Most medical device manufacturers acknowledge service should be the most profitable part of their business. In fact, analysts have estimated the profitability of the service business is nearly 60% higher than equipment sales. Yet many manufacturer’s haven’t done a recent analysis of key areas such as their service sales strategy, alignment of service offerings with changing customer requirements or the effectiveness of their service sales effort. Almost all admit they could do more, but haven’t had the time to focus on improving the current situation.
Most medical device executives understand their service sales program helps to enhance their market and financial position. Many capture more than 95% of their service revenue from their own installed base. They are keenly aware of the profit potential, the positive impact on customer relationships and the financial stability their company enjoys with a solid base of renewable service agreement customers. Absent in most cases is the expertise and understanding of proven service selling concepts utilized in similar market segments.
As an example; a common scenario occurs when medical device companies, especially companies focused on complex high-ticket medical systems, seek to win or maintain market share or a particular “socket”. A service agreement tied to the equipment order can become “commoditized” in the chase to close the deal. The result; a service agreement, perhaps with a multi-year term, is heavily discounted in conjunction with the equipment sale. The lack of a clearly defined integrated service sales strategy will have a long term impact on service margins and profitability. Far too many companies accept the status-quo and fail to realize a more profitable service agreement would have been attainable if sales people were armed with the right sales strategy, training and service offering.
Most medical device company executives strongly affirm that they have a service marketing program in place. But few would argue that the program is focused on product support rather than driving service revenue. In fact in a recent survey many stated they had yet to “brand” their service offerings. Most stated that their service offerings were a result of historical data that had been collected through product marketing initiatives or mimicking industry leaders. Others stated that a “customer needs” assessment had been developed by product marketing or that their current service offerings were a direct result of a response to competition in the marketplace. A service marketing program that primarily supports product sales inevitably becomes relegated to the position of a product feature. Without a strategic plan in place that recognizes that service is a business and can grow both interdependently and independently of product sales, service market opportunities will be lost.
A solid prognosis starts with a good diagnosis. Unfortunately, most medical device service executives don’t have the time to examine current service business strategies or lack a solid footing in current best practices within the industry. There remains a certain amount of irony in the fact that the medical service culture thrives on responding quickly to emergency situations, but seems to have a “We’re going to address that down the road” mentality when it comes to the treatment of issues that negatively impact the health of their own service business.