benchmarks to optimize & maximize service contract sales · •the majority of respondents sell...

Benchmarks to Optimize & Maximize Service Contract Sales

Results of 2020 Survey

Table of Contents

I. Background

II. Respondent Demographics

III. Go To Market Approach

IV. Configuration

V. Attach & Renewal Rates

VI. Advanced Notification

VII.Flexibility of Terms

VIII.Sales & Marketing

IX. Customer Buying Journey

X. Future Plans

XI. Summary

Background

• Mize conducted a study among service executives and warranty professionals who are involved in marketing and selling service contracts and extended warranty (SC/EW) programs.

• Study objectives:

• Identify best practices involved in marketing and selling SC/

• Evaluate the impact of these practices on key performance indicators (KPIs).

• Validate which strategies and tactics offer the best results

• A total of 96 service executives and warranty professionals participated in the study.

Respondent Demographics

• Over two-thirds (68%) of the respondents were from companies who serve the B2B marketplace while the remaining one-third were from B2C.

• Companies from the B2B market support a broad range of products.

• The most frequently mentioned products include Construction Equipment (35.3%) , Material Handling Equipment (17.7%) and Information Technology (17.7%).

• Nearly 2/3rds of B2C companies support Consumer Electronics and Appliances; 1/3rd

support automotive.

• Approximately three quarters (76%) of respondents surveyed were from OEM organizations; the remaining 24% were from either authorized channel partners or independent retailers/service provider s

Businesses Consumers

Target Customer

ondents

Target Customer Segment

Go To Market Approach

• The majority of respondents sell service contracts & extended warranty programs

(SC/EW) through authorized channels partner (76%) and/or their own product sales

organization(80%)

• Approximately one third, sell these programs through their Service & Support

organization (36%) and/or Independent Retailers/Distributors (32%).

• A wide array of functions are engaged in developing the configuration and pricing of

SC/EW programs

• The most frequently mentioned functions are Sales (68%) and Service (64%) operations

followed by Pricing(48%), Warranty Management (44%) and Marketing (40%)

• Less than one-third of respondents indicate that Quality (20%) and Finance (32%) are

involved in developing the configuration and price

Product Sales

Service & Support

Authorized Channel Partner

Independent Retailer/Distributor

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%

Organization that sells your SC/EW directly to end-users

Pricing

Marketing

Warranty Management

Services operations

Finance/Accounting

Quality assurance

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%

Function engaged in the configuration and pricing of an SC/EW

SC/EW Configuration

• Approximately two-thirds (68%) of the respondents offer some level of customization when it comes to contract configuration. The remaining one-third (32%) offer only standardized configuration

• A plurality of respondents indicate they plan to expand customized configuration offers in the future

• A higher percentage of respondents from the B2C segment reported standardized configuration then compared to B2B who skewed toward customized configurations

• Over 80% of respondents have a typical contract duration of 3 years or less. Nearly half (48%) have duration period of 2-3 years

• Longer duration periods were reported among respondents from the B2C sector

• Over three quarters (76%) indicate that their SC/EW programs cover the entire product’s Bill of Materials (BOM) while 24% cover selective sub-systems within the BOM

We only provide thebuyer with a standard

configuration

We only provide thebuyer with customized

services

Most are standard, butsome are customized

Most are customized, butsome are standard

Standardization VS Customization

We will primarily expand ourstandard configuration

offerings

We will primarily expand ourcustomized configuration

offerings

We currently have no plansto change our configuration

offerings

Future Plans SC/EW Configuration

1-2 years 2-3 years 4-5 years 6-7 years

Typical Duration of SC/EW

Entire product (e.g. total forklift) Selective subsystems of a product (e.g. engine andtransmission)

Segment of a Product's Bill Of Material [BOM] Primarily Covered Under SC/EW

SC/EW Configuration (Continued)

• Configuration also refers to the processes covered, resources provided, and performance guarantees

• With respect to processes covered, the majority (84%) of respondents include break-fix. Less than one-third include:

• Planned Inspections, Calibrations, Inspections: 32%

• Consumable Replacement: 28%

• Remote Monitoring, Parts Replacement: 24%

• The most frequently mentioned resources provided to support these processes include

• Onsite Field Service: 80%

• Spare Parts: 68%

• Omni-Channel Support: 56%

• Advanced Exchange: 52%

• The inclusion of performance guarantees or entitlements is less pervasive. Only 52% include Guaranteed Onsite Response Time as part of the configuration while 44% provide Guaranteed Parts Delivery Time

Spare Parts

Advanced exchange

Onsite Field Service

Depot Repair

Omni-channel support

Self-Service

Loaners

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%

Resources Provided To Support Processes Covered

Break/fix

Replace Parts

Calibration

Periodic testing

Planned Inspections

Regulatory compliance

Replace consumables

Recalls

Upgrades

Training

Remote Monitoring

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%

Processes Covered Under SC/EW

Onsite response time

Parts delivery time

Resolution/repair time

Remote support response time

Loaner after 24 hours

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

Level of Performance Guarantee/Entitlements included within Service Contracts & Extended Warranties

Attach & Renewal Rates

• A majority of respondents report attach rates of 50% or less.

• 45% of respondents report attach rates in the range of 26% -50%

• 15% report attach rates in the range of 51% to 70%

• Higher attach rates cited among respondents in the B2B Segment

• Over one-quarter (28.6%) of respondents report renewal rates over 76%

• 14.3% report renewal rates of 90% or higher

• Higher Renewal rates are cited among respondents in the B2B Segment

10-25%

26-50%

51-70%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0%

ondents

Attach Rate

Attach Rate for Selling Service Contractand/or Extended Warranties

14.3% 14.3%

< 50% 50-75 % 76-90% > 90%

Renewal Rates

ondents

Service Contract/Extended Warranty (SC/EW) Renewal Rates

Advanced Notification

• Respondents typically notify customers that their SC/EW programs are up for renewal.

• 50% of the respondents indicate they provide more than 75 day advanced notification; 16% provide 90 days or more notification.

• Higher renewal rates observed among companies that provide 90 t0 76 days advanced notification.

• Two-thirds (68%) of respondents provide only 1-2 advanced notifications. The remaining 32% provide 3 or more notifications

• Higher Renewal Rates are observed among respondent who provide 3 or more notifications

more than 90 days 90 to 76 days 75 to 61 days 60 to 46 Days 45 to 31 Days 30 days or less

Advanced Notification that SC/EW is up for Renewal

20.0% 20.0%

One Two Three Four or more

Number of Advanced Notifications Provided

Flexibility of Terms

• The majority (64%) of respondents structure their SC/EW on the basis of one fixed fee billed for the entire duration of the program; 28%have a fixed fee per bill period

• Higher Attach and Renewal Rates are associated with fix fee per bill period

• B2C Segment typically bills one time for entire duration

• Approximately, one-half (52%) of the respondents invoice once upon signing. One in Five respondents invoice annually (20%) or monthly (20%).

• Half of the respondents provide customers with the ability to terminate SC/EW programs, either with penalties or without, once they have purchased them.

• Higher attach rates and renewal rates are associated companies provide ability to terminate with penalties

• B2C more likely than B2B to offer ability to terminate early with no penalties

One fixed fee billed one-time for entire durationof SC/EW

A fixed fee billed per period (e.g. monthly)

A fixed fee per-frequency-of-use with billing ona period basis (e.g. pay-per-production lot

completed during a monthly basis)

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

Primary Fee and Billing Schedule

4.0% 4.0%

Annually Bi-Annually Quarterly Monthly Once, upon signing

Invoice Frequency for SC/EW

Yes, with no penalties Yes, with penalties No

Ability to terminate SC/EW once they have been purchased

Flexibility of Terms (Continued)

• Approximately half of the respondents surveyed provide their customers the ability to negotiate the price of SC/EW programs, and extend the length of these programs

• Higher attach and renewal rates among companies who provide customers with the ability to negotiate price

• This practice is more common within the B2B Segment

Yes No

Provides customers with the ability to negotiate the price of Service Contracts & Extended Warranties

Yes No

Ability for Customers to Extend SC/EW Length

Sales & Marketing

• A majority (54.2%) of respondents involve front line service personnel in the sale of SC/EW contracts.

• Approximately, two-thirds (68%) provide formal sales training while less than half (46.2%) use automation to facilitate the ability front line service personnel to sell SC/EW programs

• Higher attach rates and renewals are cited among respondents that use automation to facilitate sale by front line service personnel

• Most respondents (80%) have a structured process in place to configure, price, and quote (CPQ) program

• Various types of applications are used for CPQ. The most frequently mentioned is spreadsheets.

• One-third (36%) use functionality found within their CRM/ERP or Warranty & Service Contract Management Systems. Only 20% use standalone CPQ applications.

Yes No

Use of front line service personnel (e.g., technicians) in the sale or renewal of SC/EW

Yes No

Provides formal sales training to the people responsible for selling SC/EW

Yes No

Use of automation or application to facilitate the sale of SC/EW by front line service personnel

Yes No

Structured Process To Configure, Price, and Quote SC/EW

Pen and Paper

Spreadsheets

Functionality found within a CRM/ERP application

Functionality found within a Warranty or Contract Management System

A standalone CPQ application

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%

Application Utilized to Configure, Price, Quote and Sell EW/SC

Sales & Marketing (Continued)

• Respondents indicate that they use a broad array of tactics to influence buying decisions

• The most frequently mentioned tactics are direct sales (72%) and sales aides/brochure (64%)

• Interestingly, respondents indicate the most effective tactics are:

• Customer endorsements/testimonials (71.4%)

• Direct Sales (68.2%)

• Reputation Management (60.0%)

Tactics utilized to influence buying decisions with regard to SC/EW

38.9%41.7%

Effectiveness of Sales Tactics- % of Respondents with Rating of 8 or 9 -

(1 = Not all Effective and 9 = Extremely Effective)

Customer Buying Journey

• The majority (60%) of respondents indicate they cross-sell or up-sell SC/EW during the entitlement process if the customer doesn’t have a program in place.

• This tactic helps increase attach rate. In fact, half of the respondents surveyed indicated that customers purchase programs in 26% - 50% of the times they are asked.

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

Cross sells or up-sell SC/EW during the warranty entitlement process that occurs when a customer requests service

< 10% 10-25% 26-50%

Percentage of time customers purchase a SC/EW when offered during the warranty entitlement process

Future Plans

• Respondents where asked to comment on their future plans to increase revenue from SC/EW programs

• A broad range of strategies and tactics were identified by respondents

• The most frequently mentioned was expand the scope (i.e., configuration) of offerings by 79.2% of respondent followed by tactics to increase attach rates by 67.7%

• Other frequent mentions include:

• Enable front line personnel to sell: 45.8%

• Automate CPQ process: 45.8%

• Increase renewal rates: 41.7%

• Automate the sales process: 29.2%

Increase contract attach rates

Expand the scope of the offerings

Increase contract renewal rates

Increase level of performance

Automate CPQ process

Provide prepaid services

Automate the sales process

Offer higher margin services

Enable front line personnel to sell

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%

Plans to Grow SC/EW Revenue

Summary

• Best in Class Metrics: • Attach Rate in excess of 50%

• Renewal Rates greater than 75%

• Key Drivers of Attach and Renewal Rates: • Level of customization

• Coverage & configuration

• Flexibility of terms

• Frequency of communication

• Use of front-line service personnel in sales process

• Use of Automation

Contact Us

For further questions

info@m-ize.com813-971-2666

www.m-ize.com

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