It isn’t enough to sell a product – even an exceptional one. Today, customers expect follow-up service – and profitable companies supply it.Alfa Laval Brewery Systems was once known in Latin America simply as a brewery supplier – and not always as a good one. The company had a bad reputation in several countries because it was difficult to get service on Alfa Laval machinery, which was usually sold by foreign turnkey contractors.
   Today, Alfa Laval dominates in countries like Brazil, where it has a 75 percent market share, and some breweries are even willing to pay a premium to get Alfa Laval equipment. What’s more, major brewery groups like Heineken are hiring Alfa Laval to service not only its own machines but its competitors’ as well.
   The key to the market turnaround was a strong focus on customer satisfaction through building long-term relationships. “A lot of other companies are keen to sell new equipment, but they fail to give service afterwards,” says Guy Celis, regional director of Brewery Systems Americas for Alfa Laval.
   The company has concentrated on selling service packages, which involve paying a fixed price to give Alfa Laval full service responsibility for all machinery on site for 10 years. “As we see it, it’s a win-win situation,” Celis says.
   Customers no longer need a maintenance staff. “And with this 10-year contract, the customer knows exactly his maintenance budget,” Celis adds. “In the past, if there was a major breakdown it became a major investment for the customer. We are taking responsibility for this now.”
   Two years after the company launched the program, turnover in after-sales and service has risen from 6 percent to more than 10 percent of total sales volume.

Service is the key
Companies are increasingly willing to pay a premium for products that come with “built-in” service and support, says Jeffrey Lewin, chairman of the marketing department at the College of Business at Western Carolina University.
   “The problem from a seller’s point of view today is that everyone has lots of competitors, and all the core products are relatively the same,” says Lewin. “If you can’t differentiate your product on features, benefits and so on, the only way to differentiate is on price. And it’s ill-advised to compete on price alone. The answer is in services.”
   Couple this with more profits and the opportunity to build a long-term relationship with a customer, and the value-added services market becomes attractive for a number of companies that have not traditionally focused on that. After a strategic shift, Scania, the Swedish truck manufacturer and one of the world’s most profitable companies, now says it supplies “vehicles and services.” Similarly, the Swedish-based Svedala Group has moved from being a traditional supplier to the construction and mineral processing industries to taking care of their products throughout their life cycles.
    In the ’70s, the key approach to profit was through cost savings, Lewin says. Managers were busy cutting back on costs and services and saving money. The result was unhappy customers, who took their business elsewhere. In the ’80s, the total quality approach took over. Companies increased the quality in everything related to the core product, but somehow overlooked customer satisfaction. “The corporate view was that if it’s an excellent product, nothing else matters,” Lewin says. “But in the ’90s, customers were asking, ‘What else can you give me?’ The answer was competence and expertise.”

No longer just manufacturers
“In the 1990s, companies started to see profit possibilities in the services area,” says Evert Gummesson, a senior professor at the Stockholm University School of Business. “Buyers had difficulties maintaining and keeping equipment updated – especially with the information technology in use today. At the same time, more companies have been outsourcing their service and working to keep slim organizations.”
   As an example, Gummesson points to Ericsson, the global telecommunications company based in Sweden, which as early as the ’80s had become one of the first European companies to shift away from being solely a product-oriented company.
   “It’s not uncommon today for Ericsson to win clients based fully on service,” says Uldis Zervens, vice president for global services and sales at Ericsson. “In some cases, an Ericsson client might have bought a network from a competitor, but then it buys value-added services from Ericsson.”
    The company has expanded the types of value-added services it offers, based on a change in the structure of the client relationships. Five to 10 years ago, the services were mostly technical, such as performance improvements as well as network design and “roll-out” services of getting equipment to and installed on site. Today, the services also encompass business and strategy consulting as well as systems integration, managed services, competence development and telecom management solutions.
   Gummesson says that the range of services that come under this category is wide – and they might not necessarily carry the name value-added services. “All the major companies are into this,” he says. And many of those that have nurtured this area of their business have seen the rewards.
    “Value-added services is the fastest-growing segment of our business and represents 35 percent of our total volume sales,” says Bill Cacciatore, chief executive officer and president of Richey Electronics Inc, a specialist cable distributor based in the United States.
   Cacciatore told EDN, an electronic news magazine, that value-added services are split into two segments for his company: administrative, such as inventory management and stocking programs, and technical, such as modifying piece components or assembly work. And business is booming.
    “When we bought the company in 1991, value-added was generating USD 3-4 million. This year, we hope to do USD 90 million and should be approaching USD 100 million next year,” says Cacciatore.

The challenge
Lewin warns that companies moving toward this type of “relationship marketing” need to rethink motivation and compensation strategies. “A sales force is motivated by commissions and bonuses. But they are not the people delivering value-added services,” says Lewin. “The technician team – how are they motivated? They are the ones delivering these services and retaining the customer.”
   He adds that it costs an estimated five times more to get a new customer than it does to keep a current customer happy. To Alfa Laval’s Celis, customer retention has been a driving force in Latin America, where the best business evolves from long-term relationships. “Lucky for us, when we started to discuss this we really found a gap in the market,” Celis says.

Jack Jackson  
an American freelance journalist based in Denmark