Manufacturers are going through a defining phase, with servitization evolving as a trend, market dynamics changing rapidly, technology advancing, and demands on profitability soaring. OEMs need to tap into the recurring revenue streams enabled by servitization and the aftermarket if they are to remain competitive while also becoming more sustainable.
We have identified six key service contract pricing themes that characterize this important era for OEMs, and highlighted what they mean for industry players going forward. The effectiveness of your AI and ML capabilities will be a critical success factor in each case.
- The era of servitization
The rise of servitization marks a shift toward more customer-centric approaches, whereby risk is transferred from the customer to the solution provider. This presents an opportunity to develop deep, lasting relationships that lead to more profitable service contracts. Customers want outcomes and experiences over products, which will require OEMs to demonstrate tangible value.
A diverse range of industries have successfully harnessed servitization principles, realizing game-changing upticks in revenue performance, customer satisfaction, and business operations simultaneously. Getting this right hinges on the effectiveness of your contract pricing strategy and the solutions that power it.
An advanced CRM system is needed to manage customer relationships and the associated service contracts, while FSM and service scheduling software is essential for tracking maintenance cycles. Syncron Contract Price makes it easy to handle vast data sets and optimize pricing for full-service contracts and product-as-a-service offerings alike.
- Doubling down on digitalization
Processing and collecting data can no longer be carried out effectively by human teams using Excel, the support of AI and ML capabilities has become vital to tackle today’s data volumes in real-time. Not only are these technologies necessary for collecting and processing data associated with service contracts, but for tracking the performance of contracts over time.
As more manufacturers realize the transformational benefits associated with innovative contract pricing, it is becoming a key competitive differentiator – we are seeing more and more players using their own data lakes and employing data scientists to enhance their capabilities. Digitalization reduces contract risk, improves operational productivity, and enables a proactive approach to resource planning.
- Sustainability and supply chain efficiency
Industries are facing increasing pressure to demonstrate sustainable efforts and practices, with regulations tightening and targets like Net Zero setting the pace. Meanwhile, customers have also become more climate conscious than ever before.
Supply chain efficiency is at the heart of sustainability progress for OEMs, and total cost of ownership (TCO) must be considered throughout the service lifecycle. Deploying the right AI and ML technologies will be crucial for predicting the total cost of service contracts with much greater granularity.
- Evolving market dynamics
In 2024, OEMs are facing greater competition than ever before, both in terms of the refinement of offerings and the sheer number of competitors. This multifaceted challenge means that manufacturers must differentiate their services if they are to stay ahead, making technology-enabled contract pricing a must.
“Market dynamics have become much faster, much tougher, and much more complex.”
Per Almberg, Director of Service GTM Solutions, Syncron
With customers seeking outcomes over products, innovative contract pricing offers a way to secure robust margins at a time of global turbulence and intense competition. Those that ignore this trend will struggle with customer retention and be at greater risk of fluctuations in demand caused by macroeconomic and geopolitical issues.
When equipped with the right AI and ML-powered solutions, an OEM can adjust contract pricing in real-time based on a multitude of factors, enabling them to offer informed, justifiable, and competitive pricing options.
- Equipment complexity
As technology adds greater functionality to equipment and assets, they are becoming increasingly complex and diversified as a result. This is making it much more difficult for OEMs to estimate service and repair costs when it comes to contract pricing, which is now crucial as customers demand dynamic, outcome-based options.
Syncron is providing OEMs with much needed clarity by offering a single platform to price, administer, and manage the entire lifecycles of service contracts. This solution offers an intelligent way to price increasingly complex service contracts in a way that is easy for the user and customer to understand.
- Pricing strategy sophistication
Cost-plus approaches are simply no longer profitable enough, and the value customers perceive must be considered when it comes to contract pricing. The more sophisticated your pricing strategy becomes in 2024 and beyond, the more new revenue you will be able to capture.
Value-based and outcome-based strategies are the way forward when it comes to contract pricing. These approaches will require OEMs to deploy data analytics, embrace automation, master contract management, and use software that supports dynamic, predictive pricing.
Creating more secure margins
Syncron Contract Price has made the process of optimizing the pricing of both new and existing service contracts streamlined and straightforward. From service contracts to product-as-a-service, our use of machine learning enables us to rapidly assess current and historical contract performance. By processing this vast amount of data in real-time, the solution forecasts material and labor costs with unmatched precision.
As a result of adopting this unique solution, OEMs are gaining more competitive service contracts, more predictable margins, and more proactive cost analysis. Syncron Contract Price reduces the risk of unprofitable contracts by leveraging data-driven insights derived by machine learning, and produces a single source of the truth when it comes to contract data. This is captured and managed within a secure cloud platform.
These results are being achieved in spite of economic uncertainty and disruption, equipping manufacturers to supercharge their aftermarket pricing strategies. Get in touch with our solution experts to find out more!