Selling smart services and scaling the business
This is the final in a 3-post article series on Smart Services. If you haven’t read the previous parts, here are the links:
- Part 1: Starting with the Why
- Part 2: Monetization strategies for smart services
Every industrial company that I have spoken to, without exception, admit in private the challenges of selling and scaling smart services. If you are struggling as well, be assured that you are not alone. On the contrary, if you are seeing rapid growth, I’d love to talk to you. Please reach out to me.
If you are yet to start rolling out your services, here are some of the common challenges others have faced:
- Offer scalability LinkedIn is replete with posts of successfully installed digital services that are expected to deliver millions in value to the customer. However, when you research the details, you’ll realise that very few of these projects are replicable. They are all sold and marketed under the same umbrella brand of smart services but the amount of customization that goes into each of these projects is so high, that it becomes clear that this is more a service project than a service product. If the value proposition from one customer to the next is so different, then the sales process cannot be repeatable. It is critical for smart services product managers to start extremely small with a very narrow focus on the value proposition. The market may not be as huge in the beginning but at least the sales process will be shorter and easier to learn from. But choosing to work this way leads to the next challenge.
- Outcomes-based pricing based on a unit of delivered valueA focused smart service enables a product manager to easily describe the customer for whom the service product will be relevant but finding the size of the installed-base market based on these customer characteristics is impossible without reasonably clean and structured installed-base data. If companies barely manage data about what equipment (specific serial number) was sold to a particular plant, they will be unable to determine if these customers still operate those equipment and as a result, whether a particular customer would be a good candidate for a particular service product. Most CRM systems are implemented to follow sales opportunities than manage the installed base of machines. To sell smart services and in fact, to sell services digitally, it helps exponentially to have a clear picture of
- What equipment is installed at which customer (knowing your installed base)
- What is the current state of the machine (as is vs. as built)This is why even large machinery companies that have a CRM system choose to use Facterra’s Qustomer and Equipment apps as the foundation of their smart services concepts. It is surprising how little attention companies pay to their installed-base data given that service revenues today represent 20% of revenue and up to 60% of EBIT for many German OEMs. I am convinced that even with zero smart services, there is enough opportunity to double the traditional service revenue by better management of installed-base data. Let’s assume that you have solved this problem as well and have a clear idea of the customer base that is the right market for your smart service. Then you can confidently look forward to the next set of challenges.
- The customer’s willingness to payYour company obviously has a great salesforce. They have sold steel (sorry, I mean equipment) for decades. The sales process is well tested, the brochures are beautiful, the marketing videos with masculine, martial, background music and a confident voice, articulating the innovative features are all over Youtube and your website. These are all just table stakes for new equipment sales. The sales managers are experts at selling machines that cost hundreds of thousands of dollars as well as negotiating incentives with dealers and other channel partners. But ask them to sell software and they are stumped. It’s not a question of them being young or old. The mindset required to sell equipment is fundamentally different from that which is required to sell software or any kind of service. What’s worse, even your service sales team hasn’t cracked the code of selling software or digital services. After many conversations, my view is that training doesn’t solve the problem, at least not fast enough. It is often better to have a dedicated smart-service sales team with feet on the ground in important markets. This would also demonstrate the priority that developing smart services represents to the management.
- Channel challengesI may sound biased, but it is impossible to build a scalable smart service business if the plan is to adopt the same sales channels that the machinery company uses to sell new equipment. Machinery dealers were among the most change averse part of the machinery landscape that I spoke with. Even the most ambitious ones were more concerned by how they can digitise their activities, and rightly so, than in venturing into selling new product and service categories that required significant capacity building in their own workforce. I have not seen a successful execution of smart service sales through this channel but please get in touch with me if you’d like to showcase a different experience that you have had.This is the last post of the series. In conclusion, I would encourage Product Managers who have just set out to build smart services to work backwards. Think about sales first, before you think about product. How you sell has an outsized influence on what you (should) build. While this holds good for every product to some extent, the influence of “how you sell” is disproportionately high to the success of the offer. All the best in your endeavours and feel free to reach out to me if you’d like to exchange thoughts on this subject.