Recently, the Wall Street Journal ran a best practices article with lessons distributors can apply to their own services businesses: "Beyond Products: More manufacturers are branching out into the service business. Here’s how to make the move successfully."
One of the key points made in the article: Many manufacturers who have moved into services have gone without a clear strategy. I’m sure some distributors will relate to the challenges outlined, including trying to sell services that were previously free (See Emerging Model: Fee-for-Service on how Cardinal Health and other drug distributors try to meet this challenge.), internal resistance to selling services due to the difficulties in integrating service sales into incentive plans, the difference in selling services vs. selling products, and the challenge of knowing your customers well enough to meet a real need they have in the services arena.
As Adam Fein said in MDM back in February 2007, many distributors have created new profit models through fee-based services – and this trend will continue, but it doesn’t come without its challenges. To succeed, distributors must master the services business – which is different from product distribution.
Some best practices from "successful companies" featured in the WSJarticle:
Keep services separate from the rest of the operation. Separate units can focus on developing and delivering the services offering much more than set units that may be considering service offerings as an afterthought.
Start with generic service packages that can be customized if desired for a customer..
Look beyond just finding ways to save your customers money. This is a popular strategy, but the article points out that services that can also help your customers provide benefits to their customers (and therefore help them make more money).
In our archives, MDM features a case study on C.J. Smith Machinery and how the distributor of metal-cutting and metal-forming tools has profit from training its customers. Read the article here: Fee-Based Safety Audits.
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