A recent Entytle report, “Industrial OEM Priorities for 2022,” indicated that aftermarket growth is the second-highest priority for Industrial OEMs. If your business is like the 26% of respondents who gave that answer, then selling to your installed base should be job #1.
And I am not talking about only selling new products. I am talking about upselling and cross-selling services and other value-adding items.
While this sounds like Product Lifecycle Management (PLM), it is not; PLM focuses on the product, not the customer. The customer should be at the center of these efforts because they will spend money to get more value from their investment. This process is referred to as installed base selling.
How to Approach Installed Base Selling
Remember that the customer has already purchased one or more examples of the product, and you will now try to sell add-on purchases. They are already receiving value from their initial purchases, are familiar with your company, and are always interested in improving their business outcomes by dealing with a known supplier. Knowing your equipment is a lifetime stage and having an appropriate offer that will add more value to the buyer is the key to your success.
Here are the capital equipment lifetime stages from the perspective of the equipment owner:
What to Sell in Each Equipment Lifetime Stage
1. Install, Warranty, and On-boarding
The install, warranty, and onboarding stages are the worst times to upsell or cross-sell. The customer just purchased the product and may not have even paid for it yet. During the sales process, the customer expected the quote or proposal to include all the services required to deliver the value promised or implied.
While installing, you may discover something that was not discussed during the sales process. As a result, you may be unable to achieve your customers’ expectations without incurring additional expenses. Handling this issue is very tricky because the customer may feel your team should have known about it, and your team may feel the buyers deceived them.
Your company’s handling of this situation will set the stage for the future relationship. Be careful not to win the battle and lose the war.
2. Full Usage
During the full usage stage, which for many products can easily last 10+ years, you will find many opportunities to sell additional services and product enhancements. Here is a partial list of all possibilities:
- Technical support
- Spare parts
- On-site or depot repairs
- Service contracts
- Software upgrades
- Product upgrades
- Product remanufacturing
- User and/or maintenance certification and training
- Preventative maintenance and/or calibration services
- Remote monitoring
- Efficiency consulting
- Equipment relocation
- Safety inspections and training
Selling these services usually requires cooperation between your technical and field service support personnel and the service seller. However, upselling and cross-selling can be difficult if you have outsourced service and support to a channel partner or a third-party maintenance organization.
You will not know when to reach out or which services to offer, because you may not receive the same information you would have if your direct employees had provided the service.
That said, it is not impossible. Caterpillar works with their authorized dealers and trains them to handle all required services, including major overhauls and rebuilding.
3. Part-time Usage
When new equipment offers a significant jump in productivity, the older equipment will join the ranks of equipment used part-time. The equipment is generally kept in reserve for use only in case of a temporary increase in demand or if the new equipment is disabled. In these cases, you may be able to offer scheduled service to ensure the equipment will be available when and if it is required to go back online.
Sometimes, old equipment is relocated to less critical plants or sold to new companies looking for a low-cost solution to their current needs. In this case, you can start by decommissioning and reinstalling the product, and by offering basic services such as training and spare parts.
4. Strip for Parts
Equipment owners with a large fleet of the same product often retire older units and replace them with new ones. The old products are then stripped for parts that can be used to support the remaining units. Frequently, these parts are returned to the OEM for remanufacturing and certification before being put into the customer’s spare parts stock.
The U.S. Air Force offers a great example of this process. They have two major logistics facilities: Davis-Monthan Air Force Base (AFB) and Tinker AFB. Davis-Monthan is the “sole aircraft boneyard for excess military and U.S. government aircraft and other aerospace vehicles such as ballistic missiles,” explains Wikipedia, because “Tucson’s dry climate and alkali soil make it an ideal location to store and preserve aircraft.” The “boneyard,” with more than 4,000 military aircraft on site, is the largest in the world in terms of planes. The planes on site are either stored permanently, stripped of parts, or recycled, demilitarized for display purposes, or restored and returned to service.
Relatedly, Tinker AFB, the largest air logistics center in the Air Force Materiel Command, “provides depot maintenance, product support, services and supply chain management, and information support for 31 weapon systems, ten commands, 93 Air Force bases, and 46 foreign nations,” according to Wikipedia. The multiple maintenance groups on site oversee the maintenance, repair, and overhaul of engines and other equipment for the U.S. Air Force and the U.S. Navy.
I first learned about salvaging parts from unusable equipment while on active duty in the U.S. Army. I knew that scrapped equipment, like vehicles or air compressors, was delivered to the scrap and salvage yard on base, but I never knew what happened after we made the delivery.
While preparing for a major inspection, we discovered that we needed a sizeable number of tools to complete each vehicle’s authorized tool set – but we didn’t have any money left in our small tools budget. Then, the lightbulb turned on in my head. I asked my platoon sergeant, “What happens to the tools from the vehicles that are turned into scrap and salvage?” He wasn’t sure, so we decided to visit the office.
When we arrived, we saw rows of boxes with every tool imaginable. At that point, my platoon sergeant asked me to step outside. When he came out, he said, “Do you think you can get five pounds of cheese and a large box of crackers from the mess hall?” I said, “Yes.”
All I will say is we never worried about replacing lost tools again. And I felt like Steve McQueen playing Sgt. Eustis Clay in “Soldier in the Rain.”
5. Trade-in or Scrap
The trade-in or scrap stage is an OEM’s last chance to generate revenue from a product and the current owner. If the equipment is traded in, it can be refurbished and resold with a short warranty and the opportunity to begin a new revenue-creation process.
If you take it back and intend to scrap it, you should first strip it down and remanufacture all the individual parts and assemblies still in demand to support existing products. You may be able to bring the parts and assemblies to a quality level that allows them to be declared equivalent to new and sold with a new part warranty.
As the concept of the circular economy becomes a more prominent part of business sustainability plans, this process will become more common than it is today.
All OEMs can use the equipment lifecycle stage approach to generate revenue from their installed base without investing R&D funds to develop new predictive maintenance software or add sensors and controllers. You have to be thoughtful about how you approach your customers.
About Middlesex Consulting
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. By focusing on our services, customer experience, manufacturing, and engineering strengths, Middlesex Consulting continues to provide superior solutions to meet its clients’ needs. If you want to learn more about how they can help your organization improve its revenue creation processes, please contact them directly via email or check out some of our free articles and white papers here.
Image credit: Image by Gerd Altmann from Pixabay