Finding The True Value of Extended Service Programs, Part 2: Customer Continuity

Posted by Nathan Baldwin on Friday, October 2nd, 2015

In the first installment of this series, I provided some observations on modernizing and maximizing the financial benefit of service contract programs. In this article, I’ll take a look at how service contract programs can be used as a platform for long term connections with your customers. Creating customer continuity is a key goal of After’s warranty management solutions.

One of the biggest challenges CRM marketers face trying to creating customer continuity is the lack of legitimate and tangible value propositions available between purchases. Marketers have used their seemingly boundless creativity to develop benefits to create this perception. As an example, many companies tackle the problem by designing some form of loyalty currency (miles, points, credits, stamps on a card, etc.) to extend and hold this valuable relationship.

One tool that is rarely discussed as a part of an overall strategy is the ESP (Extended Service Program). Putting aside that ESP programs are generally run by finance or service groups (or are outsourced) for a moment, the real barrier to using ESP as a customer continuity tool is the low conversion rate that arises when ESP programs are geared solely toward short-term goals of operational efficiency and immediate profitability.

I suggest that the potential long-term gains in customer value from ESPs are far greater than the current strategy designs for short term efficiency.

What if you took a different approach? What if you took long term value into consideration by using the inherent extended customer bond that is created by ESP’s?

Imagine if you significantly increased adoption and contract term lengths by lowering the ESP price in return for only allowing covered and non-covered repairs to be made with genuine manufacturer parts. Could you off-set the increase in claims with significant increase in genuine parts sold to servicers and dealers? Surveys show that a significant proportion of customer dissatisfaction around repairs is the need for re-repair, something often traced to the use of non-OEM parts. Would a revised service program like this not only provide a good revenue stream, but improvements in customer experience, as well?

Or…what if in return for a lower price and a longer contract term, we request the customer to schedule an annual, low-cost maintenance appointment? Would the additional margin from additional services and accessories sold cover the additional risk of extending service and the cost of the appointments? This would give an opportunity to provide a positive service experience at solicit for add on accessories and services once per year for a high percentage of your customer base.

Too risky? Wait? You know what the risk is. You’ve been keeping a watch on your reserve for years – you need to project out to the higher adoption numbers of your customer base. Is that a number you can cover with other services and programs, if you have guaranteed access to that customer base? Is that a number you can beat?

Naturally, the answers to the preceding questions will be influenced by the specifics of your products and customer base. After has designed many innovative approaches to increasing profit between purchases, while at the same time providing higher levels of customer continuity and loyalty. We’ve found that it’s important to weigh short-term opportunities against longer-term, and potentially more valuable, ones,

Try including ESP programs as part of the discussion for increased growth and loyalty in your next planning session. A well executed ESP program can serve as an important platform to create a relationship with your customer base on your own terms – this is the true value of ESP.

In the next installment, I’ll discuss how the data collected from these efforts can offer new insights into customer behavior and product engineering, as well as create new profit centers and predict when a customer is in a product replacement cycle.