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1、After-sales service necessary evil or strategic opportunity?Milind M. LeleAbstract :In response to questions about how to provide the correct level of after sales service in the face of shifting customer needs and expectations, SLC Consultants, Inc. has developed an after-sales service framework, wh

2、ich examines the costs customers absorb when their equipment fails. Describes a framework which helps manufacturers identify the most cost-effective service strategies for different customer segments, and determine how these strategies should influence equipment design. Suggests that the framework c

3、an also be used to predict how product and service strategies must change in response to new technologies and evolving customer needs.How should equipment manufacturers respond to shifting customer needs, to provide after-sales service that sustains the competitive advantage of a complete product of

4、fering? What changes should they make in product design and support strategy? Which technological developments, such as modularity, redundancy, and greater component reliability, will be critical to their success?To answer these questions, we at SLC Consultants Inc. have developed our aftersales ser

5、vice framework, which examines the costs customers absorb when their equipment fails. Our approach helps manufacturers identify the most cost-effective service strategies for different customer segments, and determine how these strategies should influence equipment design. We also use the framework

6、to predict how product and service strategies must change in response to new technologies and evolving customer needs.Customers ' costsWhen equipment fails, customers incur two types of cost: fixed and variable. Fixed costs occur regardless of the duration of equipment downtime. Usually these ar

7、e the expense of parts and labour involved in fixing a malfunction. They might include the cost of the entire repair process, including, for example, the effort of ordering parts or sending an inoperative component to the manufacturer for service. Fixed costs are often out-of-pocket costs, especiall

8、y for consumer goods when a product is no longer under warranty. Variable costs, which change according to the durati on of equipme nt dow ntime, can be either out-of-pocket expe nsespay for idleworkers, for example -or the opport unity costs of diverted resources and product ion time lost until rep

9、airs are completed.Basic service strategiesWe can classify service strategies into three basic groups: those that are product or design related, those that concentrate on the service support system, and those that reduce customer risk.Product design-related strategiesThese focus on increasing produc

10、t reliability, building in redundancy, and adopting a modular product design.Reliability improvement reduces customers ' total costs. This is usually the first approuascehd by firms to improve service support.Modular design can reduce variable costs both by making equipment easier to repair and

11、by allowing customers to replace modular components themselves. The entire product is divided into modules or components, many or all of which can be removed for repair or replacement. This approach is often referred to as “ s ” maintenance.Built-in redundancy, products or systems designed with two

12、or more of each critical component, allows a backup to take over if apart fails. Mission-critical non-stop computing applications are a prime example.Support system-related strategiesThese concentrate on changing the way manufacturers provide service. These approaches can address either improvements

13、 in system design or reductions in equipment repair.Improved system response time. Support systems often react slowly to equipment failure. Providing additional service technicians, moving them closer to customers or even on-site, and filling orders for emergency parts more rapidly will improve serv

14、ice response.Reduction in equipment repair time. Complementing reduced response time, improved service technician training, on-site or built-in diagnostic equipment, better-equipped mobile repair vans, and designing equipment for fast module s can cut repair time.Reducing or minimizing customer risk

15、 strategiesSome support strategies reduce buyer risk chiefly through warranties and service conracts. Warranties minimize customer out-of-pocket costs during the immediate post purchase period, allaying any fears regarding equipment reliability. Service contracts reduce or eliminate buyer uncertaint

16、y over maintenance costs.The frameworkManufacturers can use these three basic service strategies in combinations that vary according to customer needs and willingness to pay, available and affordable technology and equipment design. Choosing the best service approach for a given product is a complex

17、 balance, however, between buyers ' costs and requirements.The characteristics of customer costs and expectations allows us to determine the most cost-effective design and support strategy for a given situation. Any product can be assigned to one of four after-sales service segments: disposable,

18、 repairable, rapid response and never fail. Figure 1 illustrates the relationship between types of cost, the four market segments, and representative products in each category.Appropriate strategiesEach segme nt has corresp onding optimal support strategies manufacturers should employ.DisposableWhen

19、 product failure produces relatively modest customer fixed and variable costs, a disposable product desig n is the best opti on. The manu facturer strives to build in reliability, concen trat ing less on product desig ns ame nable to replaceme nt or repair. The product lasts, mini miz ing the buyer

20、' s risk premature failure. But when it fails, it is discarded.Small household applia nces, such as toasters and in expe nsive office and in dustrial maintenan ce-repair-operati ons (MRO) equipme nt, fall into the low-fixed, low-variable cost corner of the market show n in Figure 1.hajsenolclMed

21、ical ecubmeNon-stou ooTnpjteisCffioc eqiJD'Tert 汕I g陲恳Large ewiersTractorsTimex, particularly in its earliest years, provided a classic case of cateri ng to the disposable segme nt. Its watches were in expe nsive, had a on e-year warra nty, and lasted long eno ugh to keep buyers from complai nin

22、g whe n replaci ng them. Swatch curre ntly uses a similar approach.RepairableIn this segment, customer fixed costs are high relative to the variable costs of failure.Con seque ntly, the best strategy is reas on able (at least competitively comparable) reliability with product and service system desi

23、g ns that mini mize customer out-of-pocket repair costs.Do-it-yourself repair kits, low-cost third-party repair service, and desig n simplicity epitomize successful desig n opti ons.Such strategies are appropriate for products such as pers onal computers, PC peripherals and other expe nsive desk-top

24、 equipme nt, as well as large household applia nces and high-ticket en terta inment gear.Customer requirements play a critical role in the producer ' s strategy choice, however. When a bus in ess customer has several computers, for example, the failure of one of them is not a disaster.Downtime c

25、ould incur onerous opportunity costs, however, for an office relying on one computer for customer records, financial controls, communication, etc. In those cases, variable costs of downtime skyrocket, dwarfing fixed costs and making the strategies discussed in the rapid response segment more appropr

26、iate.Rapid responseWhen the variable costs of failure assume prime importance, the favoured strategy is arapid response with designs and service systems that minimize total downtime when a breakdown occurs. Reliability is of course important, but the key task for the manufacturer is balancing the ex

27、pense of rapid response (via owned or outsourced field service infrastructures and loaners) with the cost of design facilitating quick problem diagnosis (remote read-outs, for example) and repair (such as modular replacement).IBM and AT&T are leaders in implementing such balanced strategies, as

28、are farm and construction equipment makers Caterpillar and Deere. For example, just a few hours downtime can be critical to a crop harvest or a construction site' s deadline.Never failWhen the fixed and variable costs of equipment breakdown are both relatively high, failure is notan acceptable o

29、ption for customers, andnever fail ” sdtreastieggnieasndarseebrveiscte.Building the customer trust'insthe relationship with the manufacturer is essential. Component or system-level redundancy is a typical design solution. When that is not feasible, service providers turn to strategies such as st

30、ringent uptime maintenance, continuous monitoring, and on-site repair personnel. Large mainframes, PBXs, and central office telecommunications switches are examples of products sold to this segment.However, whenever a firm uses redundancy, it becomes the dominant strategy for all competitors serving

31、 this segment. For example, Tandem Computer fault-toleran't dsesigns have supplanted more conventional approaches in mission-critical computing applications where uninterrupted performance is essential.Key conclusionsBecause the SLC after-sales service framework covers all instances where servic

32、e is important, any conclusions we draw from it have broad application.Evolving customer expectations and technological change determine the characteristics of service segments. Segment shapes are therefore fluid and will change as well. A product catering to the repairable segment today might need

33、to adopt strategies for the disposable segment tomorrow.The keys for success are substantially different in each of these segments, as summarized in Figure 2. Strategic emphasis shifts considerably from segment to segment as well. For example, with disposables it is essential to bring total price be

34、low the threshold at which customers will no longer pay for a repair. On the other hand, sustaining advantage in the rapid response segment requires the ability to improve total system performance: design, manufacturing, and service.Shifts from one segme nt to ano ther are of crucial importa nee bec

35、ause they sig nal pote ntially major eha nges in the in dustry. Tan dem shifted one segme nt of main frames from rapid resp onse to n ever fail, creat ing a new n iche not domin ated by IBM.Figure 2 宝七msSegmienEProduct strategySupportKers forLKamplesLbow IWdi mshLOW variEOlgJZW pC CteOCTE l GCSlEQbm

36、irabditf wiFT|;:.-1.4r1知f hgh rekamllty jqW rnanjfacl j Ing1-2¥虫1y high 阳lability LOMr pfodud cos-tEi CradMIy,Hiign rtfifcAni lfly few cftccctadLjowM I rsqmlremr伽 avail Ale Mrvuririg- -ri nriiilp- cara z ilrty i tcc iarfl ndwignWKlcaviil&ilAy.c.g.fc-lt-yGjrwir 汕肩third party wfvimi , elG.Hig

37、hDctgin flrnpkdy Lownper cMbuw rudi_.匕丹-1 EG'伯 llu POpontiono H avo ila Dilily3a la nee.* rabiAilily AMSaandardA2)e 曲 rU 忆 tower IcgittEs mHMdL* khanoni仃£片沪 TSirtnrjrMai-1 -iqh Fillmj TC ChCGSE MTMfl MFIkKlkvo mathn cf dMigrn 許ed suMWfCatepilarNewer f«1a aga rftt an/ rxl all laibrQ

38、1;ahdl rflarrupliorK AfbrdaJDilffy"de E ig -"9uilT«i<K eddhsn rodtndarcTf jdh-wcif ta3ac«-jc “reiritfoe¥ay high component 用li起i IffyCC5t<!lTCClFb C dCEl 丁C ndia bittylandcniStrategic implicatio nsIn the past, cha nges in tech no logy and customer n eeds occurred gradua

39、lly, permitt ing product desig n and market ing strategy to evolve at an equally slow pace. Manufacturers no Ion ger have that luxury of time. Man agers must an ticipate how the accelerat ing rate of tech no logical development and rapid shifts in customers ' priorities will affect their producf

40、etrategies.They will find their products shift ing positi ons among the fixed-to-variable cost relati on ships show n in Figure 1, cha nging market segme nts and appropriate strategies in the process. The SLC after-sales service framework thus is an early warni ng system, advis ing man ageme nt to c

41、ha nge course in adva nee of major upheavals. Compa nies can determ ine how future gen erati ons of equipment should be designed by analysing likely changes in customers ' costs and projecting future tech no logical developme nts.Such forecasti ng is vital for products that are now on the edge o

42、f a segme nt, such as larger disk drives, medium-sized copiers, and super mini-computers. Yet, anticipating change is critical for established product types as well. Decli ning prices have caused small office copiers, for in sta nee, to shift from the repairable segme nt towards the disposable. Lowe

43、r prices no Ion ger justify major repair costs, and major small copier comp onents such as drum cartridges are themselves fully disposable.Similarly, pers onal computers have moved from the rapid resp onse segme nt towards the repairables as those machines proliferate, minimizing the average usercos

44、t of ' s high variable failure. It is cheaper for the customer to purchase a spare PC (or go to a printing centre such as Kinko ' s) and rely on ca-rirny repair shops rather than pay for on-site service. Rapid obsolescence nudges specific PC models closer to the disposable segment as well.Co

45、nventional strategies will falterThe net effect in those and other high-volume product categories will be to reduce substantially the size of the rapid response segment. Fewer customers will demand fast repair, leading to major alterations in those products' service strategies:* Service contract

46、s will become an endangered species. Once a product moves into the never fail or disposable segments, customers will no longer be willing to pay anywhere from 2 to 10 per cent of the purchase price for service. For example, most owners of personal computers now opt for an extended warranty; ten year

47、s ago. they would have chosen the more expensive. on-site maintenance contract. Also, lowend home and small-office computer printers have become reliable and cheap enough to make service contracts unnecessary.* Support services will be unbundled. Equipment makers will be forced to set separate price

48、s for parts, warranties, training, and walk-in service to meet the dissimilar needs of different groups of customers.* Profits will be squeezed. Service and support revenue once represented a major source of total corporate profits. Competitive pressures are already eroding profits on equipment sale

49、s, and changing service requirements will take away companiessource of r'elielaf.sItn the future,manufacturers face the unpleasant prospect of being squeezed in both areas.Preparing for changeThe SLC after-sales services framework is an invaluable diagnostic tool for equipment manufacturers. Man

50、agers can use it to identify potential weaknesses quickly in their current product or service strategies, redirect long-term plans for product development, and determine whether to act as reactors or initiators of change.Diagnostic toolAnalysing customers ' fixed and variablewciollsatlslow compa

51、nies to determine rapidly which of the four segments their products should pursue. They then should compare their current approaches to design and service to the strategies appropriate to chosen segments, determining how well they are positioned today. Managers must be careful to use customers ' perceptions of costs and evaluate service and product design a

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