Decoding the Concept of Value in the Aftermarket and Service Industry

In the manufacturing industry, there has been a notable boom in the service economy driven by technology and data analysis. These advancements enable companies to monetize the entire lifecycle of their products in the aftermarket. However, evolving customer expectations continually reshape this landscape. The critical question then becomes: How can brands effectively monetize and enhance their value proposition to foster customer loyalty?

Mike Wilkinson, Leading Value Expert at Axia Value Solutions, shed light on this dilemma in our Copperberg Select webinar on The Concept of Selling Value. He emphasized that despite the ubiquitous use of the term “value,” its precise definition often eludes us. Value is not a one-size-fits-all concept; it varies from company to company and depends fundamentally on what customers perceive as valuable—which is a perpetual mystery until thoroughly understood by the service provider.

Understanding Value from the Customer’s Perspective

Engaging customers to uncover what they truly value is the key that unlocks an important stream of revenue in the service sector. This involves moving beyond assumptions and actively listening to customers’ perspectives. By focusing on customer-first conversations rather than product-centric approaches, organizations can explore their challenges, desired outcomes, and how best to assist them.

In the initial value discovery sessions with customers, the emphasis should not be on what the organization is selling but on understanding the customer’s unique needs and objectives. By genuinely showing interest in understanding their business, trust can be built on a foundation of meaningful dialogue. This approach is integral to solution-selling and value-based selling, where aligning with the customer’s goals leads to solutions that have a deeper resonance and relevance.

“The concept of high or low quality is a similar topic in that the customer is the arbiter in defining value or quality. It is different for each customer at any given time or circumstance.”
– Audience insight

To truly succeed in delivering value, it’s essential to acknowledge that value is subjective and situational. What one customer finds valuable at one point in time may differ from another customer’s perspective. Therefore, ongoing dialogue, flexibility, and adaptation are crucial to ensuring that the solutions offered consistently meet and exceed customer expectations across diverse organizational functions and in different circumstances.

Building Trust and Understanding Adds Value

It’s time to stop selling. Instead, work with customers because both parties have a joint interest: helping customers make the best possible buying decisions to achieve their desired outcomes. The more organizations do this, the more they will be seen as part of their team, moving towards a more constructive and transparent relationship. This breaks away from the adversarial buyer-seller dynamic that is so familiar in the business world.

This shift also changes how salespeople are perceived. When selling to customers, they often have their guard up, questioning the value and transparency of the offer. In value-based selling, the proposition and impact on the customer’s decision are different. Even if a deal is not made, the engagement can still be fruitful, leaving a positive impression and an open door for future opportunities.

Relationships and connections are still very important even if they don’t yield immediate benefits. Historically, if you got on well with the buyer, you got the business. And buyers need to make the right decision for their business, whether they like the service provider or not. However, good relationships make buyers more open to sharing information which is necessary to ultimately help them. A good measure of your relationship with your customers is how much they are willing to share with you. If they withhold information, it reflects the quality of your relationship and how they want it to be. A tangible manifestation of this, for example, is to start discussions within sales teams or service teams about what the organization needs to know about each customer: 

“Approach them with a customer-first mindset. Your goal for the day should be to gather information about the customer. If we start capturing information this way, it won’t be long before we see different dynamics, allowing us to approach the value conversation in a totally different way.”
– Lisa Hellqvist, Managing Director

“The mystery of value can be solved if we open conversations with customers, where we feel comfortable just asking questions, where we, as humans, embrace the uncertainty and the insecurity caused by not having answers.”
– Audience insight

When starting the conversation with the customer, organizations should think about what they want to find out about their customers, even if it’s just a service call. This approach can help build the relationship by showing genuine interest in the customer and their business. It also benefits the organization when further opportunities arise. After each call, it’s important to evaluate what you know about the customer that you didn’t know before. If the answer is nothing, what was the point of the call? Building your knowledge and the quality of your relationship should be objectives for every discussion.

Practical Approaches to Discovering Value

The complexity of value discussions and customer centricity requires a simple methodology. It needs to be integrated into daily workflow through small, planned moments that capture valuable information because otherwise, courtesy calls without any outcome are a waste of time and resources.

The organization, by its nature, often tends to overcomplicate these conversations with customers. The goal should be to simplify what is complex, not to complicate what is already simple. Approach these discussions with a more business-casual mindset because it can make the rapport much easier and more natural. With that in mind, having a process is important. 

“My value sales process, for example, is very simple, with only five stages. However, each stage has a lot going on beneath the surface, like a duck swimming serenely while its legs paddle vigorously underwater. It’s crucial to make these processes second nature. Take your customer on a value journey during your conversation. Discuss their current issues, what they want to achieve, and the impact if they fail to solve their problems. Monetize this impact if possible. At the end of the conversation, summarize and gauge their commitment to addressing these issues. Many opportunities fail because no one commits to taking action.”
– Mike Wilkinson, Leading Value Expert

Getting both people in the organization and customers committed is important. That is something that the SPIN selling theory covers, where the customer is challenged by questioning the knock-on effect if they don’t fix an issue. It helps the customer visualize what the impact might be. Often, people let slightly urgent issues slide due to bandwidth constraints, but when someone presents a solution that addresses all their requests, they are compelled to acknowledge the potential impact or costs out loud. This verbalization makes it all the more real to them.

Articulating Value and Managing Customer Perceptions

Helping customers realize the true cost is significant in this dynamic. Prompting them to evaluate the cost—in the present, over a year, how long the issue has been happening, and how long it will continue if not addressed—is very effective. If they are made aware that they can move those resources that they might otherwise lose into something more beneficial, they might act quickly and expedite the decision-making process around the purchase. This concept leans on Mike Wilkinson’s value triad, which breaks down the value into three aspects. 

1. Revenue or performance gain: How can what you do help the customer improve their revenue or performance? This is a straightforward tangible aspect that can be easily monetized.
2. Cost reduction: How does what you do help the customer reduce costs? Cost reduction is often easier to think about than revenue improvement. Revenue is a function of volume times margin, so anything affecting these can impact revenue.
3. Emotional contribution: What are the intangible aspects like the quality of the relationship, trust, respect, cultural fit, and the value of your brand? These are subjective but hugely important. Although many in B2B claim to buy logically, evidence suggests emotions play a significant role, much like in personal purchases.

Every conversation between provider and customer will contain some of these elements. What’s important to one customer might be revenue gain, while another may prioritize cost reduction, and yet another may resonate with the emotional aspect. Organizations should not miss out on the emotional component. Beyond calculating costs, ask the customer how the impact or revenue loss makes them feel and how their management feels about it. 

This once again ties into the importance of knowing your customers. You cannot ask personal questions about their feelings unless you have established a certain level of communication with them. This understanding is crucial for leveraging the emotional contribution to the value triad. Otherwise, these elements might not seem interesting on their own. For example, cost reduction can easily lead to offering discounts, but there are more valuable ways to make a sale. 

“If you don’t understand a customer’s current challenges, how can you provide a solution that drives revenue gain? These three elements need to be harmonized. There’s always a fear versus greed aspect in business transactions, and this also plays into the emotional contribution.”
– Lisa Hellqvist, Managing Director

The value challenge is about using your understanding of customer value to defend your prices against downward pressure. It does not mean eliminating discounts from the pricing model, but it helps avoid automatic discounts and mitigates the risk of confusing price with cost. When customers ask for a discount, they usually want to reduce costs. Offering a discount is just one way to do this, but not the only way. Sometimes, a premium-priced solution can offer more significant cost reductions in a distinguished way. 

However, buyers ask for discounts because they usually get one. This behavior is something providers have trained them to expect. But when value is communicated in a confident and transparent way, buyers tend to accept the proposition without a discount. Confidence shows that you believe in your product and service, which can prevent diluting its perceived value by the customer. Discounting can devalue both your and your customers’ perception of the service.

“There will always be price-driven customers, but not every potential customer is your kind of customer. If your company prides itself on being premium-priced and delivering great value, you can’t afford to win business by dropping your price. This doesn’t mean you’ll never discount, but it should be done in a structured way, using your value as the primary defense.”
– Mike Wilkinson, Leading Value Expert

Sometimes, embedding services or loyalty aspects into contracts can serve as a form of discount, without explicitly lowering the price. This approach is more likely when a value discussion has taken place from the start. Organizations can then offer suggestions that might not be budget-friendly in the present but could be beneficial in the long run as customers opt for upgrades of added value. One of the misconceptions many organizations have is that added value or value-add is what the customer wants. However, it’s crucial to confirm this assumption and tailor offerings accordingly. It’s only a value-added service if the customer sees it as such; otherwise, it’s just a cost. 

The aftermarket and service sectors, particularly for equipment manufacturers, aim to monetize the service lifecycle after the initial transaction. This includes leveraging the installed base, upselling, and offering premium service level agreements. These are often referred to as value-added services because they are supposed to provide additional value to the customer. These services can include connected services, predictive maintenance, and ensuring uptime, which undoubtedly add value by enhancing output.

However, simply adding services and calling them value-added does not inherently make them valuable. If the customer is not willing to pay for these added services, it implies they do not see the value. Thus, the customer’s perception of value is crucial. It’s necessary to understand how customers perceive value and what they see as contributing effectively to their desired outcomes. It’s important to explore their key concerns, problems, and challenges without immediately jumping to solutions. Organizations need to explore and evolve their understanding of their customers’ viewpoints and needs in their value creation.

Once they have this understanding, they can benchmark their offerings against their customers’ needs to determine if they can deliver at a reasonable price. A lot of service offerings can be seen as insurance policies, ensuring continuous operations and immediate incident response. Many customers purchase services they hope to never need, like annual service contracts, because the alternative could be costly downtime. Communicating the cost of potential downtime against the cost of an extended service warranty can thus be effective and provide an emotional benefit such as reassurance and reliability. 

This involves having a genuine interest and curiosity in the customer’s operations, beyond the initial sale. After making a sale, the process moves into value development: maintaining the relationship, understanding cross-selling and upselling opportunities, and ensuring that customers don’t go elsewhere for parts of the solution you could provide.

Recognizing Value Creation Opportunities 

Customers often view refining processes and integrating machine data as separate projects. However, if the software to cater to these needs is already available and the organizations are not aware of what their customers are looking for, they miss the chance for an upsell or cross-sell. Service personnel, often on the shop floor, are best positioned to recognize these opportunities because they see things happening in real time.

To show how you can help customers improve revenue or reduce costs, you need to understand where their revenue comes from and where they incur costs. Without this knowledge, you can’t effectively demonstrate your value against competitors, the customer doing it themselves, or doing nothing at all. Value is defined by the customer, so understanding their priorities is crucial.

There is no need to overcomplicate understanding value. It can be as simple as aligning with the customer’s current goals, such as cost-cutting. Knowing their corporate agenda allows you to present more cost-efficient solutions from your offerings, showing that you are in tune with their needs. B2B interactions often reflect corporate directives, not just individual preferences, so understanding the broader strategic initiatives is key.

“If customer value is the difference between what customers get and what they pay, maybe the solution to solve the “mystery” is to move from value perception to a concrete value quantification (how much more money they make thanks to you) that is agreed between the supplier and the customer.”
– Paolo de Angeli, Customer Value Expert

The quality of an organization’s research into its customer’s strategic goals and operational challenges determines its ability to provide valuable solutions. By aligning your offerings with your customers’ objectives, you position yourself as a partner in their success, not just a vendor.

Very often, the corporate initiative is to cut costs. So it’s more effective to approach the customer knowing that cost-cutting is high on the agenda that year and offer to work together to improve their efficiency in a way that will drive down costs. This approach might even justify increasing prices if it provides a more sophisticated solution. However, using price as an initiator with the customer is not ideal. 

When discussions are focused on price, it locks the discussion around a certain number or figure. It is much easier to have proactive discussions without fixating on numbers. Knowing that there’s a cost-cutting agenda, you can present something showing efficiency, potentially reducing the extent of their price cuts.

Defending your prices by using your value is important. It is easy to drop prices and make discounts, but it’s more satisfying to maintain value in the service industry. Remember, value is a mystery defined by your customers, not you. It does not matter how valuable you think your solution is; it is only valuable when your customer acknowledges it. A solution is the answer to a problem, and if you have not articulated the problem, you do not have a solution.