benchmarks to optimize & maximize service contract sales · •the majority of respondents sell...
TRANSCRIPT
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.
3
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
4
68.0%
32.0%
Businesses Consumers
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Target Customer
Perc
ent
of
Resp
ondents
Target Customer Segment
5
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
6
80.0%
36.0%
76.0%
32.0%
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
7
48.0%
40.0%
44.0%
64.0%
68.0%
32.0%
20.0%
Pricing
Marketing
Warranty Management
Sales
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
8
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
9
32.0%
16.0%
48.0%
4.0%
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
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Standardization VS Customization
10
24.0%
40.0%
20.0%
16.0%
We will primarily expand ourstandard configuration
offerings
We will primarily expand ourcustomized configuration
offerings
We currently have no plansto change our configuration
offerings
Other
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
Future Plans SC/EW Configuration
11
36.0%
48.0%
12.0%
4.0%
1-2 years 2-3 years 4-5 years 6-7 years
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Typical Duration of SC/EW
12
76.0%
24.0%
Entire product (e.g. total forklift) Selective subsystems of a product (e.g. engine andtransmission)
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Segment of a Product's Bill Of Material [BOM] Primarily Covered Under SC/EW
13
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
14
68.0%
52.0%
80.0%
48.0%
56.0%
12.0%
8.0%
8.0%
Spare Parts
Advanced exchange
Onsite Field Service
Depot Repair
Omni-channel support
Self-Service
Loaners
Other
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
15
84.0%
24.0%
32.0%
8.0%
32.0%
12.0%
28.0%
32.0%
20.0%
12.0%
24.0%
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
16
52.0%
44.0%
12.0%
28.0%
20.0%
20.0%
Onsite response time
Parts delivery time
Resolution/repair time
Remote support response time
Loaner after 24 hours
Other
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
17
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
18
5.0%
35.0%
45.0%
15.0%
< 10%
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%
Perc
ent
of
Resp
ondents
Attach Rate
Attach Rate for Selling Service Contractand/or Extended Warranties
19
42.9%
28.6%
14.3% 14.3%
< 50% 50-75 % 76-90% > 90%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
Renewal Rates
Perc
ent
of
Resp
ondents
Service Contract/Extended Warranty (SC/EW) Renewal Rates
20
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
21
16.0%
36.0%
12.0%
16.0%
8.0%
12.0%
more than 90 days 90 to 76 days 75 to 61 days 60 to 46 Days 45 to 31 Days 30 days or less
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Advanced Notification that SC/EW is up for Renewal
22
48.0%
20.0% 20.0%
12.0%
One Two Three Four or more
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Number of Advanced Notifications Provided
23
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
24
64.0%
28.0%
8.0%
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
25
20.0%
4.0% 4.0%
20.0%
52.0%
Annually Bi-Annually Quarterly Monthly Once, upon signing
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Invoice Frequency for SC/EW
26
28.0%
20.0%
52.0%
Yes, with no penalties Yes, with penalties No
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Ability to terminate SC/EW once they have been purchased
27
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
28
52.0%
48.0%
Yes No
46.0%
47.0%
48.0%
49.0%
50.0%
51.0%
52.0%
53.0%
Provides customers with the ability to negotiate the price of Service Contracts & Extended Warranties
29
58.3%
41.7%
Yes No
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
Ability for Customers to Extend SC/EW Length
30
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.
31
54.2%
45.8%
Yes No
40.0%
42.0%
44.0%
46.0%
48.0%
50.0%
52.0%
54.0%
56.0%
Use of front line service personnel (e.g., technicians) in the sale or renewal of SC/EW
32
68.0%
32.0%
Yes No
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Provides formal sales training to the people responsible for selling SC/EW
33
46.2%
53.9%
Yes No
42.0%
44.0%
46.0%
48.0%
50.0%
52.0%
54.0%
56.0%
Use of automation or application to facilitate the sale of SC/EW by front line service personnel
34
83.3%
16.7%
Yes No
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
Structured Process To Configure, Price, and Quote SC/EW
35
8.0%
36.0%
20.0%
16.0%
20.0%
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
36
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%)
37
28.0%
40.0%
8.0%
28.0%
64.0%
28.0%
12.0%
72.0%
20.0%
32.0%
12.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Tactics utilized to influence buying decisions with regard to SC/EW
38
26.7%
38.9%41.7%
21.4%
42.9%
60.0%
14.3%
68.2%
28.6%
71.4%
25.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Effectiveness of Sales Tactics- % of Respondents with Rating of 8 or 9 -
(1 = Not all Effective and 9 = Extremely Effective)
39
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.
40
40.0%
60.0%
Yes
No
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
41
30.0%
20.0%
50.0%
< 10% 10-25% 26-50%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Percentage of time customers purchase a SC/EW when offered during the warranty entitlement process
42
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%
43
66.7%
79.2%
41.7%
16.7%
45.8%
20.8%
29.2%
12.5%
45.8%
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
44
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
45
