An iconic British company known for its luxury cars has taken a unique approach to serving customers in its jet engine business. Instead of customers buying and taking on the risk of maintaining, repairing, and replacing the engines, Rolls-Royce now offers a fixed-dollars-per-flying hour fee that includes the engine and maintenance throughout its lifespan. This shift transfers the risk to the manufacturer and provides customers with greater cost certainty and less risk.
Rolls-Royce is just one of many companies that have diversified their offerings by providing customized and managed services. These services aim to deliver specific outcomes, experiences, and certainty to customers. The shift towards service-based business models makes sense for companies that were previously focused solely on products. When structured, priced, and marketed effectively, these models offer benefits to both customers and providers.
Customers benefit from receiving a valuable product along with a tailored outcome. This arrangement provides greater cost certainty by shifting capital costs to operating costs and reduces the risk of equipment failure by placing that responsibility on the provider. The burden of managing the product’s outcome also shifts from the customer to the provider. On the other hand, providers gain a new fixed revenue stream, opportunities to tap into new markets, deepen existing customer relationships, and expand beyond their core products.
However, successfully implementing these service-based business models can be challenging. One key aspect is determining which products or solutions can be bundled with services to add ongoing value for customers. Companies must identify unique service propositions that solve important problems for their target customers and package assets that enhance their lives or businesses.
Developing a strong marketing strategy is also crucial. This involves creating a segmentation model and prioritizing customer profiles to target with the service. Companies should identify vertical markets and specific personas, select effective channels, and craft messaging that resonates with their target audience.
Shifting from a transactional mindset to prioritizing positive outcomes and partnerships is another essential step. Customers are drawn to bundled or managed services because they offer more than just a product. Providers become trusted allies, subject-matter experts, risk managers, and problem-solvers. Sales teams must adopt a consultative approach, understanding customers’ challenges and offering unique solutions to help them grow their businesses. This may require additional training and support for the sales force.
Building partnerships to enrich service offerings is also important. Companies should consider collaborating with experts, acquiring specialized capabilities, or leveraging external resources to enhance the value they provide to customers. These partnerships can complement existing offerings and make the service more valuable to target customers.
Measuring customer experience and profitability expectations is crucial for the success of service-based business models. Companies must gather customer feedback, synthesize it with other business information, and use analytics to gain insights for refining and improving their offerings. It’s also important to consistently evaluate the profitability of these services and find ways to make them more cost-efficient without compromising their value to customers.
Ultimately, the goal of managed services is to provide value to both customers and the companies that offer them. By embracing service-based business models, companies like Rolls-Royce are able to deliver greater certainty, reduce risk, and deepen customer relationships, while also generating new revenue streams and expanding their market reach.
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