5 Reasons Why OEMs Should Be Investing in Aftermarket Business

William Barkawi 20 May 2024 5 mins read
Investing in Aftermarket

The aftermarket service industry offers OEMs a lucrative opportunity to better meet customer needs. That’s why Investing in Aftermarket Business is crucial.

Despite this, the average manufacturer is only capturing 25% of its customer’s total service spending on its products. This not only loses you valuable profit margin, but also contributes to your competitors’ aftermarket business. A lose-lose.

For every piece of equipment you sell, there are 8+ aftermarket transactions per year—or around 100-120 over the lifetime of the equipment. That’s a lot of aftermarket opportunities that you need to be taking advantage of.

The aftermarket should never be an afterthought—here are five reasons why.

Benefits of winning in the aftermarket service

Winning in the aftermarket service offers a wide variety of benefits to OEMs. Let’s take a look.

1. Faster equipment sales growth

Around 70% of new equipment sales come from repeat customers, and of these repeat customers, 89% actively use the OEM’s aftermarket offerings. Put simply, it pays off to provide great aftermarket service.

If you want to sell more equipment, you need to invest in the aftermarket service you provide customers. Statistics show that customers who engage with your aftermarket service—and have an enjoyable, efficient experience—are more likely to purchase more equipment from you.

Plus, a study by McKinsey found that 55% of agricultural contractors expect to have fewer brands in their fleet—meaning it’s more important than ever for agricultural machinery suppliers to establish their spot amongst the top picks. Incredible aftermarket service—service that stands out from the crowd and instills confidence in customers—is a key part in establishing yourself as a go-to OEM and ensuring increased sales for years to come.

2. Loyal customers and higher retention rates

Following on from our previous point on increased sales revenue, great aftermarket service also supports stronger customer retention. Happy customers stick around—meaning you’ll benefit from their business for years to come.

Holding on to existing customers should be a top priority, as a 5% increase in customer retention could increase profits by a whopping 25% to 125%. Not only do they continue to buy new equipment from you, but they also trust you to provide excellent aftermarket service.

For example, heavy machinery OEM, Caterpillar Inc., leverages aftermarket service to enhance customer loyalty and retention with:

  • An extensive dealer network
  • Genuine parts availability
  • Technical support and training
  • Planned maintenance programs
  • Telematics and remote monitoring
  • Equipment upgrades and refits

This has helped them build long-lasting relationships with customers around the globe.

3. Competitive advantage of a strong value proposition

Customer’s don’t want to look elsewhere for spare parts, repairs, or maintenance services. They typically only do so if the OEM is unable to provide a satisfactory service.

Establishing a strong presence in the aftermarket can give OEMs a competitive advantage as customers prefer to deal with the original manufacturer due to the increased convenience and reliability of doing so. This promise to consumers—and the reputation to back it up—increases the value of your offerings by establishing that you don’t just provide great machinery, you also provide the aftermarket service to keep it great.

BMW is a great example of how more convenient aftermarket service provides a stronger competitive advantage. Customers can access genuine parts from authorized dealerships—providing BMW owners with peace or mind and reliable access to support. It’s no surprise that BMW was the leading luxury car brand worldwide in 2022.

4. R&D opportunities to identify and capitalize on

Aftermarket service is a great opportunity to collect valuable market insights and data. By monitoring customer demand for specific parts and services, OEMs can get a deeper understanding of their customers’ needs and preferences.

This data can then be used to inform product development, marketing strategies, and future business decisions. Optimal aftermarket service requires fully connected downstream supply chain management that gives insight into what parts and services are needed, where.

For example, John Deere is a great example of an agricultural OEM that uses aftermarket service data to understand parts and service demand trends. They analyze the frequency of parts replacements, common repairs, and service needs to identify opportunities to improve designs, component reliability, and maintenance processes.

5. Greater control over quality standards

Finally, excellent aftermarket service gives OEMs more control over the quality and standards of products and services associated with their brands. An OEMs reputation can be tarnished by the use of inferior or counterfeit parts in the aftermarket business, leading to potential failures, increased downtime, and even safety hazards.

Not only this, but aftermarket service technicians also play a role in an OEMs brand reputation. Providing fully-qualified and highly-knowledgeable technicians to customers in need of maintenance or repairs ensures that OEMs maintain control over their representatives and customer service quality.

For example, Toyota Material Handling (TMH)—a leading manufacturer of forklift trucks—uses the ‘Toyota Industrial Equipment Service Skill Qualification System’ to set a target level for each service mechanic to increase the level of their skills. This ensures a better aftermarket experience for TMH customers.

Mastering the aftermarket drives profit

When discussing companies that have mastered the aftermarket offerings they provide, we need not look further than AGCO.

AGCO is a global agricultural equipment manufacturer based in the United States. It offers a wide range of products, including tractors, combines, hay tools, sprayers, and seeding and tillage equipment.

AGCO uses a variety of parts and service solutions to provide phenomenal aftermarket service to its customers. These include:

  • CitNOW: a tool that allows dealer service technicians to send video summaries of repairs that were carried out and further suggestions following a health check.
  • Managed Dealer Inventory (MDI): a parts sticking tool that dynamically replenishes dealer parts stock to ensure optimal parts availability and improved customer satisfaction.
  • TechConnect: an app that supports technicians in quickly diagnosing and resolving machine problems.

These software solutions help AGCO offer distribution partners a customer-centric aftermarket service in order to best meet end-customer expectations. Their approach is award-winning in the aftermarket business—with all three aftermarket solutions receiving a collective gold medal at the 2018 New Parts and Service World Trade Show in Germany—and contributes to their continued success in the agricultural manufacturing industry.

Investing in aftermarket: final thoughts

OEMs can’t afford to not invest in top-notch aftermarket service. It’s key for continuously meeting customer needs, driving sales revenue, maintaining a strong brand reputation, and identifying new opportunities. It’s also how you distinguish yourself from competitors and improve the value proposition you offer to prospective and existing clients.

The key to great aftermarket service is connectivity. A fully-connected downstream supply chain—one that includes the OEM, dealers, and machines—enables you to get visibility over your parts and service, and the data they provide.

ClearOps is a solution that does just that. Our hyperconnectvity technology enables OEMs and their dealer network to seamlessly connect and collaborate on one single platform for all aftersales operations: parts, products, services, warranty claims, analytics and data. And much more.

It’s the ideal solution for OEMs looking to improve aftermarket service— book your demo today.