More than an Afterthought
How to achieve double digit growth through aftermarket products and services
Aftermarket revenue and profit growth should be more than an ‘after thought’ for industrial equipment manufacturers and suppliers.
Market leaders generate 20%+ of their total revenues from aftermarket parts & services. How does your organization stack up?
If we offered the general managers of industrial equipment OEMs & Tier 1 suppliers a new source of profitable revenue growth shielded from end-market demand cyclicality, a pathway to strengthen ‘stickiness’ with end customers, and a moat against the low-cost competition, few would turn us away.
And yet, for many of the industrial equipment manufacturers and Tier 1 suppliers with whom T&Co has worked over the years, their aftermarket parts and services franchise – which offers all these strategic benefits and revenue results – is an ‘after-thought’ to their whole goods (products) business.
Market leaders recognize 20%+ of their total revenues from aftermarket parts & services and have maintained or expanded profitability. In many of these case examples, aftermarket revenue growth has outpaced whole goods growth by 2-3X over the past three years.
Through our experience working with market-leading industrial OEMs & suppliers, we have identified five key elements to making the shift from selling products to maximizing customer lifetime value and realizing outsized growth results. Your organization can apply this proven growth formula.
T&Co Client Case Example: Driving $100M+ of Core Growth from Aftermarket Upgrade Kits
T&Co recently worked with a market-leading Tier 1 component supplier into oil & gas hydraulic fracturing fleets in North America. With a dominant installed base advantage and a strong network of third-party distributors, our client was confident in its bold plan to drive double-digit new unit sales growth with its existing national accounts and regional fleet conquest programs.
And then, oil prices declined to less than $50 / barrel. In response, our client’s core customers and conquest prospects drastically cut their capital spending on new units and parked much of their existing field capacity. Caught at the bottom of the market cycle, our client could no longer rely on its new unit sales plan to deliver its growth plan and turned to the aftermarket and T&Co in search of growth.
T&Co partnered with the sales and marketing team on a Voice of Customer program to understand deeply fleet CapEx and OpEx spending priorities, which we learned included reallocating spending into maintaining and rebuilding existing fielded capacity in anticipation of a market recovery in 18-24 months. With this market-back insight, we collaboratively designed, tested, and launched an aftermarket kitting program to rebuild and convert fielded hardware & controls software to the latest specification. Complementing the kitting offer was an upgraded commercial model, including seed units and volume-based incentive discounts to win early adopters, dedicated field resources (versus third-party distributors), and testimonial-driven marketing to drive mass-market adoption of the upgrade kits.
The Results? Within 18 months of launch, the aftermarket upgrade kitting program delivered $100M+ of incremental parts & service revenue and favorably positioned our client for new units sales of its next-generation offer – that already had customer acceptance in the oil field – as the market recovered.
About the Authors
Richard Schwartz is a Partner in our Boston office. You can reach him at [email protected]
Hans Mueller-Schrader is a Managing Associate in our Chicago office. You can reach him at [email protected]
Rob Castle is an Analyst in our Boston office. You can reach him at [email protected]