It is important to understand the relationship between services and products when developing products. Many services are related to products because they:
- Are part of the product, such as a warranty
- Affect products, such as transportation
- Are part of the reverse supply chain, such as free delivery of product
Provided on a global scale, these product-related services generate billions in international trade revenue.
Consider the American coffee company Starbucks. The service provided by baristas making Starbucks beverages is an integral part of customers purchasing the company’s products. In 2015, service generated USD 19.2 billion in revenue for Starbucks.
Starbucks entered the market offering a coffee shop experience. The company sells its signature fair trade coffee perfectly ground, brewed and served in their coffee shops all over the world. In 2016, Starbucks had baristas serving coffee in fifty countries. In terms of continued growth, it expects to have more than 37,000 stores by 2021. Starbucks continues to innovate both in terms of its products and its brand experience.
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Starbucks offers coffee-based drinks, such as lattes, as well as teas and smoothies. It also sells coffee paraphernalia, such as mugs, coffee beans and coffee makers. Customers can also buy food products. Starbucks uses these associated products to enhance its coffee service and offer more to customers with a “one-stop-shopping” strategy.
Customers can go in for coffee and also have a snack or lunch. Starbucks has also expanded its home brewing by selling beverage pods for consumers using single cup brewing systems.
Understanding how organizations can employ services to enhance their products is directly related to increasing a product’s competitive advantage through a “service-added competitive strategy”.
Many manufacturers are exploring the “servitization” of their products by reviewing production, operations and ownership aspects of their products to move towards a service model. For example, in the United Kingdom, Finning Equipment has moved towards a service model where its equipment is tracked to monitor, maintain and, if necessary, replace equipment based on use and physical condition data.
How servitization improves customer satisfaction and increases profits in manufacturing
Servitization refers to the process manufacturing companies and other organizations undergo to develop the capabilities they need to provide services that complement their traditional products. As equipment becomes increasingly complex, customers need more service expertise than ever before.
Manufacturers around the world are redeveloping their approach to meet the needs of customers. Servitization has grown to become a popular strategy for boosting both customer satisfaction and profits in the manufacturing industry.
Through the design process, the addition of services is a part of product development and adaptation.
The servitization strategy is driving manufacturers to review their business models and consider service and leasing models instead of ownership models. This is very much in line with models supported by the circular economy movement.
3 key benefits of servitization for manufacturers
Manufacturers benefit from integrating servitization into their business model through:
More effective solutions: Before servitization took hold, manufacturers simply sold products and service as an afterthought. Today, customers want a strong service program to complement the equipment they purchase. By offering service programs, manufacturers can play an active role in solving their customers’ problems, rather than just selling a product.
Greater financial stability: The long-term service contracts that go along with servitization guarantee more secure revenue streams. Service contracts lay the foundation for customer loyalty and provide upselling and cross-selling opportunities.
Increased customer retention: Some manufacturers report that servitization increases customer retention because it allows them to become familiar with their customers, their equipment and their needs. The close relationship gives manufacturers the information they need to make their customers’ businesses more efficient.
With increasing demand for additional benefits—including mobile management systems and responsive customer service—more manufacturing companies will start offering service contracts.
By integrating service into their business models, manufacturers benefit from increased financial stability and opportunities to develop better relationships with their customers.
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