If you make tangible products and have been in business for more than seven or eight years, you have legacy products in your installed base. That is fine because industrial OEMs expect after-sales service to generate eight to 10 times the original sales revenue during the product’s lifetime. These legacy products are the gift that keeps on giving!
Different people have opposing thoughts about legacy products:
- Traditional salespeople look at the size of the installed base and think, “How many of these old products can I replace with our newest offerings in the next three, six, or 12 months?”
- Traditional CFOs consider the same products to be still not fully depreciated, creating value and having a long, useful life ahead of them.
- Traditional equipment users think these products are just getting broken in, are easy to maintain, and are not big consumers of the spare parts in the spare parts stockroom.
I am thinking about this idea because when I changed and upgraded my website about six years ago, I moved my existing blog posts to the new site. And, of course, I keep adding posts.
Recently, I noticed that one post, “How Long Are We Required to Support Our Products?” appeared frequently on the daily list. I spent a few minutes doing some easy research about the post. Here is what I discovered:
- Before mid-2021, the number of daily views was like an annoying drip from the faucet.
- From mid-2021 to mid-2022, daily views were like a slow stream.
- From mid-2022 to now, the daily views are like a steady stream from a garden hose.
This got my brain engaged.
This article’s target audience is product and service marketing managers. Product managers are likely working on their roadmaps and want to know when to release replacement products, while service marketing workers are projecting when the revenue from supporting these legacy products will start to fall off. However, when I started thinking about the CFOs and end users, I realized that these legacy products represent an opportunity for continuing and growing revenue.
You might ask, “Why extend the product’s life when we can sell new equipment and make more money?”. The answer is simple: the CFO and the end users don’t want to replace the equipment with new stuff. They will resist your sales efforts and, if necessary, buy replacement parts on eBay or from distributors and other customers who may go along with the replacement. However, they will leave all their accumulated goodwill toward your company behind.
Here is a true story:
I frequently conduct customer interviews as part of my service revenue growth program. During one interview, an end user from a large industrial company said, “The salesperson said the Model C was being discontinued and replaced with a smaller unit. I also heard that PMs and calibrations are being outsourced. I am miserable.”
How Long Do Products Last? Let’s Look at Some Data
When you see the word “average,” remember that half of the items are older than the average.
- The average age of a car in the U.S. is 12.2 years.
- The median age of a house in the U.S. is 37 years (depending on the location).
- The average age of the North American commercial jet fleet is 14 years.
- The average age of an industrial machine in the U.S. is 10 years.
- A farm tractor will usually last at least 4,000 hours and be used for between 100 and 200 hours annually. So, a tractor’s age is typically between 20 and 40 years.
- Over the past 12 to 15 years, PACCAR has sold about $200 billion worth of trucks that are still on the highway. PACCAR supplies most of its spare parts.
- The U.S. Postal Service purchased over 140,000 Grumman Long-Life Vehicles. The first ones entered service in 1987, and the last joined the fleet in 1994. The newest ones are 28 years old. Think of all the spare parts General Motors sold to the Post Office for the chassis, engine, front suspension, and instrument cluster.
- In the U.S. military, an Air Force fighter is 27.37, the average age of a bomber is 39.19, and the average age of a transport aircraft is 25.87.
- And if you feel old, consider this: the average age of a B-52 bomber is 59.8 years, and the Air Force plans to keep it combat-ready until it reaches 100 years old.
How to Make Money from Your Installed Base
There are a few ways to support and continue making revenue on legacy products.
- The easiest way to continue the legacy product revenue stream is to support these products. The marketing and salespeople will complain, but they can introduce their new products as “new and improved” while not forcing the legacy product owners into making a decision they don’t want to make. They can even freeze the revision of any software or firmware, but they leave the owners with the peace of mind of knowing that your firm will still support their legacy.
- If your company designs its products to be remanufactured, you are already generating new revenue or ready to start. Also, many products can be economically remanufactured even if not explicitly designed for that process. The limitation on the magnitude of the reman business is the size, cost, and complexity of your products. Here are a few examples:
- Refurbished Medical Devices
- Medical devices change frequently, yet many people get well after being tested or treated with an older model. This situation drives the refurbished medical equipment market’s growth from $10.19 billion in 2021 to $20.15 billion in 2026, a 14.7% compound annual growth rate.
- According to the Refurbished Medical Equipment Global Market Report 2022, “the main types of refurbished medical equipment are medical imaging equipment, operating room & surgical equipment, patient monitors, cardiology equipment, urology equipment, neurology equipment, intensive care equipment, endoscopy equipment, IV therapy systems, [and] others.”
- A recent FDA ruling clearly distinguishes between repair and remanufacturing. A service organization can work on a medical device and call it a service if the product’s specifications remain unchanged. However, any change in specifications, no matter how minuscule, will probably be treated as a remanufacture, which, according to the FDA, results in a new product that needs to go through the new product 510(k) process.
- Relocating and reinstalling equipment can be valuable for legacy equipment owners. Many multi-plant manufacturing companies use the plant nearest their headquarters to work out all the kinks and set the standards for their other plants. One thing they do is, when they purchase a new machine or model, they move the replaced equipment to the plant with the oldest equipment or the plant most in need of the additional capacity. Nobody is better than the OEM to uninstall, pack, ship, unpack, and reinstall the old equipment.
- In the years between the release of the first of the legacy products and the release of the new replacement product, there have probably been several upgrades and enhancements. Your company may never have made these improvements available to the installed base. However, now that a new product will be available with the enhancement, the end users may decide to keep the old design but upgrade to the latest features. Remember that the enhancements fall into two categories:
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- It adds more of the same kind of value than the product delivers; this is an upsell opportunity.
- It adds new types of value to the older product; this is a cross-selling opportunity.
But each requires a unique sales approach.
How The Installed Base Creates Opportunity
Legacy products can boost your after-sales revenue and profit and increase customer satisfaction and loyalty. All you must do is put yourself in your customer’s shoes and ask, “What would I do if I had one of these products?” Plus, since we are in the middle of U.S. budget season, what better time to launch new services than now?
Recently, I saw an article titled OEMs Bring More Technology to the Farm with Retrofits in Precision Farming Dealer. Here is the critical paragraph, which quotes Deere, Inc.
“If you’re looking at you just got a 2-year-old sprayer or 4-year-old sprayer, and you’re not ready to upgrade to a brand new one, or you just got that sprayer and you want to get the latest and greatest technology, you can do that with See and Spray Premium. You don’t have to go buy a whole new sprayer. You can get that as a precision upgrade on your sprayer today. So, if you’re looking to get little incremental value on your sprayer and take advantage of this technology, we’re trying to not make you fully commit to a different sprayer. You can get that, order it, get it installed on your sprayer today, and get this awesome technology where you can go in the field, spray weeds, cut down on your costs, and look at better yields.”
Related reading – Creating Aftermarket Revenue And Profit From Remanufacturing
About Middlesex Consulting
Middlesex Consulting is an experienced team of professionals whose primary goal is to help capital equipment companies create more value for their clients and stakeholders. We continue to provide superior solutions to meet our clients’ needs by focusing on our strengths in Services, Manufacturing, Customer Experience, and Engineering. If you want to learn more about how we can help your organization create value through customer-centric solutions, please contact us or check out some of our free articles and white papers here.
Image credit: Photo by Mick Haupt on Unsplash