The Real Story On Value-Added Service

by James A. Jurack, CMC, President Birchwood Consulting International, Ltd.
As Published in Equipment Journal July 1998

Everybody knew the routine. When heavy equipment was needed for farming, mining, forestry, or construction, local customers simply scheduled a visit to their nearest dealership to see what was available in their particular price range.

They could count on well trained dealer representatives to quickly explain the unique features of the prevailing products. Not always because the equipment fit the needs of the customer, but because the premium pricing usually begged justification.

In the “good ol’ days,” distributors had a clearly defined role, and played it well. They helped arrange the best financing available, delivered the equipment, and demonstrated the latest exciting technical capabilities. More importantly, they customarily pledged complete service and support for the life of the machinery — even if it exceeded the life of the customer who owned it. But that was way back in 5 B.C. — Before Computers!

The Transition To Internet Marketing

With the recent explosion in Information Technology, savvy consumers have found access to information previously available only to the “giants” of the industry. A quick flight into the world wide marketplace of cyberspace has unveiled a unlimited marketplace of viable solutions and endless choices.

With the lure of thin margins and attractive/creative financing, the major manufacturers have already found a rapidly expanding customer base of end users. And, the customers have quickly recognized that under the manufacturer’s conditions of warranty, they are protected in the after market just as if they had made the purchase from a local dealer.

The Need For Added-Value Service

While some disgruntled dealers accepted the change as an unwelcome obligation to service ungrateful customers, others saw it as an opportunity to rebuild customer loyalty and more predictable profit centers through added-value service. As one of the provinces’ largest distributors bluntly put it, “If we can’t add something of value to the product, there is no reason for our customers to support us.”

Surprisingly, the obvious question, “What do you value?” is rarely asked of customers. Yet, the collective answer to this single question is the only information that is needed to determine the value-added services that customers will support. Simply put, the key to success starts and ends with a dealer’s ability to understand and achieve results in the customers’ terms. Armed with these inescapable facts, most dealers find it rather easy to provide a wide range of value-added services that succeed both before and after the sale.

These services have generally included financing, insurance, operator training, maintenance, and repair. For example, dealers who have invested in a complete line of replacement parts for all equipment have generally enjoyed an improved margin of profit from the steady revenue stream it produces. Obviously, the convenience of access to parts without waiting and the prospect of immediate repairs, represent services customers are willing to support with their hard earned cash.

The best value-added service is a market by market decision, but most successful dealers concentrate on faultless execution of a short list of standard services.

Creative financial packaging Cost-benefit and break even analysis on equipment Rental market arrangements On site visits for operational problem solving Operator training Quarterly meetings with factory, dealer and customer input for quality control Extended hours of business operation Full service parts and repairs Emergency 24 hour repair service Preventive maintenance agreements Dealer magazines/newsletters on topics of interest and information

One of the most important services offered by all successful dealers is advice. In the unique relationship of trust and integrity, customers need the expertise and input of the dealer in deciding when it makes financial sense to replace a piece of equipment. When it does, they look to the dealer for advice on the selection and application of the product. But, the final sale is only the tip of the iceberg.

Partners In Quality

Selling capital equipment is a two level process. At one level, engineering, manufacturing and sales must correctly weigh the technical recommendations from the field against the cost justifications. Most manufacturers meet regularly with dealers and customers to discuss quality issues, cost controls, and the operational solutions they value. The process generates valuable market intelligence. When the right information from the field is correctly interpreted by the factory, everyone is a winner. For example, years ago when the logging industry in Canada found it difficult to locate the manpower necessary to consistently operate chain saws in the dangerous and demanding job of removing limbs, a new “value” became evident. Recognizing that all problems are also opportunities, equipment manufacturers soon responded to need with the first automatic de-limbing machine. Now, every major forestry equipment manufacturer in the world offers at least one model, and nearly 80% of today’s logging companies use machines instead of men.

Still, the decision to buy capital equipment is neither predictable or even necessary. In his book that explores the challenge of customer centered marketing, Stewart Washburn reminds us that, “…the purchase of capital equipment can be postponed indefinitely, and unless there is an emergency or some clear economic or competitive advantage to be gained, the buying decision will be put off.”

Partners In Success

The second level of the two tiered strategy for success is the sales procedure itself. To begin with, the purchasing process is not a quick one. Few customers exhibit any urgency to act. After all, it is a rare occurrence when an indispensable machine breaks down and can not be repaired. Therefore, it requires nearly constant contact with the prospect until a buying decision is made. And usually, it is the local dealer representative who convinces the customer of the need to replace a perfectly functional piece of equipment.

With an intimate understanding of the customer’s real needs, the local distributor is in a position to analyze the potential benefits and true competitive advantages of the new purchase or suggest the added value of continued service and repair. Since the continued viability of all territorial dealerships is dependent on the profitability of local clientele, the best distributors have now recognized the need to act as de facto “partners” with customers in their daily struggle for success. In the words of Donald V. Fites, former Chairman and CEO of Caterpillar, “Our single focus will continue to be helping customers all over the world succeed in their businesses. When we do that — when we make them winners — then employees, dealers, and stockholders win as well.”

Clearly, the linchpin for success is the customer. To succeed in the marketplace of world wide competition, manufacturers need to produce cost effective products that meet their practical needs. Dealers need to find out what customers are willing to pay for and offer it as a value-added service. Fortunately, with the combined support of quality products and full service, the partnership between factories, dealers, and customers looks poised to take on the world!

About the author James A. Jurack, CMC, is President of Birchwood Consulting International, Ltd., a full service international marketing consulting firm focussed on providing research-based solutions to the product, market, business and brand development problems of the capital equipment and durable goods manufacturing sector. For further information please call 262-241-9900 or visit the company’s web site at www.BirchwoodCI.net