How servitization changes global B2B distribution?

by Taru Hakanen (VTT), Nina Helander (TTY/VY) & Katri Valkokari (VTT)

Servitization development increases the scope of intangible assets in the offerings of manufacturers and increases the importance of customer interactions and ‘customer closeness’. At the same time several manufacturers rely on intermediaries such as agents, distributors, dealers and service providers in order to reach their business customers around the world. However, servitization development may influence global business-to-business distribution in several ways.

The way responsibilities are shared has previously been relatively clear in distribution: the manufacturer focuses mainly on R&D and production, and intermediaries take responsibility for local sales and marketing, customer relationship management and service provision (logistics, after sales services etc.). However, servitization may drastically change the way responsibilities are shared between manufacturers and intermediaries. If a manufacturer develops its offering towards a complex service- and knowledge intensive one, not all of the intermediaries are capable of selling those. Then, manufacturers should either provide sufficient training for the intermediaries or consider selling certain parts of the offering by themselves.

Understanding of the local context of customers, creation of a positive customer experience and adjusting interaction and service co-production to different customer needs and characteristics are at the heart of service business. However, when a manufacturer reaches its customers via the intermediaries of marketing and distribution channels they lack direct contact with their customers. Then, a major challenge occurs: how can a manufacturer develop customer-focused offerings and operations when they do not thoroughly know business customers’ perceptions and expectations of value and customer experience? Is operating via intermediaries then the best way to fulfil customer expectations for value and customer experience in global distribution?

In spite of the indirect marketing and distribution channels in use, manufacturers may reach their customers directly for example, via remote services and various digital channels. In an extreme case, intermediaries may end up losing their position in the distribution channel if the manufacturer pursues closer customer relationships for enhanced customer understanding and starts providing an increasing number of its own services. On the other hand, intermediaries may pursue a competitive advantage through servitization, too. Local services and customer closeness are undoubtedly the intermediaries’ central assets and justification for their role in the distribution channel. Therefore, intermediaries can take on an even stronger role as local service providers.

The optimal model for manufacturers may be a combination of different direct and indirect distribution and marketing channels in global business-to-business distribution. Manufacturers may take on greater responsibility for sales and provision of certain services while intermediaries deal with certain services and customer segments. That way manufacturers can tackle the so-called ‘glocal’ distribution i.e., they balance between, for example, global process efficiency and brand coherency and customizing the offering and service co-production to local customers’ preferences.

Although, huge changes have already taken place in global distribution, digitalization will undoubtedly change global B2B distribution even more!

Hakanen Taru, Helander Nina & Valkokari Katri (In Press). Servitization in global business-to-business distribution: The central activities of manufacturers, Industrial Marketing Management, http://dx.doi.org/10.1016/j.indmarman.2016.10.011

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10 common mistakes that companies make with Total Solutions

by Taru Hakanen

Total solutions, integrated solutions, product-service systems… In the practical business world, they imply mainly the same thing: Companies package products and/or service as a seamless entity that is based on customer-specific needs. As a result, they accrue benefits for the customer through the combination of different competences and easier purchasing and cooperation.

Total solutions are visible in most companies’ web pages and other marketing material. In spite of the vast interest towards total solutions, we have seen many managers banging their heads against the wall with the same problems. These are 10 common mistakes that companies make with Total Solutions:

  1. Total solutions are sold to every business customer despite the fact that certain customers are not willing to purchase them. This only leads to wasted sales resources, when customers with the most potential have not been identified and sales efforts are not focused on those.
  2. Total solutions are sold to the wrong person in the customer organization. A total solution is not an answer to his/her problems. He/she is not even empowered to procure such large entities.
  3. Salesmen are not competent enough at selling or willing to sell total solutions. Everybody sells what they are used to selling and what they like to sell.
  4. Selling with the ‘one-stop shop’ principle fails. Individuals sell even the same solution from all around the organization without knowing each other. Contact persons are unclear for the customer.
  5. Customer-specific customization fails. The same solution is sold to every customer. Customer’s problems are not really listened and the solutions are not packaged accordingly.
  6. Creating a total solution always starts from zero and companies end up re-inventing the wheel. There are no productized service modules or a clear coordination model to combine them. Profitability and learning possibilities are lost.
  7. Coordination responsibilities are unclear. It is unclear whether the customer or the service provider takes responsibility of the coordination work. Different service providers from around the service provider organization compete over the position of being the ‘closest to the customer’.
  8. Service production is inefficient. The phases of the service process are fuzzy. Knowledge doesn’t flow between the process phases and service providers. Misunderstandings and delays occur.
  9. Total solutions are merely some business jargon of the ‘marketing men’. The total solution offered is not really a total solution. Service modules are still separate entities and gathering them as a total solution does not really benefit the customer in any special way.
  10. Putting a price tag on the coordination work that total solutions require is forgotten. Virtually everything is done for the customers to keep them happy, but the profitability of own company is lost.

Despite the long list of problems outlined in this post, it is definitely possible to make your customers happy with total solutions and enjoy a profitable business along the way! And you guessed right… We at VTT know how to solve these problems with you!

 

Hakanen, Taru (2014). Co-creation of integrated service solutions in business networks. Doctoral Dissertation, VTT Science: 71, Espoo.

Fimecc S4Fleet – Service solutions for fleet management