Servitization of Products: Benefits and Examples
Servitization has been rightly redefining aftermarket services for complex equipment. It is transforming the path of revenue generation for manufacturers by deviating their focus from production to delivery of advanced services. Before moving on with the steps to achieve smooth servitization, I will come up with a general overview, its workflow, benefits and of course, some relevant use cases.
Servitization – An Overview
To put it simple, servitization refers to the practice where industries offer additional services, in order to supplement their core services and traditional products. It actually ideates an integrated product and service offering delivering value in use.
The concept has its root in 1980s, when Vandermerwe and Rada suggested it as an alternate way of generating revenue for manufacturers through customer base retention and increased level of differentiation.
Servitization – Workflow
The product-services integration offering can be classified into various categories as below.
- Aftercare Services
- Product Support
- Consultancy Services
Servitization – Benefits
The product-service system brings on board a number of advantages. Some of its major benefits are:
- Growth of Revenue Streams: Fosters additional business with existing customers and opens new revenue streams
- Customer Retention: Meeting customer demands successfully leads to greater customer retention
- Improved Commercial Resilience: Strengthens cash flow and customer relationships, and locks out competitors
- Ameliorated Society: Localized value capture, employment and skills development
- Environmental Benefits: Promotes dematerialization and enables investment in adoption of eco-friendly technologies
- Scalability: Can be applied equally to small, medium and large enterprises
This booming business concept has some extensively implemented use cases, which are as below.
- Power by the Hour: Rolls-Royce allows customers to buy power that the aero-engine delivers, while the former can continue to offer support services.
- No Illness, No Drug: Patients prefer healthcare solutions that minimizes likelihood of illness, over pharmaceuticals developing drugs.
- Sell Light, Not Units: Amsterdam-Schiphol joined hands with Philips for a package where the latter retains the ownership of LED equipment and instead sell light as the product rather than units.
Steps to Achieve Smooth Servitization
If you are looking to opt servitization, it’s time for you to follow five simple steps listed below.
Step 1: Initiate basic service program
Step2: Upsell existing offerings
Step 3: Offer complex services
Step 4: Offer monitoring, proactive services
Step 5: Sell based on Outcomes
With the growth in use of performance based contracts, servitization gains more prominence. It is certainly a paradigm shift that brings on-board the belief that no industry is just limited to production. The concept of tortillas being filled, sauced and wrapped in various forms was clearly defined by the Aztecs. Similarly, by blending in the key ingredients of aftercare, product support and consultancy, the Servitization recipe transforms Product-Service Systems from its tortilla state to the whole enchilada. So, let’s make this new transformer more utile before it becomes an antediluvian.