Designing for Service—How to Increase Customer Lifetime Value and Service Monetization

Original equipment manufacturers (OEMs) and aftermarket service providers found themselves struggling for ideas on how to deliver on this expectation as they faced challenge after challenge in establishing new service-level agreements (SLAs) and communicating their added value. But those challenges were only the symptoms of a more precarious problem—not designing for service in the first place.

Looking at how the airline industry has evolved over the past two decades, OEMs and industrial service providers can draw inspiration and insights for a better-informed process of decision-making regarding the importance of service design.

In the early 2000s, the airline industry was under intense pressure to reduce operating costs and provide an improved level of service in an environment of declining revenues. According to research published at the time, engine suppliers were expected to provide more efficient and reliable products and services, with lower and more predictable operating costs. 

Offerings such as the Rolls-Royce TotalCare™ long-term service agreement became a gold standard for meeting those expectations because it efficiently aligned the objectives of both OEMs and operators in ensuring that engines kept flying uninterrupted for a convenient price. 

The same research suggested that the real potential for quantum reductions could be unlocked by designing products and services in tandem, shifting the organizational mindset from offering service around an existing product to designing a service and the product that supports it. This recommendation came all the way from 2006 and it’s as relevant today as it was back then. 

Looking even deeper into the past, we can see how servitization has helped industrial organizations to stabilize during times of crisis and how its long history attests to its potential for revenue growth and increased customer lifetime value. A prime example of this is Rolls-Royce’s power-by-the-hour model which was successful for 58 consecutive years until the COVID-19 outbreak disrupted the status quo. 

This goes to show that servitization as industrial organizations and aftermarket service providers knew it until the outbreak has changed. Product-as-a-service is becoming everything-as-a-service, frameworks are being changed to include customer KPIs, and the need for resilience is driving the industry toward rethinking service design with monetization and customer lifetime value in mind.

The lifetime value of service design

From the very beginning of the new product development (NPD) process, it’s critical to see beyond obvious customer requirements and incorporate considerations for the factors pertaining to the performance of maintenance and other services that will become important throughout the product’s lifecycle. 

As such, design for service (DFS) is a strategy for the product lifecycle that addresses the serviceability attributes during the NPD process. It involves the coordination and combined efforts of different departments to produce quality service that fuses together both manufacturing capabilities and business knowledge, emphasizing the importance of serviceability attributes such as reliability, configuration, and ergonomics, which have a direct impact on the cost and efficacy of the servicing of the product. This makes DFS critical for effective service lifecycle management (SLM), product lifecycle management (PLM), and customer lifetime value (CLV) management.

As more and more industrial organizations embrace servitization and move towards everything-as-a-service models, many realize that transition can be hindered by product capabilities that prevent the execution of maintenance, repairs, performance, and other aftermarket services, thus affecting the product lifecycle. This is why implementing DFS in the NPD process is climbing high on the priority list for OEMs that want to expand their service offerings and add value by extending the product lifecycle.

Designing for service excellence

Designing a product with attributes that facilitate the intervention and execution of aftermarket services involves a great degree of planning and consideration before the NPD process can begin. The following aspects should inform the product design process to ensure that value is created for the customer and that service teams can deliver on expectations. 

1 – Drivers

Before anything else, it’s essential to determine where demand comes from and what drives it. For most B2B customers, the longevity of the product is a top priority, especially as costs and complexity increase. To design for serviceability, industrial organizations must think of the customer’s needs for availability, reliability, durability, their KPIs, and metrics such as mean time between failures (MTBF), mean time to repair (MTTR), lifecycle cost (LCC), warranty period, and more. They should also consider the customer’s operation site, where the service will be performed, the level of repair strategy, and spare parts storage locations. 

2 – Diagnosability

In order to deliver the required services, industrial organizations need to incorporate capabilities for diagnosis within their products. By introducing a system for total visibility and data collection to an item or component, OEMs can detect and isolate an incident before it’s too late. It’s important to monitor and measure the equipment, but this doesn’t come without its challenges. Customers are apprehensive about sharing their data with service suppliers, so communicating the added value of an element of diagnosability within the product may be difficult. The offering must be presented in the most informative and compelling way possible to an uncertain audience.

3 – Serviceability

Servitization is about putting the customer at the heart of the business. In product design, this means developing a product that will make the life of the customer much easier, helping them to streamline their business operations. There are several DFS principles that can guide OEMs throughout the design process, including:

• Simplification or decreasing the complexity of the equipment and taking a modular approach. This results in fewer items to diagnose or fail, less disassembly and reassembly effort, and minimal service parts inventory;
• Standardization of parts and modules for lower costs, consistent quality, data collection for better service planning, and easier accessibility, replacement, and inventory management;
• Ergonomics, safety, and easy access to the items that will need to be serviced in order to minimize unfastening and re-fastening efforts.

Increased CLV and service monetization

For successful value-based monetization, industrial organizations must correctly estimate a customer’s willingness to pay. This means communicating with them even before the NPD process can begin to determine the customer’s KPIs and how the newly designed product and service deliver on those KPIs. The customer’s willingness to pay will increase as they understand that the product features configuration capabilities that can be optimized based on their unique needs. 

Communicating new value-added offerings can be tricky, but an OEM telling customers that the company will take full responsibility for monitoring, maintenance and performance planning, parts replacement, and technical assistance is a compelling way to help the customer perceive the added value. 

Enforced by a performance-based or outcome-based contract to consistently improve accountability and service quality, the customer will feel more confident in the organization and willing to pay for the new offering.

Aftermarket services that extend a product’s lifecycle also extend the customer lifetime value, which is critical for sustainable growth in a post-pandemic reality. The value of servicing a product cannot be understated. It loyalizes customers, enabling them to stay in the client-supplier relationship for longer, buy more from them, refer the brand to industry peers, minimize their price sensitivity,  and provide actionable feedback to the organization. And all of that makes them easier to serve.