Money for nothing

Abstract

Purpose

Most business organizations put lots of thought and effort into how to sell and deliver to customers a product or service that meets their needs at a particular point in time. But they often neglect to think about what is important to the customer to get the most value from the product or service after the sale is complete. For example, customers may be concerned about product maintenance, ongoing monitoring, protection in the event of breakdowns or the need to fund overhaul or replacement of the product when it wears out. The author discusses case examples of companies that do a good job of anticipating and addressing these needs, which often leads to highly profitable recurring revenue streams for providers. The author proposes six key strategies for companies considering going down this path.

Design/methodology/approach

In this article, the author cites a number of case examples of businesses that have built recurring revenues from after‐sales service offerings. Examples industries included in the article include the consumer home services and commercial capital equipment. The author then draws lessons that can be applied broadly by any company considering ways to build recurring service revenues from its customers.

Findings

The author proposes six strategies for building service plan businesses: create awareness of potential losses; lower the barriers to sign up; make it an easy add‐on; incentivize front‐line salespeople; make it self‐renewing; and trade on your company's good name.

Originality/value

This article sheds light on the economics and benefits of well‐designed service plans. When done well, this can often transform a servicing cost center into a highly profitable business line that can help carry product businesses through lean periods of new product sales.

Citation

Jackson, S.E. (2011), "Money for nothing", Journal of Business Strategy, Vol. 32 No. 2, pp. 50-52. https://doi.org/10.1108/02756661111109770