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Focusing on the few at the expense of the many

It is accepted wisdom that only a small portion of an Original Equipment Manufacturer’s installed base accounts for a large percentage of aftermarket sales or profit or growth or whatever else your favorite metric may be. It’s the famed Pareto principle or 80/20 rule at work !! Companies large and small use this as a rubric to allocate resources, make decisions on tactics etc. 

But if only 20% of the Installed base engages with the Original Equipment Manufacturer in the aftermarket, what happens to the other 80%? It’s simple, they go elsewhere. And take their lifetime spent with them.  This challenge is exacerbated by the fact that your largest customers are often not an Original Equipment Manufacturer’s most profitable. The prime reason is that they often have the power to demand more competitive pricing and therefore lower unit margins. This dramatically increases the importance of engaging frequently and consistently with the next tier of customers – the not-so-large ones, the ignored ones.

Original Equipment Manufacturers’s Aftermarket Revenue

The reality is that Original Equipment manufacturers know that there is plenty of lifetime value inherent in the vast majority of their customers. For example (based on our analysis of over 10 million equipment sales and 300 million parts transactions):  for a 10% increase in installed base market share, OEMs can drive a 7% increase in repeat equipment buying. In other words, doing good and doing well. 

But an OEM’s installed base is typically large and complex, and serving it fully and well requires expertise and knowledge from multiple sources.  In addition, OEMs execute numerous activities, events, and transactions with their Installed Base, by multiple employees belonging to multiple functional areas. More often than not, this complexity causes inconsistent, incomplete, and siloed interactions with the installed base. The problem is that at scale, without complete and accurate information available to each and every customer-facing employee, it is just too hard to serve every single customer in the same consistent and cost-effective manner to capture this value. Consequently, most OEMs simply focus on their top customers reluctantly ignoring the rest.

Isn’t this a problem that OEMs can solve? It turns out that it is easier said than done.

In an increasingly digital world, Industrial Original Equipment Manufacturers are creating and consuming huge amounts of customer data, all of them in siloed and unconnected systems. A typical Original Equipment Manufacturer has up to 9 different touch points with their customers as well as the installed base of equipment: field sales, marketing, field service, factory service, inside sales, technical support, engineering, logistics, finance, and executives. And that number is growing with the emergence of IIoT, eCommerce, chatbots, apps, customer portals etc.  

Solving this problem is hard: multiple sources of poor quality incomplete customer data, none of which can be trusted to tell the full and accurate story about the customer, their product usage, and behavior. This is also a very expensive problem: significant productivity losses, high costs of maintaining and managing multiple data sources, poor customer experience from inconsistent use of this data, and elevated sales and marketing costs. 

It is imperative that Original Equipment Manufacturer’s solve this problem today: buying habits are changing; customer expectations are becoming more demanding – from easy-to-use applications to the instant resolution of issues, to some form of “self-serve, no touch” service. Digital interactions are becoming the norm, and analog-first suppliers are getting phased out.

For the future of their business, OEMs need to serve every customer, not just a few. It’s not just the top 20% & the bottom 20% of customers, your middle 60 need your attention as well.

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