The service economy is gaining ground. Today, an increasing number of companies seek to create value by building service-based business models and moving from selling a product to selling a ‘comprehensive service’. DLL, a global vendor finance company already contracting service-based business models emphasizes the necessity of a clear and effective service contract and customized terms and conditions. In their servitization education series, DLL shares important tactics and strategies for companies implementing service-based models. The latest whitepaper identifies contract elements that should be addressed to reduce the risk of disputes arising with customers.
The Service Economy
More and more manufacturers, dealers and resellers move from selling a product to selling a ‘comprehensive service’. Adding services to an asset sale enables them to move from a transactional to a contractual long-term relationship with end-users. However, to properly arrange this future service commitment, the type of contract and its conditions listens carefully.
The Need for Enhanced Service Contracts
Frits Engelaer, VP Servitization at DLL explains: “In a traditional transaction-based economy, equipment is sold together with rights and maintenance obligations towards the end-user, as such expectations on future obligations of the supplier are clear. In a service-based economy, title rights and service obligations remain mostly with the supplier. However, the kind of obligations and applicable terms are not known. In fact, the service offering of most suppliers is not mature yet. The same goes for their contract documentation. A clear, complete, and transparent service contract is crucial to manage the future expectations of customers and to manage any dispute arising during the term of the contract and service-based program”.
Incomplete service contracts and vague clauses are one of the main triggers for a dispute between service providers and customers. Especially, when these contracts are negotiated and used by different stakeholders over time.
Contributing to Successful Servitization Business
Engelaer concludes: “Servitization from a supplier perspective, is a way to increase sales revenues. From a customer perspective, it offers a way to reduce risk, decrease maintenance, and support costs and make them more predictable. Whatever the incentive is to servitize, in many cases the service contracts should be enhanced. We hope that through this whitepaper we create awareness around this and further contribute to a successful servitization journey for our partners”.
Download the servitization whitepaper, Enhancing Service Contracts to Minimize Dispute Risk.