Today, OEMs and other sellers of Capital Equipment depend on the revenue and profit from post-sales service contracts and other services to offset the declining revenue and profit from product sales.
Unfortunately, the industry has adopted three different terms to label the most common services, and worse yet, these terms are used interchangeably. This post will serve as a starting point for a discussion about agreeing on the best labels and definitions for the most common groups of services.
3 Names for service contracts
Note: The first two definitions are based on an article in Warranty Week
A. Warranties – warranties, and their close relative extended warranties, protect the equipment owner against unexpected and undesirable events—for example, product defects, malfunctions, software bugs, and operator errors due to bad design.
B. Maintenance Contracts – these are fixed price obligations that cover activities that can be expected to occur during regular operation of the covered equipment. Examples include preventative maintenance, cleaning, remote monitoring, software upgrades, and calibrations.
C. Service Contracts – many companies offer their customers comprehensive service contracts containing elements of the extended warranty and the maintenance contract—for example, on-site remedial service, preventative maintenance, software upgrades, and calibration.
For many people, these three definitions may be a distinction without a difference. However, since the Internet makes comparison shopping so easy, I think each primary industry, like analytical and life science, networking, railroad transportation, etc., should adopt definitions that all service providers in that industry agree to use. However, in the meantime, you should consider these definitions when you define and then market your service products.
It would make life easier for both buyers and sellers
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. 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 minimize the risk when designing service contracts, please get in touch with us or check out some of our free articles and white papers here.