Leaders like IFS are empowering manufacturers to unlock significant business value with outcome-based service models, supercharging their customer service.
For many years now, global manufacturing has been undergoing a fundamental shift – from an emphasis on products to an emphasis on service.
This transformation is more a necessity than a choice, enabling manufacturers to meet the changing landscape of customer demands in an increasingly digitised world.
This is something IFS, the global enterprise software provider, intimately understands. Through intelligent software, advanced tools and deep industry expertise they’ve been empowering manufacturers to create great Moments of Service™ by adopting outcome-based models that maximise customer value.
At the heart of these models is servitization – an approach where manufacturers integrate services alongside their products as a core part of their business model.
A great example of this transformation is Alfa Laval, a world leader in the key technology areas of heat transfer, separation, and fluid handling.
With IFS’s support, Alfa Laval is prioritizing outcomes that meet evolving customer needs, optimize operations, and foster customer loyalty. You can explore their learnings and insights in this on-demand webinar.
Now, let’s explore the key advantages of this customer-centric approach – ranging from building long term relationships to securing consistent revenue streams.
1. Increased customer loyalty
Servitization enables manufacturers to deepen their customer relationships by supporting customers beyond product purchase.
By offering continuous value-added services like maintenance, repair, performance monitoring and technical support, manufacturers become a valuable, trusted partner during the entire product lifecycle.
This reduces the likelihood of customers switching to competitors and provides them a significantly more streamlined and convenient ownership experience.
Industry 4.0 technologies like IoT sensors have been critical to this, enabling manufacturers like OEMs to monitor machine performance in real time and proactively reduce the risk of breakdowns, further increasing customer satisfaction.
2. Differentiation in a competitive market
Globalisation and the rise of low-cost manufacturing have forced many manufacturers to compete on price. An approach which erodes long-term profitability and quality.
With outcome-based service models, manufacturers can differentiate their offerings and justify a premium price tag.
Through integrated solutions like adding after-sales services to products or offering leasing or subscription-based usage, manufacturers can create unique value propositions that truly set them apart from the competition.
Customers can avoid large upfront payments and instead invest in a continual, up-to-date service.
3. Steadier revenue streams
Cyclical revenue patterns are what characterise traditional product-based business models.
These patterns are dependent on fluctuating demand for products, such as spikes in HVAC sales and servicing during extreme weather months—air conditioners in summer or heating systems in winter.
Through servitization manufacturers can create steadier revenue streams by shifting from one-time sales transactions to recurring revenue streams, for instance, through maintenance packages.
By enhancing their financial stability and predictability, manufacturers can reduce the impact of market volatility.
4. Increased profit margins
A service-centric strategy also leads to increased product margins as services like repairs, upgrades, and maintenance create new opportunities for revenue generation whilst requiring less capital investment in production and raw materials than traditional products.
With the right tools and processes in place, manufacturers can increase service profit margins even further. For example, with predictive maintenance, manufacturers can identify potential issues before they cause downtime, enabling timely interventions that prevent costly repairs.
Planned maintenance and optimized workforce management further improve asset uptime, reduce disruptions and enhance customer experiences.
For example, in the aerospace industry, manufacturers often pair aircraft sales with long-term maintenance and repair services, yielding higher margins than the initial sale.
Rolls-Royce’s “Power by the Hour” model exemplifies this by absorbing maintenance risks and providing predictable costs for customers, while generating consistent revenue through recurring service contracts for Rolls-Royce.
5. Increased innovation
Outcome-based service models boost product and service innovation, by keeping manufacturers closely connected with customers through service-based relationships.
These relationships provide vital insights into product usage, performance and areas for improvement, creating a feedback loop that increases innovation, problem-solving and customer satisfaction.
For example, remote-monitoring services enable manufacturers to collect data on product performance, identify design flaws or inefficiencies, and implement improvements in future product versions.
These insights not only drive better product development but also enhance asset uptime, improve service efficiency, and open opportunities for new service revenue streams.
6. Enhanced sustainability
Manufacturers can better meet their sustainability targets and pursue economic circularity through a service-centric approach.
By retaining ownership of products when they provide them as a service, manufacturers are incentivized to design products that are more durable, easier to repair, and resource-efficient.
Outcome-based models also enhance sustainability by focusing on asset longevity and uptime, with tools like predictive maintenance enabling proactive monitoring to prevent failures before they happen.
This shift not only promotes recycling and reduces waste but also supports the principles of the circular economy, where materials and products are continually repurposed. By embracing these practices, manufacturers can better meet strict environmental regulations while fostering sustainable growth.
7. Improved customer experience
In today’s digitised consumer landscape, expectations extend beyond the quality of products.
Manufacturers can meet these evolving demands more effectively by embracing outcome-based models designed to provide seamless end-to-end customer experiences.
Every step – from purchase and installation to ongoing support and upgrades – is tailored to meet specific customer needs and preferences, offering a competitive advantage through personalization.
By addressing pain points and delivering consistent value, manufacturers can significantly elevate customer satisfaction.
8. Reduced risk
Mitigating risk is a major concern in manufacturing environments, impacting both workers and customers.
By offering long-term services, manufacturers gain greater control over product performance and reduce risks associated with failures or malfunctions.
Connected products provide real-time data, enabling manufacturers to anticipate issues and resolve them quickly, reducing downtime and protecting customers and the manufacturer from financial and reputational damage.
9. Superior operational efficiency
Servitization comes hand in hand with the implementation of Industry 4.0 technologies. Digital tools are required to track performance, optimize asset utilisation, predict maintenance needs, and track key customer data.
This shift towards data-driven operations can result in greater efficiency, reduced costs, and better resource allocation.
By embracing outcome-based models, manufacturers can unlock significant opportunities to enhance operational efficiency, drive innovation, and deliver exceptional customer experiences.
This approach not only fosters long-term relationships and sustainable growth but also positions manufacturers to thrive in a competitive, service-driven economy, where adaptability and value creation are key to future success.
