No one can serve two masters, and sometimes the road to serving only one can be rocky and painful. This difficult transition was illustrated to me in colorful detail recently by a shrewd and successful service contractor in the kitchen equipment service industry. During the course of an entertaining conversation, I proclaimed that the role of the service contractor is to be the ultimate advocate and technical expert for the customer. This means the service contractor is the source of all truth and data regarding equipment and equipment performance, thereby enabling the customer to make the best operational decisions regarding what equipment best suits their applications and how to maintain it.
He replied (and I paraphrase here because the language was much too colorful to publish on this blog), “Well, that’s a fine theory, but it is not practical. If I tell the customer the truth about each piece of equipment based upon our experience and our service records, the manufacturer will cut off my supply of parts (and other parts of my anatomy as well). So we attempt to remain neutral and leave the customer to navigate the decision process on equipment purchases the best way they can.” I will elaborate further that he was not at all happy with this state of affairs, but a large percentage of his revenue is part sales, and the best margins are when they are purchased direct from the manufacturer (in some cases that is the only “legitimate” way to get the parts).
Practical or not, the transition to “customer” as the sole master of the service contractor is underway, and it is being driven by the Internet and tech titans like Google and Amazon. Very soon, the manufacturer is going to be forced to reckon with widely available information regarding part replacement pricing and sourcing that is going to push margins down to the minimum viable volume distribution margin (15 – 25% instead of 100 – 200%). Manufacturers will be forced to extend warranties and enter into the service business in order to preserve control over the equipment lifecycle and to build margin through service delivery. The service contractor that does not build a service brand that is valuable to their customer INDEPENDENT of a manufacturer’s endorsement will be relegated to low margin warranty and service repairs at the request of some other entity that owns the relationship with the customer.
So what should the service contractor do in the face of this reality? Clearly access to parts is critical, so building up a few relationships with large volume distributors that operate across manufacturer lines is important. Second, establishing programs that qualify technicians across multiple brands is necessary if the goal is to offer the broadest possible value proposition to the customer. In some cases, cooperative alliances with specialty service providers will be required where it is not practical to “own” that expertise within the service area. Third, the service contractor must have an independent sales capability to represent to prospective customers their “expert” value proposition – do not rely on leads from the manufacturer. Most importantly, it is absolutely imperative to establish customer service capability that collects and shares information with the customer so that the service contractor becomes indispensable in the decision making process regarding any equipment purchasing or maintenance decision.
Expertise, communication, and trust enable service contractors to build customer relationships that last forever and command a premium margin. When allegiance to a manufacturer erodes that formula for perpetual service, the customer relationship becomes tenuous and margins shrink. Smart service contractors will establish alternative access to parts along with business practices that expand relevance to the customer in order to replace the parts revenue and margins that will ultimately be worn away by the Internet anyway. Do it quickly before the manufacturers realize that they too must be in the service business in order to preserve their relationship and margins at the customer.