{"id":27161,"date":"2020-11-13T07:36:00","date_gmt":"2020-11-13T07:36:00","guid":{"rendered":"https:\/\/vendavo.wpengine.com\/?p=27161"},"modified":"2023-06-12T01:30:40","modified_gmt":"2023-06-12T07:30:40","slug":"how-to-gain-profit-stability-by-investing-in-your-aftermarket-business","status":"publish","type":"post","link":"https:\/\/www.vendavo.com\/pricing\/how-to-gain-profit-stability-by-investing-in-your-aftermarket-business\/","title":{"rendered":"How to Gain Profit Stability by Investing in Your Aftermarket Business"},"content":{"rendered":"\n

A healthy aftermarket service business offers commercial stability in periods of high market volatility. This has played out time and again, including in the current COVID-19 pandemic environment, with companies who maintain the highest share of aftermarket service business able to retain the highest profitability (see below chart). The economic impact on those companies is consistently lower when compared to their industry peers that have smaller aftermarket business.<\/p>\n\n\n\n

\"\"<\/figure><\/div>\n\n\n\n
<\/span>(2020 study of seven European industrial manufacturers\u2019 average EBIT % over last two years.)<\/em><\/span><\/h6>\n\n\n\n

As the frequency of major disruptions continues to increase, from trade disputes, impact of climate and political instability, the need to find drivers of business and profit stability becomes increasingly important. Companies need to continuously invest in the aftermarket service business to ensure a more stable and recurring stream of profit. Dedicated investment in the aftermarket service business is needed to give it a chance to grow however, rather than considering aftermarket an afterthought.<\/p>\n\n\n\n

While many elements in the aftermarket service business are going through dramatic changes right now, such as new IoT enabled subscriptions and lines of support, there are other areas that must remain stable for it to deliver success. It is appropriate to understand the cornerstones for continuity and link current business models. Examples include:<\/p>\n\n\n\n

  1. The need for value creation for multiple user groups of industrial equipment.<\/li>
  2. Diverse commercial strategies within industrial equipment users requiring a differentiated service portfolio.<\/li>
  3. Equipment will still need maintenance delivered through an onsite presence.<\/li><\/ol>\n\n\n\n

    <\/span>Business Model Innovation<\/span><\/h2>\n\n\n\n

    There is a growing need to develop new ways of working and looking at the aftermarket service business and this requires innovation. But first, what defines a business model?<\/p>\n\n\n\n

    Clay Christensen suggested<\/a> that a business model should consist of four elements: a customer value proposition, a profit formula, key resources, and key processes. Let\u2019s use his definition to examine the aftermarket service business.<\/p>\n\n\n\n

    \"\"<\/figure><\/div>\n\n\n\n

    Customer Value Proposition<\/strong><\/p>\n\n\n\n

    The Customer Value Proposition is at the heart of every business model. The key question is what customer problems am I solving? For traditional aftermarket services the answer to this question has been clear, with services offered to keep or restore equipment to an operational state. The overall customer value proposition is however more complex. In aftermarket services it also includes the availability of the physical good or service as both are needed at short notice by customers. The level and availability of expertise and the way customer relationships are handled are both important factors in the value proposition.<\/p>\n\n\n\n

    Profit Formula<\/strong><\/p>\n\n\n\n

    The business model profit formula includes:<\/p>\n\n\n\n