Many manufacturers across varying sectors saw the value of aftermarket sales and services in 2024 — a trend that will continue based on shifting dynamics. From demand changes and market maturity to pricing pressures, there is a growing need for businesses to provide value throughout the product lifecycle.
Here’s what to consider to remain ahead of the curve.
Market Shifts and Customer Expectations
In the past, manufacturers would typically respond to customer needs under specific circumstances, such as selling spare parts or conducting repairs — all of which contribute to aftermarket sales. However, manufacturers have recently taken advantage of a more evolved approach.
The latest technological developments in big data, artificial intelligence, advanced sensors, etc., fuel these opportunities. Whether it be predictive maintenance, consulting services, or a product-specific offering, integrating aftermarket strategies into business processes will help manufacturers gain a competitive edge well into the future.
So, as of 2024, what do customers expect, and how must manufacturers adapt?
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Changing Demand
Whether you are a B2C, B2B, or B2G manufacturer, customers expect long-term support beyond the initial sale.
For example, many customers now focus on service level agreements (SLAs) and are willing to pay a premium to ensure product uptime and ongoing equipment support. Those who can meet these demands and expectations will enjoy a competitive advantage.
Pricing Pressures
As a manufacturer, you have likely felt the effects of shrinking margins, which have driven the need for additional revenue streams.
Several variables contribute to these pricing pressures, including lower-priced international competition, higher salaries to attract in-demand talent, transportation barriers, and the cost of materials.
To help counter these variables, experts agree that selling smarter is more critical than selling more. So, proven strategies like aftermarket service offerings are incredibly valuable — especially since they have a high potential ROI.
Aftermarket Services
Aftermarket maintenance, repair services, parts, and upgrades as part of the product lifecycle should become commonplace and evolve with technology. Real-time equipment monitoring will be a game-changer for many manufacturers, as it will aid in predictive maintenance and a better customer experience.
The Financial Impact of Aftermarket Services
Data shows the average aftermarket operating margin is 2.5 times higher than new equipment operating margins.
If you’ve been feeling the pinch in recent years in response to pricing pressures and economic uncertainty, here’s how aftermarket services can help supercharge your finances.
Revenue Opportunities
Aftermarket services can be a reliable source of recurring revenue. For example, in some companies, such as those in construction, aerospace, defense, and medical manufacturing, aftermarket services can account for as much as 40% of their total revenue and 50% of their profits.
If you’re not considering after-sales services, you may leave much revenue. Take aircraft manufacturers — a sector that can benefit from additional revenue for as long as 25 years after an initial sale. This strategy is a low-risk, high-reward revenue stream.
Some strategies include:
- Cross-selling and upselling, such as upgrading a part during routine maintenance.
- Premium offerings, like extended warranties and faster response times.
- Investing in technologies that enhance capabilities and expand offerings.
- Encourage a culture of innovation and service within your team, focusing on recruiting top talent with Industry 4.0 skills.
- Move from a product-based mindset to a solution-based mindset, focusing primarily on customer needs. Services should be viewed as creating value instead of a cost.
Operational Cash Flow
While many manufacturers are already seeing the potential and growing importance of aftermarket services, this opportunity remains relatively untapped.
Unlike new product development, which is often slow and costly, aftermarket services offer a rapid and short path to higher cash flow and operational revenue. The goal here is to use that cash flow to further invest in this growth opportunity, investing in the tools, technology, and people to propel your strategy forward.
CAT is a great example of a company that has created a multi-tier approach with aftermarket services in mind. The company has focused on supporting its customers throughout the entire life cycle of CAT-powered equipment, boosting cash flow and growth.
Parts and repairs are a core part of this strategy. However, they also develop unique strategies, such as financing options, warranties, and strategic rebuilds. So, it’s no surprise that the company achieved an operating cash flow of $3.0 billion in the second quarter of 2024.
Building Long-Term Customer Relationships
Customer service will remain imperative when developing your aftermarket services strategy. Building trust with customers will help you retain them more easily, driving profits significantly higher.
Customer Retention
Supporting customers post-purchase strengthens loyalty and satisfaction, and it is now one of the most significant differentiators between brands.
Implementing an aftermarket services strategy can help you offer a more personalized experience while building long-standing customer relationships. Part of that is ensuring issues are fixed quickly if they break down. The auto industry is a leader in this approach, as there is a direct correlation between customer retention and aftermarket service quality.
When considering some of the top trends, utilize data insights to help drive personalized offerings. This approach will allow you to benefit from new revenue streams and happier customers across a product’s lifecycle.
End-to-End Product Support
The key is to view yourself as an ongoing partner, not just a vendor. Comprehensive service packages and being highly customer-centric are two approaches that can drive this strategy. Plus, these regular interactions are ongoing opportunities to strengthen your relationships with your customers. They also provide insight into customer needs, which you can proactively address.
Takeaway: Take Action to Remain Competitive
Aftermarket services remain a growing opportunity for manufacturers to stay competitive, generate cash flow, and build strong customer relationships. Invest in aftermarket trends and strategies to capture more value from each customer interaction — and invest in the right team to help you achieve that. Find out more about securing top talent today!