Customer Lifetime Value: An Original Equipment Manufacturers’ Guide to CLV

William Barkawi 24 Jul 2024 8 mins read

Table of Contents

OEMs Guide to CLV

OEMs can unlock significant revenue by focusing on Customer Lifetime Value (CLV), shifting from new equipment sales to aftermarket services. Utilizing a hyperconnected supply chain enables OEMs to monitor equipment in real-time, enhancing predictive maintenance and customer satisfaction. Data analytics play a central role, allowing OEMs to tailor offerings to individual customer needs and preferences, thus improving CLV. Strategies such as hyper-personalization and the 80-20 rule for customer service can further boost CLV, promising OEMs a revenue growth of 10-30%. This approach not only ensures a competitive edge but also strengthens customer loyalty and engagement.

What is Customer Lifetime Value?

Maintaining high revenue for OEMs has become a challenge in the recent years due to the transitioning economic climate. However, in between these challenges lies a fantastic opportunity to increase revenues by utilizing the frequently disregarded domain of Customer Lifetime Value. This approach promises to unleash enormous quantities of latent revenue protentional, completely changing how OEMs and dealer networks handle customer relations as well as sales.

CLV, or customer lifetime value, is a crucial statistic for companies, specifically for Original Equipment Manufacturers (OEMs). It allows a customer’s total value of a business to be measured over the course of their entire relationship. From an OEMs perspective, this value comprises the revenue generated not only from the initial equipment but also any additional purchases or services a client may demand.

Why OEMs find CLV important

OEMs may prioritize aftermarket sales, obtain predictive insights, efficiently segment their client base, and achieve a competitive edge in their sector, with the help of the CLV as well as knowing their consumers’ purchasing behaviour. Fully comprehending and maximizing CLV is essential to OEMs for a variety of reasons:

1. Transition from New Equipment Sales: Although OEMs typically concentrate on selling new equipment, the vast majority of profits arise from aftermarket sales, involving spare parts, services and maintenance. Therefore, OEMs may enhance their efforts through employing CLV approaches.

2. Predictive Insights: By offering insights into potential future revenue streams, CLV offers OEMs assistance in developing long-term growth and sustainable plans.

3. Customer Segmentation: OEMs may categorize their clientele according to their value with utilizing CLV analysis. This contributes to the feasibility of implementing customized marketing and service approaches, and its income success, from valuable customers.

4. Competitive Advantage: OEMs obtain a competitive advantage by being able to view their aftermarket performance against competitors and players from various industries by understanding CLV.

Overall, this insight converts to enhanced profitability and customer satisfaction. Due to todays socially technology-driven industry, it has become easier than ever to connect manufacturers with customers to receive foresight.

Hyperconnected Supply Chain

A highly interconnected supply chain has changed the game within the current contemporary manufacturing landscape. It entails seamless connectivity and transparent communication amongst different supply chain stakeholders. This interconnection delivers unparalleled visibility and control for OEMs, dealers, and field machinery.

When using an hyperconnected supply chain, OEMs can remotely monitor and control the functionality, performance and condition of their equipment. They acquire immediate data regarding equipment health, consumption trends, and prospective problems. This strategy leveraging data allows predictive maintenance, minimizing downtime and ultimately intensifying overall customer satisfaction. Since the extensively connected supply chain also extends to dealerships, they also receive updated information on equipment status and consumer demands. Dealers can provide maintenance services or spare parts, which enables their customer relationship to be strengthened and aftermarket sales to be increased.

From OEM to Dealers to Machines in the Field

A crucial component of a hyperconnected supply chain is the dissemination of information from OEMs to dealers, to field machinery. OEMs incorporate sensors and IoT devices into their products to gather data and transfer it to a central system. Therefore, providing valuable insights into the seamlessly flowing supply chain.

Having accessibility to this data is a game-changer for dealers. When maintenance is required, they can proactively inform customers, decreasing the likelihood of malfunctions and expensive emergency repairs. Dealers can supplement the efficiency of their spare parts inventory by aligning it with their demand, ensuring a constant availability of the appropriate components. 

Additionally benefited by this data exchange are machines in the field. They can notify their operating status, performance statistics, and any outliers to the OEM and dealers directly. This reduces downtime and maximizes equipment uptime by enabling remote troubleshooting and prompt issue resolution.

Data Analytics

The core of a hyperconnected supply chain is data analytics. An endless supply of insights in the field can be found in copious amounts of data produced by OEMs, dealers, and machines. This data can be sorted through by sophisticated analytical tools and machine learning algorithms to unveil significant patterns and trends. Hence, OEMs can utilize the collected data to enhance the products’ performance and design. They can improve the capabilities and dependability of their equipment through adopting data driven decisions and examining usage statistics, as well as customer feedback. 

Dealers benefit from data analytics as well, since they can modify and improve their service offerings. They can optimize service schedules and are prepared to forecast which maintenance services are in high demand as well as when clients are likely to require assistance.

Furthermore, machines in the field also receive advantages from data analytics. Algorithms for predictive maintenance are able to foresee equipment malfunctions and notify technicians before any problems intensify. This prolongs the equipment’s lifespan while also saving time and money.

How to Calculate CLV

For OEMs, calculating CLV includes multiple steps:

1. Determine the Customer Lifecycle: Identify the average lifespan a customer has remained in your company. This can change depending on the industry as well as the kind of equipment you produce.

2. Calculate Average Purchase Value: Determine the average amount that a customer typically spends on your products or services during the duration of working with your company.

3. Establish Purchase Frequency: Calculate the frequency at which customers purchase from your company. For OEMs, this could entail upgrading equipment, purchasing spare parts or maintenance services.

4. Calculate Customer Value: To determine the annual customer value, multiply the average purchase value by the frequency of purchases.

5. Calculate CLV: Multiply the annual customer value by the average customer lifespan. The formula for CLV is: CLV = Average Purchase Value × Purchase Frequency × Average Customer Lifespan.

Benchmarking Aftermarket Performance 

It is crucial for OEMs to benchmark aftermarket performance against competitors across industries. Nonetheless, its essential to consider industry-specific limitations that affect aftermarket lifetime value. For example:

1. Availability of Third-Party Parts: In certain industries, parts are promptly obtainable through third parties, influencing the OEMs potential for aftermarket revenue.

2. Uptime Requirements: Industries that require constant uptime are prepared to pay a premium price for parts and services, raising the CLV.

Benchmarking should contemplate these industry-specific factors to supply valuable insights.

The 80-20 Rule for Customer Service and Marketing 

The 80-20 rule implies that 80% of earnings stem from the top 20% of customer accounts. OEMs can benefit from this regulation by:

1. Customer Segmentation: Determine high-value customers and customize marketing and service agreements to suit their demands.

2. Long-term Service Contracts: Offer extended service contracts for aging equipment, as these customers tend to have aging assets and are thus more cost-conscious.

3. Bundling Services: To ensure steady revenue, combine the sale of new equipment with service contract coverage.

4. Creating New Service Offerings: Develop creative services that address long-term requirements, including buyback programs for outdated equipment.

Hyper-Personalizing the Customer Experience

For OEMs, hyper-personalization has become an effective method in the quest to maximize CLV. Customization is elevated to a new level with hyper-personalization, which bases all customers encounters on their preferences, behaviors and requests. This strategy not only contributes to customer satisfaction but also immensely influences CLV.

One of the fundamental principles of hyper-personalization is realizing that not all customers are the same. OEMs can segment their customer based according to their needs, behaviors, and equipment usage patterns to produce highly targeted marketing and service strategies. Customers with older equipment, for example, may be more mindful of costs due to the repair costs exceeding the machine’s value. On the other hand, owners with more recent equipment might put efficiency and performance first.

The following strategies can be implemented to hyper-personalize the customer experience successfully:

1. Tailored Service Contracts: Instead of offering a universally applicable service contract, OEMs can create bespoke agreements that meet the requirements of every customer’s demands. For instance, a long-term service contract that includes maintenance and repairs, may be a desirable option for clients with older equipment, since it provides predictability of costs and peace of mind.

2. Data-Driven Insights: OEMs can acquire comprehensive insights into the equipment performance and usage of each client by utilizing data analytics and a strong ERP system. The implementation of this data can provide OEMs with proactive maintenance advice, allowing customers to receive prompt service and support along with increasing CLV.

3. Customized Product Suggestions: Product recommendations are incorporated in the hyper-personalization process. By examining the customer’s previous purchases and usage patterns, OEMs can recommend appropriate upgrades, accessories, or add-ons that connect to the customer’s preferences and demands.

4. Seamless Communication: Use communication channels that customers prefer, being email, mobile apps, phone calls or SMS. Verify that the messages are personalized and accordingly timed to increase the content’s value.

5. Loyalty Programs: Establish loyalty programs that grant long-term customers exclusive advantages, discounts, or access to premium services. These initiatives not only promote recurring business but also reinforce a sense of cooperation between the OEM and the customer.

6. Feedback Loops: Invite customers to share their opinions regarding their encounters. Utilize this input to iteratively improve all hyper-personalization techniques and portray commitment to fulfilling the changing demands of your customer.

Hyper-personalization is about creating enduring partnerships as much as providing an improved consumer experience. Customers are more inclined to remain with an OEM and continue business with them, when they believe that the company truly resonates with their needs. Enhanced loyalty and engagement serve as the foundation for increasing customer lifetime value. Which positions hyper-personalization as a strategy necessity for OEMs seeking to excel in a competitive market and guarantee sustained revenue growth in the long run.

In Summary 

A hyperconnected supply chain, including OEMs, dealers, and machines in the field, heavily depends on data analytics to fulfill its full potential. The integration and data-driven strategy has transformed the manufacturing industry, resulting in intensified efficiency, minimized downtime, and heightened customer satisfaction. 

OEMs must comprehend and maintain customer lifetime value. It facilitates the transition from sales of new equipment to aftermarket revenue streams, presents predictive insights, and enables effective customer segmentation. A competitive edge can be obtained by benchmarking against competitors and industries, whereas approaches such as the 80-20 rule and tailored contracts can notably increase CLV. OEMs can anticipate short-term revenue growth of 10-30%, making it a worthwhile investment.

FAQs 

Advancements like IoT, AI, and predictive analytics are revolutionizing aftersales by enabling more proactive and customer-centric service models. 

Regularly review and adjust your strategy based on ongoing data analysis and feedback. Stay adaptable to changing market conditions and customer needs. 

Absolutely not. Each OEM and dealership is unique, and strategies must be tailored to individual business models, customer bases, and market conditions. Aftersales Software Solutions, like ClearOps can help you find the right solution for your needs. 

Connect with dealers through training, provide clear communication about the benefits, and support them in the transition with the necessary tools and resources. It is crucial to not only get the dealers on board, but also to show them their individual advantages based on data. Data is the best foundation for making good decisions. 

Next Steps with ClearOps

ClearOps is your ideal partner in your mission towards aftersales excellence. With our help, you’ll be able to unlock the full potential of your aftersales data, leading to improved service quality, decreased churn, higher customer satisfaction, and increased profitability. Contact us to learn more about how we can transform your aftersales strategy. 

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