Moving the MarketBy Steve Bassill and Michael Barr, QDI Strategies

In today’s modern business environment, everyone wants to increase margins, and solutions selling and services are on every marketer’s radar. Industrial distributors have long been developing the services they provide to their customers, which range from:

  • Kitting and assembly
  • Sequencing of orders to customer’s schedule
  • Light manufacturing
  • Relabeling and repacking
  • RFID labeling
  • Integrated supply

Likewise, manufacturers are exploring and developing the services they can provide to their customers by:

  • Expanding the scope of their offering by providing engineered skid, or packages, that provide specific functionality to customers instead of just selling components (Fire suppression skids, which are fully contained fire-fighting apparatus, are an example of engineered skids.)
  • Providing service functions for the customer, such as product maintenance

Innovative manufacturers are now accessing the information coming from smart products to provide customers with the information needed to make better maintenance and operating decisions. Manufacturers can now collect data from anywhere in the world and use it to innovate smarter, more cost-efficient solutions, or new uses of the products they have been selling.

Advances in product technology in the form of smart connected products has exploded the opportunities for manufacturers to use data to provide services to customers. Nowadays, products can provide specific performance data about their status and use, such as a valve or positioner, or the number of cycles it has opened. This data enables manufacturers and customers to make maintenance recommendations and life expectancy projections, which are much more accurate than those based on historic measurements that came from industry averages. The bottom line is better data that improves productivity and product life.

Ultimately, the result is that these smart products will have a large impact on customer value by enabling customers to extend product life, catch problems before failure, optimize overall process uptime, and even positively impact final product quality.

Staying Ahead in a Data-Driven World

The Internet of Things (IoT) market is moving at a faster rate than ever before, and most companies are struggling to keep pace. More and more product companies are focusing on providing services in an attempt to diversify their revenues and achieve recurring cash flows, and the onus is on organizations to constantly be learning new ways to stay ahead.

Inputs, processes, outputsOver the past few years, these challenges seem to be growing even more daunting. Manufacturers are generating more data flowing off their machines and making efforts to capture and analyze that data more difficult. However, there is a gap in turning what that data is telling into viable business models, particularly for established manufacturers and their channels.

Services that evolve from the use of data generated by these smart products can take three basic forms, each of which each require substantially different sales and support capabilities:

  • Inputs
  • Processes
  • Outputs

Inputs

These “services” increase the value of a manufacturer’s “machine,” which is an input to the customer’s business process.

By providing machine monitoring and maintenance services to make the machine “smart,” manufacturers enable the customer to run longer between repairs, therefore reducing downtime. By putting sensors on the machine to capture information that will identify potential problems, and then providing that data as a service or as part of a service, the customer can achieve longer life and longer maintenance intervals.

Processes

These services are directly impacting “how the customer” runs his or her business. By designing new ways to use the machine to reduce or speed up steps in the customer’s process, manufacturers are impacting their process and creating value. By designing ways to use the machine so the customer can eliminate steps or the need for other machines, manufacturers are impacting the customer’s process and creating value.

Outputs

Innovative uses of data inputs, combined with innovative process, leads to better outputs.

By designing tracking/inspection/vision capabilities in order to identify and reduce the number of “microscopic” defects, companies can increase the value of the customer’s product by reducing potential failures due to the parts made with the machine.

Reimagining the Sales Process

Over time, product engineers, who have access to the data coming off products and are often on-site helping customers use products, come to learn ways to improve customer process and even outputs through the use of those products.

For example, in the mining industry, equipment engineers do time and material studies and come back with recommendations of how the mine could better utilize its equipment, impacting the customer’s process in a way that reduces the cost per ton mined.

Customers often love these new products and services. However, what the product marketing organization can fail to realize is that to get paid for their value, or even to win new customers based on these engineering values – the sales process must change. Ultimately, QDI has seen clients who have made significant innovations that can create value for their customers but failed to drive more revenue or profit.

New Value Generates Buyers

Moving the MarketThe challenge in these different service modes is that as the value moves from inputs to processes to outputs, the buyer of that value also moves from manufacturing to process design to product design, each with different buyers and decision-making organizations.

So, even if an organization can create a service that has this value, its current buyers won’t buy values beyond those that address the “inputs” they buy, because their scope of responsibility is just securing the machine and improving the performance and lifetime costs of those inputs.

Consider the following example:

QDI worked with Degussa when they were bringing nano-carbon black to market. Carbon black, as an input to the chemistry of tires, was purchased as a commodity. Degussa was exploring creating commercial quantities of nano-carbon black because its properties would increase the fuel efficiency of trucks using tires made from nano-carbon black.

However, as the Degussa sales force talked to the tire manufacturers, their buyers were interested, but only willing to pay tenths of a penny more per pound for nano-carbon black. While the nano-carbon black improved the output of tires by extending their life, the purchasing agents at these firms were evaluated by how cheaply they purchased inputs, not the possibility of selling a tire that had greater value.

Only when QDI helped Degussa change the sales effort to call on product managers at these tire manufacturers and offer them a new solution consisting of:

  • Nano-carbon black; and
  • An opportunity to be the exclusive supplier of these fuel-efficient tires for a period of time, were they able to create and deliver value to a buyer

Thus, even if a manufacturer saves the buyer money, or make his or her product better, that may not be important enough relative to other priorities to gain traction. Only by getting to know this buyer, what he or she does and why, along with what his pains are and what would make him a hero, will a manufacturer begin to have a chance to successfully sell this service.

Steve Bassill is President of QDI Strategies, Inc. For the past 30 years as a management consultant, he has worked with companies to achieve breakthroughs in product, channel and brand strategies.

Michael Barr is a principal with QDI Strategies, Inc. For the past 24 years, he has worked with high tech and mature industries to sell products and services into U.S., European and Asian markets. He specializes in business-to-business marketing, driving commercialization of new technologies, product development, brand management, pricing, communications and channel distribution. B2B industrial marketing is his specific area of expertise.

QDI Strategies is a management consulting firm designed to provide discovery research, strategic analysis, and actionable results to help clients achieve breakthrough growth. For more information, visit www.qdistrategies.com.

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