Over the past few years there has been an increased emphasis on digitalisation across all industry sectors, with manufacturing featuring predominately under the banner of ‘Industry 4.0’. Dr Peter Colman and Nouran Ezzat discuss revenue generating opportunities for manufacturers.
While some may see digitalisation as a threat to their current business models, we believe this provides profit opportunities through topline (revenue) as well as cost improvements.
Based on our 2017 40-country Global Pricing & Sales Study (GPSS), 81% of all companies have invested in digitalisation initiatives in the past three years.
When we asked about their objectives, 75% said their initiatives were focused on increasing their topline, yet only 23% said that their initiatives had succeeded.
Despite the hype, a disappointing three-quarters of companies failed to grow their topline through digitalisation.
Though many industrial firms are investing in digitalisation, as a sector this tends to be lower compared to their counterparts in some other sectors. For example, healthcare, insurance and telecommunications were the top three investing sectors, what we call ‘digitalisation pioneers’.
It is a mixed picture across industry, where machinery was around the average, while industrial services, and paper and packaging came last, what we call ‘digitalisation laggards’.
What does it take for an industrial firm to grow their topline through digitalisation?
We advise focusing on three key areas in their digitalisation strategy:
Digital revenue models: monetising innovation
Let’s start with innovation focused on the ‘offering’. This could be in the form of a digital-enabled physical product, or it could be software rather than a traditional physical product.
What extra value does this offering provide, perhaps through data insights, and are you able to charge a premium for it?
However, monetising this innovation – developing a revenue model for a software offering – could be a very challenging task for a manufacturer, which has always been able to rely on a simple cost-plus pricing method.
For insight into tackling this challenge, see last year’s Simon-Kucher thought leadership article on monetising innovation
You can also make changes to your current revenue model; for example, by providing services to supplement a product offering to form an integrated solution with a recurring revenue model – a concept referred to as ‘servitization’.
Again, we have written about this in The Manufacturer, see the Simon- Kucher thought leadership article
For example, a surgical robots manufacturer altered its revenue model to charge hospitals per surgery for use of robots, in turn addressing tight hospital budgets, as opposed to selling them robots.
This changes the traditional product sales approach focused on a one-off transaction into an ongoing relationship.
Another approach is to use digitalisation to re-configure and shorten the value chain. This will lead to the ability to rapidly adjust to shifting customer preferences, and as a result, a manufacturer’s relationships with customers can be strengthened and competitive advantage increased.
The oft-cited example is Dell’s direct-to-customer model that transformed the PC market in the late 1990s. New entrants into a market who are not constrained by an existing network of distributors and wholesalers often use this approach.
Digital push and pull strategies: enhancing the customer experience
How businesses buy and what they expect from suppliers is changing. This is in part formed from our digital experiences as consumers using Google and Amazon.
For example, a recent study revealed that business-to-business (B2B) customers can spend as much as 65% of the entire purchase process evaluating a product or service online prior to speaking to a supplier sales rep.
This means that manufacturers need to simplify their sales processes and make buying easier.
A manufacturer’s website should act as a sales funnel and support customers’ buying decisions through the process, whether or not the actual transaction is supported online (for example, actual contracting may be offline/face-to-face).
Key questions to consider when developing a customer-centric website are: is it segmented by customer type? Can customers understand the options and benefits of relevance to them, and are they able to configure their own options based on specific needs?
Does it have the ability to incorporate live customer support? Does it have a clear call to action; for example, request a call back or demonstration from a sales rep?
Investing in self-service platforms not only improves purchasing ease pre-sales, but the customer experience, loyalty and retention in after-sales. For example, Atlas Copco, an industrial equipment manufacturer, is investing in a digital platform supporting customers through the full lifecycle of selection, purchase, operation and maintenance.
Digital sales support: improving sales effectiveness
Finally, a manufacturer must be able to measure and improve their sales effectiveness. Value selling is just as important in the digital age. Having a sales team with the right skill-set who understand the role of digitalisation and are able to articulate its value and relevance to customers is vital.
According to our GPSS study, 39% of companies believe they need to improve their sales force effectiveness and 33% need to digitalise their sales processes. It is also important to support sales teams with appropriate digital apps.
By automating workflows and having the right tools in place, sales will be empowered to generate more leads, identify cross-selling opportunities and focus on value-added services.
It is important to emphasise that digitalisation is not a substitute for sales roles (also confirmed by our study), but will lead to their evolution based on customer segment.
Automation is expected to play a more prominent role within smaller accounts, thus freeing up time for deeper personal relationships within more important key accounts.
Manufacturers can drive sustainable topline growth by investing in digitalisation. Every manufacturer has to have a digital plan, but that plan can’t be about the technology. It has to be about how you make money!