Customer Information Driven After Sales Service ... - RePub

1.1. Business Trends in After Sales Service
FiveTwelve Group Ltd. reveals that machine manufacturers focused on after sales service
to defend their market share against low cost manufacturers and potential market contraction.
On the other hand, Kilpi (2008) reports that many aircraft original equipment
manufacturers (OEMs) sell their products cheaper in order to attain lucrative after sales
service business from the airline industry.
A key driver in the profitability of after sales service is the realization of the total cost
of ownership (TCO). Öner et al. (2007) highlight that for capital goods acquisition costs
typically account for only 33% of the total costs (see Figure 1.1). For other systems, the
figures may change but a similar trend can be observed. The buyers / users look explicitly
at the TCO when they buy new systems. These systems are technologically complex,
which means that their maintenance is also a complex task. It is not economically
feasible for many users to perform the maintenance themselves, especially, if they own a
few of these systems. On the other hand, the service providers attempt to address these
limitations by selling a range of service contracts (with varying availability guarantees)
to meet the needs of a heterogeneous customer base.
Percentage Contribution
50%
40%
30%
20%
10%
0%
Acquisition Costs Maintenance Costs Downtime Costs
Figure 1.1: Total Cost of Ownership for Capital Goods - Source: Öner et al. (2007)
Whether the motivations for value addition via servicing are driven by profit, competi-
tion, or market contraction; academic researchers and practitioners agree on the business
practices in after sales service to facilitate the value addition in servicing. These practices
are highlighted in Table 1.1. Knowing the customer needs, segmenting the service
offerings accordingly, and delivering the service according to the customer needs are considered
the most important success factors in profit driven after sales service. Other
important success factors are efficient use of technology, service performance measurement,
and appropriate pricing schemes.
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