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January 24, 2020 | 4 Mins Read

The Road to Servitization in Product-Oriented Businesses

January 24, 2020 | 4 Mins Read

The Road to Servitization in Product-Oriented Businesses


By Tom Paquin

Recently I was hit by a peculiar targeted advertisement: A major automaker’s car subscription service. My interest being piqued, I clicked on the ad. From where I was standing car subscription services have always existed, and were called leased vehicles, and after some puttering around their very snazzy new website, I inferred that at its heart, this “subscription” was a millennial-oriented rebranding of that concept.

As I dug deeper, though, it became increasingly clear that that was only partially the case. In addition to the car and registration that typically comprises the totality of a lease agreement, this car company’s plan included:

  • Guaranteed pricing
  • Insurance
  • Vehicle maintenance
  • Annual upgrades

Feeling aspirational, I selected a luxury vehicle, and was given a monthly payment that, when taking into consideration the fact that you’re getting insurance and service included, with the option to upgrade after 12 months, seemed like a perfectly reasonable price.

We can discuss the environmental ramifications of this all another day but from an economical sense, this seems like a win-win. Customers who want it get a virtually worry-free car, no negotiations, no tire replacements, no insurance wrangling, and annual new car smell. The automaker gets an engine for customer loyalty, service control over their own vehicles to ensure consistency of parts and labor, and the ability to provide services like insurance through a third-party at bulk pricing, thus forming a key partnership.

This, at its heart, is true servitization. Sure, the car company is packaging and delivering a commodity, but the value is in the feeling of security that accompanies the sale. Car buying tops every list of most stressful purchase processes. Alleviating that stress is a service with minimal overhead and maximum value. It is servitization at its most effective, and if executed as well as it looks, could keep customers coming back for a long time.

If we can make servitization work with cars, we can make it work with virtually any industry, but it’s not without its caveats. There are a lot of places along the value chain where things can go wrong. Any industry that combines a product with service needs to think very carefully about how it manages every aspect of its brand. Here are some very important questions to ask as you start to consider servitization.

Are products delivered through dealer networks?

Let’s use an iPhone as an example, here. iPhones are sold through Apple retail, where the entirety of the sales and service process can be curated. iPhones are also sold through cellular providers, big box, and electronic retailers. When rolling out its servitized plan for iPhones, Apple had to decide whether to offer the iPhone upgrade program exclusively at its own retail stores, or externally, and chose to keep the entirety of the process in-house. This was a safe, if unambitious move.

Some product companies don’t have the luxury of a direct-to-consumer presence, though, so they have to work with dealer networks not just for sales, but also for service. Because of that, standardization of the parameters of service contracts, parts management, and service delivery are imperative to getting servitizaton right. Does this mean making all of your dealers adopt the same service management platform that you have? If it’s an automaker, then possibly, but if it’s Best Buy, then you’ll need to think about how to approach that in order to centralize data. Work with your implementation partners on the appropriate plan.

Is the service managed centrally, is it franchised, or is it done independently?

Just like the products themselves, it’s important to consider how the actual service system with which you work is handled. If you have a service infrastructure in place, is it self-sufficient, or is it bolstered by independent contractors? Do you want independent contractors involved in service delivery? If not, how can you incentivize consumers to go to first-party service centers?

Alternatively, if you have nothing but independents, do you have the means of managing them internally? What utilities are you using to facilitate that process? Do customers manage service and assets internally, and are assigned external service workers, or does information live in dozens of separate systems? There’s obviously a right and a wrong way to do this, and the tools are out there to centralize all of these processes. You owe it to your brand to get it right.

What does the long-tail service lifecycle look like?

This is where you make the business case for servitization. Perhaps you have an extremely long product lifecycle. We see businesses with products from 1955 in their clients’ possession, which completely changes the meaning of an upgrade cycle. In an instance like that—what are the service touchpoints, and how do you appropriately monetize those touchpoints?

In businesses with shorter product lifecycles—one to ten years—are there opportunities to keep customers tied to your ecosystem in the long-term? Many businesses have rightly concluded that service contracts represent a swift, easy, and cheap way to do just that, but you can’t just deliver service, of course. The service needs to be good.

It’s unclear whether this automaker will succeed with its all-inclusive approach to car buying, but it represents a pretty interesting test case in the way that businesses are thinking about products for their consumers. Especially in low-margin industries, service bundles provide the sort of profit cushion that could really make a difference. And when executed well, servitization can be what sets your business apart.