Keeping the Customer After the Warranty Period

The end of the warranty period has always marked a change in the relationship between an OEM and its customer. While equipment is under warranty, service activity is relatively visible, repairs typically to flow through known channels, and the manufacturer has a clearer picture of what is happening to the asset in the field. Once warranty expires, that connection can weaken quickly.

As equipment stays in service for longer, that matters more than ever. Assets that might once have been replaced after five or ten years are increasingly remaining active for a decade or more, extending the aftermarket opportunity well beyond the original warranty period. At the same time, customers are more sensitive to the rising cost of parts and labor and have more options for where they take their service business. Independent and third-party providers see the same ageing installed base and the same revenue opportunity.

In a recent Service Council™ inService™ podcast, Syncron Industry Principal Ben Groeneveld explored what that shift means for OEMs trying to retain customers beyond warranty — and why service contracts are becoming a more important part of that strategy.

Service Contracts as a Retention Anchor

During the podcast, Ben described post-warranty service as a potential “retention anchor.” His point was that service contracts give the customer a reason to keep returning to the OEM or its service network after warranty.

How that relationship is structured can vary considerably. Some manufacturers may sell relatively simple maintenance packages, while others may move closer to an equipment-as-a-service or uptime model in which the customer pays for the assurance that the asset will remain productive. In each case, the agreement creates an ongoing reason to stay connected and keeps more of the associated parts and service demand within the OEM ecosystem.

As these offers become more varied, it also makes sense to think of service contracts as products in their own right. Coverage, duration, usage, service content, and risk can all be shaped around different customer needs. That creates more scope to compete on the quality and structure of the service proposition, especially in markets where the equipment itself is becoming less differentiated and customers are paying closer attention to total cost of ownership and uptime.

Staying Connected to the Asset

By keeping the customer engaged with the OEM or its service network, the contract can also help maintain visibility into the asset after warranty.

As assets become more connected, manufacturers can receive telematics and other digital signals throughout the equipment lifecycle, but the value of that information depends on being able to connect it to the service activity that follows. Under warranty, that loop is easier to close because the OEM can usually see both the fault or alert and the repair. Once the asset leaves warranty and the work moves elsewhere, the manufacturer can lose part of that picture.

A service contract creates another reason for the asset to remain visible within the OEM network. Over time, that gives the manufacturer a better view of which failures occur, what work is actually required, how service costs develop, and how equipment behaves as it ages. That creates a way to maintain the lifecycle relationship that often gets broken when an asset leaves warranty or changes owner, giving manufacturers richer evidence about the installed base they are supporting and a stronger basis for future service, pricing, and product decisions.

Making the Commercial Model Work

There is, however, a practical constraint on all of this: the agreement still has to make money.

A multi-year service contract commits the manufacturer to a cost base that will continue to move after the customer has signed. Parts and labor costs change, assets age, usage varies, and the economics of the service network can shift. This becomes particularly difficult when manufacturers are working with manual or backward-looking processes, because by the time the business has recognized a change in cost, the impact may already be showing up across a much larger group of contracts.

The same issue affects the manufacturer’s ability to respond when the customer wants something outside the standard offer. Ben gives the example of a customer asking for a 3,500-hour agreement when the manufacturer typically sells 3,000- and 4,000-hour contracts. In a manual environment, that variation can trigger a new round of costing and pricing work that takes too long to complete. The commercial opportunity may still be attractive, but the manufacturer needs a faster way to understand the likely cost and decide what to charge.

We’ve explored those costing and pricing challenges in more depth elsewhere, including the role of fragmented data, manual analysis, and quote speed in service contract profitability. The important point is that retention and profitability have to work together. A service contract only strengthens the post-warranty relationship if the economics are sustainable for both sides.

Keeping the Customer After the Warranty Period

As equipment remains in service for longer, the value attached to the post-warranty period continues to grow. There are more years of potential parts and service demand, but also more competition and more opportunity for the OEM to lose visibility into both the customer and the asset.

Service contracts provide one way to maintain that connection. They can keep the customer engaged with the OEM network, preserve more of the service history and asset intelligence that would otherwise disappear, and create a commercial framework for supporting the equipment further into its lifecycle.

That makes them relevant to a much broader aftermarket question than how to generate recurring revenue. For manufacturers trying to capture more value from an ageing installed base, the real opportunity is to remain part of the customer’s service decision long after the original warranty has ended.

Listen to Ben Groeneveld and Service Council’s Gerardo Pelayo discuss the next generation of post-warranty service contracts on the inService™ podcast.