The customer experience (CX) industry growth has skyrocketed in recent years. Overall, the customer experience platforms market is projected to reach approximately $18,972.7 million USD by 2028, growing at an annual rate of 13.9% from 2022. But excellent customer service is much more than “service with a smile,” and delivery can fall short if businesses are unable to deliver meaningful results.
With the rise of Industry 4.0, there is the opportunity for businesses to diversify and offer multiple sources of value to their solution offerings which will allow them to deliver stronger outcomes to their customers. Enter what is often called "servitization," a term that not only reflects service being the product or a profit center, but also new business models that showcase the value and customer experience aspects versus a cost-plus way of running a service business.
The era of one-time transactions, with products simply being produced and delivered, is being slowly superseded by servitization and subscription-based models that are tied to customer value rather than a cost-plus approach. In a servitization model, the manufacturer takes the transactional customer-business relationship past the point of sale into the utilization of products and services. The first step of this journey is admittedly often cost-plus, especially if it is driven from an obligation to provide product, equipment or asset warranty service only. However, even these early stages of the journey with customers create key moments of services. These moments of service are achieved when every internal process has taken place successfully, on time, and exceeds customer expectations of quality to pave the way to move to value based business models that have customer experience baked in. To deliver on the “moment of service” is to deliver the product or service exactly as the customer expects it. That has huge value to customers and allows service providers to scale value across the entire customer lifecycle and ensure long-term customer retention.
This value realization drives a host of other benefits — good customer experience, improved sustainability, revenue growth and more. Companies that lead in customer experience outperform laggards by nearly 80%, and value or outcomes-based business models reflect that where customer experience is part of each facet of interaction. A commitment to value realization can be a lucrative tradeoff, but companies must look to implement significant operational and organizational changes to pivot to being value- and customer-experience oriented to achieve the benefits.
The Outcomes-Based Model
In today’s connected world, the selling of outcomes presents a new business opportunity, but companies are still struggling to create and deliver. Customers want solutions to problems, not just products or services, the focus now is on the end result no question. With this shift from one-time fixes to more long-term partnerships, outcome-based business models are the way forward and can help companies deliver customer-defined value. For companies, whether a manufacturer or a service provider, the delivery of business outcomes starts with engaging customers after the point of sale. Regardless of the industry, companies can pay attention to what creates results and use that knowledge to deliver quantifiable customer outcomes that capture more value. But to do so, the mind shift must go from selling cost-plus reactive service models to value-based, data-enabled proactive service models.
The benefits of outcomes-based models relates to better customer interactions and financial results — so the why is becoming more and better understood not only by those leading service organizations, but also the C-suite and the boards of companies where service revenue is a key aspect of their value prop, brand identity and profits. According to a Boston Consulting Group study, software as a service (SaaS) companies generate 25 times more value over the lifetime of a customer than in the first year they acquired them. However, the success of this approach rests on digitization.
Quantifying Customer Results
Customers not only expect long-term value from an engagement with their providers, but they also want to know how this can be measured along a value roadmap. For the service provider, this involves continuous check-ins at critical customer touchpoints. Voice of customer (VoC) analysis can be a key unit of measurement, helping businesses address gaps against competitors. With the ability to capture customer sentiment along their journey, from initial engagement through to final delivery, providers can transform the traditional technology vendor-to-customer relationship into a partnership-based relationship that aligns in value with clear business objectives.
However, this ability to measure customer value from servitization wouldn’t be possible without input from digitalization. Data-driven insights captured from technologies such as the internet of things allow providers to learn how customers use products in real-time and adjust their service offerings accordingly. As CX continues to be critical to business success, we see more companies putting focus on the matter — with 65% of companies agreeing that data analysis is very important to delivering a better customer experience.
Rolls-Royce, for instance, uses AI and digital twinning as part of its digital “Blue Data Thread” to predictively maintain life-limited engine components and connect every Rolls-Royce powered aircraft, airline operation, maintenance shop and factory together through one digital information thread. This creates an interconnected view of the outcome-delivery process that allows Rolls-Royce to meet customers’ needs 24/7. Data-led servitization offerings allow providers to not only ensure machines and processes work optimally over an entire asset lifetime but also deliver the measurable results that today’s customers expect.
With the rise of eco-consumerism, sustainability has become a key driving force in the adoption of servitization. A recent report revealed that 79% of consumers are changing their purchase preferences based on the social responsibility, inclusiveness or environmental impact shown by a brand. The same report also found that more organizations are analyzing their ESG practices to meet these new consumer demands. Pressure is now on service providers to make operations more efficient to drive greener value throughout the entire customer journey.
This is where disruptive technologies will be key to injecting sustainability into new service offerings. For instance, dynamic scheduling capabilities and AI technology can send technicians on the most efficient route with the right products and capabilities to fix the issue. This allows service providers to reduce emission footprints and fix issues first time around — creating sustainable customer value.
The Rolls-Royce example outlined earlier shows the sustainable value derived from predictive asset support. The manufacturer has managed to eliminate up to 200 engine shop visits a year, equating to between 10 and 30 million kilograms of CO2. Through the Blue Data Thread, it was able to avoid these overhauls and emissions by demonstrating the engine is safe to remain on wing for up to 45% longer.
As hundreds of people touch processes that feed into the customer experience, ensuring reliable service requires businesses to efficiently manage people and workflows across the entire operation. Service providers cannot create value without every part in the service ecosystem adopting a customer-centric approach — and the proof is in the figures: 22% of Fortune 100 companies have a C-level customer officer, compared to 10% of Fortune 500 and 6% of Fortune 1000.
In the early stages of change, it is important for providers to define clear project outcomes and encourage every employee to take a share of accountability. This ensures that every customer interaction with the provider is excellent, and that value delivery remains ongoing. Research also shows that companies with initiatives to improve their customer experience see employee engagement increase by 20% on average — demonstrating how closely customer experience and employee engagement are intertwined.
With CX now a key differentiator, businesses that resolutely stick to the simple delivery of products may quickly find they are overtaken by outcome-based organizations delivering superior customer experiences. This is where servitization, supported by a combination of packaged technologies, can help brands and companies grow faster, be more sustainable and have higher customer net promoter scores by ensuring that continuous value is delivered throughout every product, service and customer engagement.
Marne Martin is president of the management business unit at IFS.
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