I had no competition when I started selling my company’s service contracts. Our products were mission-critical, and most of our customer’s policies were to buy the OEM’s service contract. Hitting quota was easy!
Competitors
Today things are different. You have competition, and it comes from various places:
- Independent third-party service organizations
- Large third-party service businesses that may even be channel partners of yours and whom you are also supporting.
- And the most frustrating of all – the customer does everything.
Today competition is everywhere – let’s discuss each possibility.
Independent third-party service organizations
Depending on the markets you serve, the complexity of your products, the amount of software that might need to be upgraded, and the number of proprietary parts in the product, you will probably find any number of independent third-party service organizations with a lower price than yours. If your products have been around a while, there is most likely a readily accessible source of pre-owned parts. These small service businesses are reluctant to buy anything from the OEM because they work on very low margins. They would rather spend their time searching the web for answers and parts, negotiating parts prices, and even trading advice because their time is considered free if they are self-employed. They will only approach you with a PO when they are in a very tight box!
A particular case of independent third-party service is when the owner is your former employee who wants to be his own boss. This occurs because your good service technicians tire of traveling or want to grow their net worth. For them, the solution is to approach your/their customers and offer to provide the “same level of service” at a lower cost. This isn’t good for you for several reasons:
- You lose a valued employee.
- You lose valued customers.
- You lose control over the quality of service, and this service will always reflect on you because that is the context in which your customers know the service tech.
- If you include telephone support in your support package to customers, as long as they buy service and parts from you, you find yourself in a difficult position. Do you now charge for telephone support or eat the relatively small incremental cost of the few calls per year?
For many of us, the last point is the toughest because it may open the door to a mass exodus of technicians, and you will be left supporting the expensive low-density locations with few resources.
One solution to this dilemma is to ensure you have programs in place to address the needs of your techs before they pull the plug. Being sensitive to family pressures from frequent overnight travel, providing bonuses or other real compensation for significant work/life imbalances, and ensuring you have career paths for these people before they feel they have only one choice are all good options.
And if the worst occurs, do not penalize your customers because they made a decision that was in their best interest and put you in a bind. Remember, you need your customers more than they need you!
Large third-party service businesses have an efficient service contract selling process.
Suppose you support equipment in a mixed vendor environment like data centers, analytical and life science laboratories, manufacturing operations, or medical facilities. In that case, you know that some very large organizations are willing to take service and support responsibility for everything in the multi-vendor facility. This includes companies like IBM, Xerox, Thermo Fischer Scientific, and Philips Medical. They may even subcontract support of your products back to you. Still, they will negotiate a lower price than you charge the end user because they have the overhead costs associated with account management and selling.
Many hospitals and other extensive facilities with high uptime requirements have their internal maintenance staff. In fact, within reason, they will do anything to minimize downtime. They will buy training, certification, spare parts, escalated telephone support, software support (including upgrades), and the availability of your “super-techs” for on-site work.
Do nothing – the unknown competitor to your service contract selling efforts
Often a customer decides not to convert an expiring warranty to a contract or renew an expiring contract. While there are many reasons, including cost, company policy, infrequent equipment use, or internal equipment redundancy, the result is the same. They remain your customer and expect you to support them when needed. So, the best thing you can do is set expectations about your charges and performance for all interactions like telephone and on-site support, parts availability, and software upgrades.
What to do
Your beliefs about how to treat a customer frequently get tested when a customer chooses a support path other than the one you want. Your actions will be judged and remembered. And it is your time to shine. Always do well for your customer and treat her the way you know she wants to be treated. Remember that what goes around comes around.
To learn about designing service contracts, click here.
Good selling!
About Middlesex Consulting – experts in service contract selling
Middlesex Consulting is an experienced team of professionals with the primary goal of helping capital equipment companies create more value for their clients and stakeholders. Middlesex Consulting continues to provide superior solutions to meet the needs of its clients 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 improve your results from your service contract selling efforts, please contact us or check out some of our free articles and white papers here.