Over the last five to ten years, a growing number of Chief Service Officers (CSOs) have been assigned a service revenue growth target — a trend recently confirmed through research by Noventum, which found that more than 85% of product manufacturers have set a growth target for their service function. As this trend gains steam, we think it's worth examining how CSOs can achieve service revenue growth and what they can learn from the sales side.
If you ask a salesperson to grow revenue, they will ask for two prerequisites:
- More and newer products with more features at a better price point
- A marketing budget to target the addressable market
What does a CSO ask for when receiving and accepting a service revenue growth target? For many CSO's, growing service revenue and using service marketing is unchartered territory.
What's your marketing budget?
Up to 2012 I managed my service operations at Bosch as a cost centre. At that time service was the single largest margin contributor to the company. In 2012, I received service revenue growth objectives. Simultaneously my role transitioned from the service domain to the sales domain. In my first conversation with the chief revenue officer, I was asked: "What marketing budget do you need?"
Having run service operations for 25 years, my automatic response was to first focus on achieving excellence for the existing service delivery capabilities. After a crash course in sales and marketing, I revised my strategy. Sell first. Secure the revenue. Use the revenue to finance the maturing of your delivery capabilities.
The result: a quadrupling of service revenue in five years. How? By focusing on two items:
- Using the voice of the customer to develop a services portfolio
- Setting up service marketing for the installed base
Developing a services portfolio
Back in 2012 I was so focused on service delivery, it never crossed my mind to challenge my services portfolio. My sales colleagues explained to me that a portfolio with sufficient choice is the basis for revenue generation. We then set on a course to create a services portfolio with selectable features and differing price points. Our goal was to create an 'a la carte' menu card.
The true test was to come. Would our customers buy the items from our menu card? This is where we realised our need for a true marketing function. A function to help us frame the value messaging and to reach out to the target audience.
Setting up service marketing
First, we looked at the value promise our company made to its customers. Is that value promise pertaining to owning the product and/or is it about using the product throughout its lifecycle? How does our menu card of lifecycle services fit in? And how do we facilitate product owners in making the right service lifecycle choices?
In setting up a marketing function for service, we used our sales colleagues as reference. In the world of sales, key metrics are Total Addressable Market (TAM) and Market Share. Marketing uses these two parameters to spearhead campaigns. In the world of service, these two metrics can be substituted by Installed Base penetration and Attach Rates.
- Total addressable market. Suppose you have an installed base visibility of 100% and all those units have an attached service contract. Suppose all those contracts are of the type gold-service. The sum of that equation is your maximum achievable service revenue. You could label this as your service-TAM. If your organisation also services units of competing brands, the service-TAM will be bigger.
- Market share. Your current actual service revenue is the compound result of two factors — your ability to drive installed base visibility and attach rates, in combination with the attractiveness of your services portfolio.
- The gap. As mentioned in an earlier blog Mind the Gap, the delta between your service-TAM and your actual market share is your revenue gap. This gap encompasses your target audience for service marketing. The larger the gap, the bigger your compelling reason to review your services portfolio and to establish a service marketing function.
Targeting your audience
Service marketing has one big advantage over sales marketing — with a field service management system focussed on asset-centric business models, marketing will have the perfect data set to drive targeted campaigns:
- Knowing where your installed base is
- Knowing the state of the asset and how the asset is being used
- Having a record of the maintenance history
- Knowing what engineering change orders and modernisations have been implemented
- Visibility to the current service contract and entitlements
As one of our customers told us:
We operated a model of sell and forget. Now we sell and service. We have invested in installed base visibility, attach rates, our services portfolio and service marketing. We are now on a deliberate and conscious path of service revenue growth.
Setting a budget
Knowing what I know now, I would respond differently to my former chief revenue officer. I would request a service marketing budget to revisit my services portfolio and to initiate targeted marketing on my revenue gap.
I would not hesitate to commit on service revenue growth targets, knowing the service delivery organization had an asset-centric field service management system.