Aftermarket Services: The Path to Rapid Scale and Customer Service Excellence
Here’s an idea that has become commonplace in recent years: an entrepreneur should restrict the scope of their company to the core capabilities that provide it with competitive differentiation and strategic advantage. And here’s another best practice, described in detail in the book Exponential Organizations: companies that want to achieve exponential growth must leverage assets that they don’t own. The authors posit that even critical activities can be outsourced as long as there is no scarcity of suppliers. But how do we apply these guiding principles in practical ways that accelerate growth and profitability? A recent experience of mine provides an example.
I have been advising a company that I’ll call Cleaner Air. Cleaner Air has a truly inspiring mission—to reduce the world’s dependence on fossil fuels and their detrimental effects on the environment by developing and commercializing a line of green technologies including a natural gas conversion kit for diesel engines. I bring to this assignment an extensive background running companies that provide aftermarket services to the automotive industry, including warranties, service contracts, technical and customer support.
Cleaner Air is an “asset light” company of the type that Exponential Organizations extolls. Its value is in its ability to do R&D that can be the basis of successful high-tech products. The model that the founder of Cleaner Air strives to follow is to:
· Create and control innovative intellectual property (IP).
· Keep his organization lean by partnering with best-in-class manufacturers and service providers.
· Avoid hiring permanent administrative staff and middle management that will raise fixed costs.
In essence, Cleaner Air is well on its way to becoming an Exponential Organization. But--to get customers to adopt its products, it is essential that Cleaner Air build a robust aftermarket program that provides the support that dealers, repairers, and customers need to successfully operate and fully realize the benefits of the technology. In the automotive industry warranty claim costs as a percentage of sales revenue range between 1.5% and 2.0%. Offering additional aftermarket services like an online customer service portal, technical support via online chat or call center and mobile apps for customers and repairers requires significant investment in capital assets and expert staff. As a budding Exponential Organization, Cleaner Air sought to leverage the assets and expertise of external aftermarket services providers. However, Cleaner Air’s products are highly technical and evolving rapidly, which makes it challenging for aftermarket service providers to stay current with changes in product engineering and provide best-in-class technical and customer support. For Cleaner Air the solution was to:
Choose partners that could provide a customized solution, ability to scale rapidly, global reach, and the IT assets necessary to support Cleaner Air’s expanding business.
Pursue a “pay as you go” model that requires almost no upfront capital expenditures because aftermarket partner charges are paid on a per sales unit basis.
· Hire experienced professionals to staff a very small internal parts and service organization to provide a strong bridge between Cleaner Air and its aftermarket partners.
· Ensure that service level expectations are clearly defined and agreed upon by all parties.
· Keep external partners informed of engineering changes, regulatory issues and market rollout plans with regular training sessions and daily communication.
· Explicitly specify the limits of authority for each partner and a detailed escalation process to ensure that all customer service issues are resolved in a timely manner.
Across the economy, aftermarket issues are becoming a key driver of company success. Consumers and businesses have come to expect from you the high level of online, as-needed service they are used to getting from giants like Amazon and UPS. Social media gives a customer who is dissatisfied with your post-sale service a platform to damage your reputation. At the same time, good aftermarket service is a wedge into selling add-on products. Partnering with the right aftermarket service providers can enable the rapid growth sought by aspiring Exponential Organizations while providing excellent service to customers.
Companies that excel in the aftermarket and the specialized service providers that help them are currently commanding high valuations. This is a niche that warrants the long-term interest of entrepreneurs and investors.
About the Author
Joan Saunders is a partner in the Arizona practice of Newport Board Group. Joan is a collaborative leader and champion of strategic use of information technology to engage customers, improve operational processes, and reduce costs. Joan held a number of senior management positions with CNA National Warranty Corp, culminating as President and CEO. To learn more about Newport and Joan and to contact her, click here.