new phone if they determine you’re still covered by warranty and you’re out of there in 30 minutes”.

We are in 2020 today, and OEM’s are still unable to execute profitably, a similar install-base data management model for machines they sell for tens to hundreds of thousands of euros to companies when Apple has been doing this for years with individuals who buy phones for hundreds of euros. Apple systematically forces users to login to even just render the phone usable. The reason is the lack of incentives in the service design.

To be fair, most industrial OEMs have taken the Apple model seriously, many too seriously even and there are a number of machinery as well as automation OEMs that set out to build Industrial App stores. My humble opinion is that most of these OEM-owned industrial “app-stores” will all fail for lack of a common underlying platform advantage that iOS and Android offer Apple and Google respectively. They offer neither a distribution advantage since most of these companies don’t invest nearly enough in digital business models and in the marketing that is necessary to make such stores work, nor do they offer interoperability and future-proofing guarantees that controlling the underlying platform offers of the smartphone giants. They should instead look to how studios work with services like Netflix and Youtube to secure the protections from the distribution platforms for their services.

Incentives for end users of industrial equipment

So what kind of incentives work to attract industrial operators to purchase and consume OEM services? To figure this out, we spoke to the industrial operators to understand what are their biggest pain areas that they felt that the digital investments of machine builders should improve. Here is a list of frequently recurring themes that we compiled:

  • Personalised access to documents and an updated parts list that addresses the information gaps created by obsolescence
  • Access to troubleshooting guides and self-help advice for operations and maintenance personnel only for the machines owned by the user
  • Real-time access to price and availability information for parts and supplies
  • Access to a community of fellow owners/operators for Q&A and to exchange tips and advice
  • 24/7, personalised technical support that doesn’t require the user to spend a lot of time engaged in basic, Level 1 information collection conversations
  • curated marketplace for used equipment, and original OEM parts (often for older machines) certified by the machine builder

What was consistently conveyed as well, was that they wanted most of these services, integrated within their own internal systems and processes. This turns the inbound/outbound discussion on its head when it comes to service delivery.

What this told us is that for true inbound marketing of OEM services to really work, the OEMs had to talk to their customers inside the customers IT systems; not in some external portal which required their customers to login. In the case of most large OEMs digital strategy – while they indeed intend to offer many of the services listed above – they expect the customers to discover, register and log in to the OEM’s digital portal to consume these services. This is why most customer portals are yet to pick up in terms of adoption, but more importantly – the exact same design factor also impedes the OEM’s ability to reach out to small customers – typically owners of a couple of used equipment because of the excessive barriers to value discovery for an “unknown customer” prior to a decision to engage.

This reminds me of a conversation I had with an OEM a few months ago. This company wanted to build an “Amazon-like” eCommerce portal and was looking for a solution that could help it achieve this. Their business goal was spot on – reach out to small company-owners of a couple of used equipment in Asia or Africa or the Middle East. When we went deeper into the discussion of what the “Amazon-like” user experience would look like – they made it clear that unless the customer identified himself, they didn’t want to display images or long descriptions of the parts – as they could be used to look for alternative sellers; they didn’t want to display 3D drawings – as it could be used to reverse engineer the parts; they didn’t want to offer access to any kind of documentation – as it had a lot of confidential information, they of course didn’t want to display price and availability information – as it is usable by their competition. When we narrowed things down to what they could display, it was simply the OEM’s part number for the product. Of course, they were smart enough to realise that the idea wouldn’t work and they changed their plans thereafter.

Far from making fun of the company above, what I wish to highlight is the challenges that digital will pose to OEMs that fail to change mindset: taking some risks and adopting software company processes like experimenting via A/B testing to determine what works and what doesn’t work. In the digital era, information is indeed of upmost importance – this is why it is not only what needs to be protected but also what needs to be offered as an incentive to form and develop business relationships with strangers.


The long-tail is where the next billion in service revenue is (Part 2)


Industry 4.0: Customer portals vs. Customer’s portal

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