Over the past few years there has been an increased emphasis on digital technologies across all industry sectors. Manufacturing has featured predominantly under the banner of ‘Industry 4.0’. Peter Colman and Nouran Ezzat discuss revenue generating opportunities for manufacturers.
While some may see digitalization as a threat to their current business models, the fourth industrial revolution provides profit opportunities through the 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 digitalization 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 digitalization.
Though many industrial firms are investing in digital transformation initiatives, 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 ‘digitalization pioneers’. Machinery was around the average, while industrial services, and paper and packaging came last, what we call ‘digitalization laggards’.
What does it take for an industrial firm to grow their topline through digitalization?
We advise focusing on three key areas in their digitalization strategy.
1. Digital revenue models: monetizing 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 product in the physical world. What extra value does this offering provide, perhaps through real-time data insights? And are you able to charge a premium for it?
However, monetizing this innovation – developing a revenue model for a software offering – could be a very challenging task for a manufacturer that has always been able to rely on a simple cost-plus pricing method.
[For insight into tackling this challenge, see last year’s article on monetizing 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. This concept is referred to as servitization.
[Again, we have written about this in The Manufacturer, see the thought leadership article]
For example, a surgical robots manufacturer altered its revenue model to charge hospitals per surgery for use of robots. In turn, it addressed 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 digitalization to re-configure and shorten the value chain. This will lead to the ability to rapidly adjust to shifting customer preferences. 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.
2. 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 also 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 life-cycle of selection, purchase, operation, and maintenance.
3. 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. It is vital to have a sales team with the right skill-set. They need to understand the role of digitalization and be able to articulate its value and relevance to customers.
According to our GPSS study, 39% of companies believe they need to improve their sales force effectiveness and 33% need to digitize 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’s important to emphasize that digitalization is not a substitute for sales roles (also confirmed by our study). However, it 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.
Manufacturing industries can drive sustainable topline growth by investing in digitalization. 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!
This article first appeared in the November edition of The Manufacturer Magazine. Used by kind permission www.themanufacturer.com