Stopping the Leaky Bucket

For many companies, aftermarket products and services often represent significantly higher margins and sustainable revenue streams than original equipment purchases.

Why, then, are the smaller-ticket items so often ignored relative by original equipment manufacturers (OEMs) relative to their sales efforts on large capital equipment purchases? This is a question an electrical equipment company (EEC) had to ask itself. The company’s aftermarket business was doing well with about a 10% growth rate for each of the past three years. Although this was acceptable, it only had about 25% market share of its own customers’ aftermarket purchases.

Over the past 10 years, a group of third-party “maintainers” had sprung up, focusing exclusively on the electrical aftermarket business of the major electrical OEMs. These third parties had developed strong relationships with the decision-makers within manufacturing facilities, who tended to be very different from their counterparts on the large capital purchases. EEC sold through distribution and had a large field sales force, but its reps were far more driven by the large capital purchases of equipment than by the aftermarket opportunities.

“Win back that business!” was the management mandate. But before starting the initiative, EEC had to learn more about their OEM customer base. They received transactional information from distributors, and could track equipment and aftermarket purchases to the location level. These steps were taken:

1. A model was applied to their entire customer base to identify who had low aftermarket purchases relative to the amount of equipment purchases. This helped pinpoint sites with an incremental opportunity.

2. They next analyzed three years of transactional purchasing data to better understand the buying behavior of its aftermarket base.

Shockingly, they discovered that from year to year, they were losing 50% of its customers and 30% of their revenue. The 10% growth rates were coming primarily from acquiring new aftermarket customers leveraged directly from new equipment purchases. This decline was surprising, but in light of the fact EEC had little coverage of this aspect of its business, it made sense.

EEC was experiencing the “leaky bucket” syndrome. Customers leaking out the bottom of the sales “bucket” were significantly diminishing acquisition efforts. Not only did EEC discover a large percentage of customers defecting altogether, but another segment was “migrating” down in aftermarket revenue. With this greater understanding, it defined specific customer cells to target:

– OEM buyers that were not aftermarket customers.

– Defected aftermarket customers who had not purchased in over a year;

– Equipment customers with low aftermarket purchases.

– Declining aftermarket customers.

EEC had a significant coverage issue. The field sales reps were spread thin. On average, a rep called on the aftermarket decision-makers only about once every other year. EEC decided the telephone would be used as the primary contact medium, with communications managed and integrated by three account managers. Since no database of aftermarket decision-makers existed, they historically hadn’t even received direct mail from EEC.

The first step was to identify the key decision-makers. In most cases, two areas were involved in the decision-making process – the maintenance engineers and the purchasing department. The collateral material that had already been developed was a good fit for the engineers, but purchasing had a different set of requirements. A new set of materials was developed to specifically address the purchasing agents’ needs, such as having “apples-to-apples” price comparisons. Because of distributor markup, it appeared as though EEC’s prices were almost twice that of the third party. And there was a significant savings in downtime realized by using EEC aftermarket products and services.

The account managers quickly began building strong relationships and generating incremental business. EEC field reps were brought in when necessary, but the number of contacts from prior years had not been changed, just reallocated to accounts with actual needs. As you can see from the results chart above, it works.