BACKGROUND INSIGHTS THE CONSUMER HARD GOODS MARKETPLACE. Aftermarket Service Cannot Be An Afterthought

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1 BACKGROUND INSIGHTS THE CONSUMER HARD GOODS MARKETPLACE Aftermarket Service Cannot Be An Afterthought

2 2 CONSUMER GOODS MARKET OVERVIEW Large Appliances also known as white goods, comprise major household appliances. These may include air conditioners, dishwashers, clothes dryers, drying cabinets, freezers, refrigerators, kitchen stoves, water heaters, washing machines, trash compactors, microwave ovens and induction cookers. White goods were typically painted or enameled white, and many of them still are. Small Appliances typically these are small household electrical machines, easily carried and installed. Some are classified with white goods, and relate to heating and cooling such as: fans and window mounted air conditioners, and heaters such as space heaters, ceramic heaters, gas heaters, kerosene heaters and fan heaters. In the kitchen, they include juicers, electric mixers meat grinders, coffee grinders, deep fryers, herb grinders, food processors, electric kettles, waffle irons, coffee makers, blenders and dough blenders, rice cookers, toasters and exhaust hoods. Electronic Entertainment and Information Equipment these include home electronics, TV sets, CD, VCRs and DVD players, camcorders, still cameras, clocks, alarm clocks, video game consoles, HiFi/WiFi and home cinema, telephones and answering machines which are all classified as brown goods. Gardening and Farming Equipment these include outdoor power equipment, tools and implements, and watering/spraying equipment. Many electric products rely on battery-powered models, which range from hand-held tools like trimmers, chainsaws, leaf blowers to larger machines such as lawn mowers and tractors.

3 3 MARKET INSIGHTS The home appliance industry which includes a wide range of electrical or mechanical devices used in a household is a multi-billion dollar industry with multiple channels of distribution, service and support. According to data from Statista, the market for household appliances is expected to generate nearly $590 billion in revenues by Shipments worldwide are projected to increase from 583 million units in 2013 to 700 million units by According to Future Market Insights, demand for power tools is projected to increase at a compound annual growth rate (CAGR) of over 5% to $36.2 billion in 2020 and $46.5 billion in Approximately 200 million units of electric power tools were sold globally in 2015, a significant lead over 88 million pneumatic power tools. The Microsoft State of Global Customer Service Report collected information on the impact of customer service. 48% of global consumers don t believe most brands take action on customer feedback. According to the Microsoft State of Global Customer Service Report, 67% of global consumers across all age groups expect brands to respond within 24 hours to their customer service questions, complaints or praise on social media. Userlike conducted a customer satisfaction survey to be a standard approach for collecting data on customer happiness. The data reveals that 91% of unhappy customers will not return to purchase products. The Kitchen Appliance Satisfaction Study and the Laundry Appliance Satisfaction Study measure customer satisfaction in 11 appliance segments across six factors (in order of importance): performance and reliability; ease of use; features; styling/appearance; price; and warranty. Satisfaction is measured on a 1,000-point scale. According to the Home Improvement Research Institute, the market for major household appliances in 2016 is $23.9 billion, and is expected to reach $27.1 billion by 2020.

4 4 Statista states the home appliance industry is a multibillion dollar industry. The consumption of household appliances worldwide is forecast to generate nearly 590 billion U.S. dollars in revenue by Packaged Facts estimates total retail sales of the Lawn and Garden (L&G) supplies market. It is projected that retail sales of the L&G supplies market will increase by a CAGR of 3% to reach $6.6 billion in Freezers, stoves, washing machines, are part of the major domestic appliance category. According to Statista, the shipments of these major home appliances in the U.S. are forecast to reach the highest figure to date in 2016, when 75.5 million units are projected to the shipped in the country. According to Statista, shipments of major kitchen and laundry appliances in the U.S. are forecast to grow from around 52 million units in 2012 to nearly 65 million by Refrigerators and freezers are also an important segment within this market, as shipments of refrigerators are forecast to pass the 11 million unit mark by 2017, while shipments of freezers in the country are projected to total 1.68 million in the same year. Household electronics continue to grow as an industry. According to Euromonitor International, wireless speakers posted 32% volume growth in 2016 as the technology continued to find its way into more US homes.

5 5 EXPERT VIEWS This is the golden age of services, and to survive and prosper, every company must transform itself into a services business. Executives swear by that services-centric view of the world, but privately, they admit to one niggling concern: Most companies either don t know how or don t care to provide after-sales services effectively. Top managements the world over treat aftermarket services as a mere afterthought Although few executives realize it, after-sales support is the longest-lasting source of revenues to sellers and requires the smallest investment. Companies that ignore the aftermarket do so at their peril. Although there are few reliable estimates, research firm Aberdeen Group pegs the sale of spare parts and after-sales services in the United States at 8% of annual gross domestic product. That means American businesses and consumers spend approximately $1 trillion every year on assets they already own. It also means that the U.S. aftermarket is bigger than all but the world s eight largest economies. Wall Street tracks companies aftermarket prowess, and studies show that there s a direct correlation between stock prices and the quality of firms after-sales services. Harvard Business Review In addition to the margins they can generate, aftermarket services account for 40% of profits for most manufacturers and up to 30% of revenue. Furthermore, there is a contraction of the global durable goods market, with a decline of 3.5% in 2015 for orders of durable goods and long-lasting products. Syncron

6 6 The manufacturing industry clearly recognizes the importance of aftermarket services as a growth driver. However, manufacturers face formidable challenges in implementing aftermarket services strategies, both from within and outside the organization. Obstacles include an historically reactive internal service culture, gaps in service capabilities and a let it break customer mindset that is rampant across industry sectors, particularly in the aftermath of last decade s global downturn. Cognizant Across the economy, aftermarket issues are becoming a key driver of company success. Consumers and businesses have come to expect from you the high level of online, as-needed service they are used to getting from giants like Amazon and UPS. Social media gives a customer who is dissatisfied with your post-sale service a platform to damage your reputation. At the same time, good aftermarket service is a wedge into selling addon products. Partnering with the right aftermarket service providers can enable the rapid growth sought by aspiring Exponential Organizations while providing excellent service to customers. Newport Board Group While there isn t a secret formula, high performing companies have found that investing in their service after sales function is a big step in the right direction. In addition to customer loyalty, service after sales has also been shown to be essential in boosting revenue. Studies in this area show that on average, the service after sales area contributes 24% of a firm s revenue, but as much as 45% of its gross profits. WarrantyWeek

7 7 For manufacturers, services have often been regarded as an onerous obligation and stocking spares a complex and thankless sort of business that gives cost accountants ulcers. Yet with unprecedented pressures on product margins and the threat of commoditization, services may be the best opportunity for profit and differentiation. Deloitte Research Effective control and management of spare parts are essential for many companies in most industries. The management of spare parts enables companies to achieve high service levels without unnecessary high inventory cost. Implement Consulting Group Effective warranties instill customer confidence in the purchase decision and enhance revenues for the manufacturer. However, the business processes for warranty execution cross several organizational silos. Using spreadsheets to manage workflow and ad hoc decision making often results in chaos. Inept warranty execution increases costs and lowers customer satisfaction. With today s social networking and e-commerce website ratings, this can quickly impact sales with negative effects on the P&L statement and shareholder value. ARC Advisory Group

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