The importance of after sales services in small companies

The importance of after sales services in small companies Abstract This dissertation deals with the role of after sales service in the operations of small companies in the capital goods sector. After sales service is an important area of modern day business and is important for both buyers and sellers of goods. Whilst buyers require after sales service to ensure the maintenance and operations of their purchased items, sellers provide after sales service for customer satisfaction and enhancement of competitive advantage. Small companies however find it difficult to provide high quality after sales service because of constraints in areas of workforce availability and finance. This dissertation deals with the area of after sales service and its applicability to a small organisation dealing in capital goods. The research, conducted with the use of quantitative and qualitative methods, reveals that the area continues to be a matter of concern that needs to be resolved urgently by managements of small companies to ensure their growth and competitive advantage. This dissertation aims to investigate the issue of after sales service and its importance to sellers and customers of manufactured goods as also the ways in which it can be used by organisations to improve their growth and profitability. After sales service represents the activities conducted by organisations to provide services to the customer in respect of products and services after the conclusion of the sales deal, the payment of money and the handing over of the product or commencement of services (Bundschuh Dezvane, 2003, p 116). Business firms in the past were content to provide goods to customers without any obligation to attend to their needs after the conclusion of contracts and the handing over of goods (Bundschuh Dezvane, 2003, p 116). The responsibility of sellers in such circumstances ended with the delivery of their products and customers were responsible for maintenance and utilisation of products after buying them (Bundschuh Dezvane, 2003, p 116). Such concepts have however altered radically over the course of the last century and manufacturers and service providers realise the need to provide relevant and appropriate services to their customers after the completion of sales (Lele, 1997, p 141). Modern day customers expect various types of services from organisations after they purchase products and services from them. Much of this development has come about on account of the change in the structure of goods and services in modern day economies (Lele, 1997, p 141). With the bulk of trade in the past being on account of agricultural goods, customers were required to purchase agricultural products from farmers or traders and inspect such products for freshness and longevity, and were responsible for storing them properly in order to avoid spoilage. Such practices were also due to the easy verifiability of the quality of agricultural products (Lele, 1997, p 141). With the proportion of agricultural products coming down steadily in the basket of goods and services of nations across the world, customers now spend significantly greater proportions of their incomes on various types of products and services, about which they know little, and thus depend upon suppliers for product and service quality as also for satisfaction of their needs (Lele, 1997, p 141). Their dependence upon their sellers for appropriate services continues much after the time of purchase of goods. The role of after sales service is steadily increasing in the operations of small and large companies (Levitt, 1983, p 87). Driven by the need to satisfy their customers, improve their image, strengthen their brands and enhance their competitive advantage, organisations now treat after sales service, not just as an important operational function but also as a critical marketing tool in their quest for growth and expansion (Levitt, 1983, p 87). 1.2. Definition of Problem Whilst the role of after sales service is steadily growing in both production and service sectors and is required by modern day consumers, its provisioning on the part of organisations is associated with a number of problems and challenges. After sales service, in the case of many products, has to essentially be provided at the premises of the customers. They have to furthermore be provided by specialised and skilled people who are aware of the nature of products and services and have the ability to correct mistakes in supply, as well as malfunctions in products and services (Gaiardelli, et al, 2005, p 236).The provisioning of such after sales services becomes especially onerous for small companies that work in limited markets and have restricted sales, comparatively low accruals and tight cash flows (Miragliotta, 2003, p 158). Such problems are compounded in the capital goods sectors for suppliers of capital machinery, like boilers and turbines, which whilst being complicated in nature are also installed in distant areas (Miragliotta, 2003, p 158). Whilst the modern day market is governed by customers, who insist on high quality after sales service and are ready to take their business elsewhere if their demands are not met, the provisioning of such services becomes extremely difficult for organisations engaged in manufacture and sale of capital goods, especially if they are small in size. 1.3. Purpose of Study The purpose of this dissertation is to investigate the relevance and role of after sales service in small and medium sized suppliers of capital equipment, both from the perspectives of the sellers and of the buyers. The aims and objectives of the assignment are thus as under. To examine the role of after sales service for suppliers of capital goods like boilers and turbines for small organisations. To understand the relevance and importance of after sales service for consumers of such equipment. To understand the ways in which after sales service can improve the growth and performance of small companies engaged in the supply of capital goods like boilers and turbines. 1.4. Benefits of Study The findings and results of this dissertation are particularly important because little research has been conducted in the area until now. A preliminary search of information on the subject in the physical and online domain reveals that the majority of conducted research concerns products like cars and cell phones and services like call centres. The issue of after sales service is however important for the products like the ones taken up in the course of this dissertation, even though they may not have public appeal, like automobiles or cell phones, or do not belong to a controversial and debated sector like call centres. Small organisations have specific disadvantages in providing after sales service, which in turn hurts their competitiveness in comparison to larger organisations. The findings of this study will provide useful information on a lesser known area of industry. Its findings should be of interest to academics and experts in areas of manufacture and marketing, small business owners, purchasing professionals, and students of management, engineering and marketing. 1.5. Structure This dissertation is arranged in sequential sections, which deal with a review of existing literature on the issue, the research methodology, the data, findings and analysis, and conclusions. The bibliography of information sources used in the course of the dissertation is provided at the end of the study, followed by the appendices. 2. Literature Review 2.1. After Sales Service After sales services constitute the various facilities and services provided by manufacturers and sellers of items to their customers after the completion of sale and purchase transactions (Lele, 1997, p 142). Whilst after sales service in the area of consumables like food, soft drinks or items like soap and tooth paste is simple and essentially concern the replacement of items that are found to be defective, such services become complex for consumer goods and capital items like televisions, refrigerators and washing machines, or engines, turbines and boilers, which are used by their buyers for varying periods of time (Lele, 1997, p 142). Manufacturers of these items provide a range of after sales services in the form of guarantees, warranties, free and paid replacement of parts, advice on maintenance and operations of these items, and periodic checkups (Gaiardelli, et al, 2005, p 238). The provisioning of such after sales services helps buyers to make optimal use of their purchased items, keep them in good condition and increase their operational longevity (Gaiardelli, et al, 2005, p 238). Apart from facilitating customers to use products in the best possible manner and the longest possible time, after sales service helps in keeping such products in good condition and in ensuring their resale value (Gaiardelli, et al, 2005, p 238). Many organisations, especially in the sector of automobiles and white goods offer buyback facilities to customers who are able to sell such goods back to company agencies and avail of exchange or other offers (Gaiardelli, et al, 2005, p 238). After sales service is becoming an increasingly important function in most business organisations and all organisations, irrespective of their size, are making efforts to provide high quality and appropriate after sales service to their customers (Gaiardelli, et al, 2005, p 238). All suppliers of capital goods have complex and detailed after sales service facilities that are formulated with great care (Gaiardelli, et al, 2005, p 238). 2.2. Role of After Sales Service for Manufacturing and Selling Organisations Levitt, (1983, p 88), states that manufacturers and retailers of consumer and capital goods cannot think that their interaction with customers ends with the sale of their products. They are required to provide their clients with a range of after sales services by way of warranties, installation packages, maintenance and repair services, availability of spare parts for long periods of time, (even after the discontinuation of product lines), technical advice in various operational areas, and options for exchange and upgrading of products. The provisioning of after sales service facilities has been steadily growing over the last few decades on account of a number of reasons (Bundschuh Dezvane, 2003, p 119). Experts feel that the rapid growth of after sales services has been driven by local and global competition. The contemporary period is distinguished by intense competition in the market place (Bundschuh Dezvane, 2003, p 119). Such competition has grown exponentially on account of causes like economic liberalisation, technological advances, globalisation and the emergence of good quality but low cost production and service centres in Asia, East Europe and Latin America (Bundschuh Dezvane, 2003, p 119). The growing intensification of competition among businesses in all areas of activity has spurred manufacturers and sellers to improve and enhance their engagement with customers in different ways (Bundschuh Dezvane, 2003, p 119). After sales service not only fulfils the need of customers but also allows organisatio ns to stay in touch with their customers long after the occurrence of commercial exchanges (Bundschuh Dezvane, 2003, p 119). Such opportunities enable companies to satisfy various types of customer needs, improve customer loyalty and influence customers to engage in repeat purchases, develop market goodwill and provide word of mouth recommendations (Bundschuh Dezvane, 2003, p 119). Apart from driving customer satisfaction and influencing repeat purchases and market goodwill, after sales services provide organisations with attractive and profitable revenue streams (Gaiardelli, et al, 2005, p 239). After sales service includes the supply of spares and the engagement of yearly maintenance contracts that are put in place after the expiry of free warranty periods. Most industries price their spares well (Gaiardelli, et al, 2005, p 239). The sales of these spares constitute an attractive and profitable revenues stream for organisations and enhance their operational and financial performance (Gaiardelli, et al, 2005, p 239). Maintenance contracts are also priced in such a manner that they cover the cost of maintenance and provide organisations with surpluses. The supply of spares and maintenance services has now become an important component of organisational sales, cash flows and profitability (Gaiardelli, et al, 2005, p 239). Steadily growing customer requirements and the increasing sophistication of products plays an important role in the knowledge and expertise of business firms (Frambach, et al, 1997, p 341). Many companies use feedback from their after sales operations to improve their knowledge of products, product performance, product inadequacies and product faults (Frambach, et al, 1997, p 341). Such information helps them significantly to improve the quality and capacity of their products, reduce product defects and introduce product improvements. It helps companies to improve the overall quality of their product offerings, improve their RD efforts and enhance their competitive advantage (Frambach, et al, 1997, p 341). 2.3. After Sales Service in Small Organisations The immediately preceding section deals with the various advantages that offering of high quality and extensive after sales services can give to organisations (Brun, et al, 2004, p 172). Whilst the provisioning of after sales service can help organisations to (a) improve their market share and sales, (b) increase their profitability, (c) improve their product knowledge, (d) help their research and development activities, and (e) enhance their competitive advantage, the capacity to offer such services entails significant outlays on expenditure and manpower that is often beyond the resources of small organisations (Brun, et al, 2004, p 172). Organisations that provide after sales services are required to develop after sales service teams that are distinct and separate from members of production and maintenance departments (Brun, et al, 2004, p 172). The members of after sales service teams are required to have extensive product knowledge and good people management and customer relation ship skills. Such people have to be chosen with care, treated with sensitivity and remunerated well (Brun, et al, 2004, p 172). The development and maintenance of an after sales service team involves substantial expenses. Small companies that provide capital equipment often have customers spread across regions and in distant geographic locations (Cohen Whang, 1997, p 535). The need to attend to such customers involves extensive travelling for employees engaged in after sales service functions. Such travel not only reduces the effective time available with employees to attend to other customers but also involves substantial travelling costs (Cohen Whang, 1997, p 535). The supply of essential spares is an integral component of after sales service. Whilst the cost of such spares is by and large recovered after expiry of official warranty periods, organisations are required to keep a large range of such spares in their inventories (Gaiardelli, et al, 2005, p 259). Many of such spares are not manufactured in house but are bought out or manufactured by other contractors. The need to keep sufficient stocks of materials, many of which are not used for long periods of time, is an expensive proposition and companies have to bear, not only the strain on cash resources in obtaining these items but also the costs of obsolescence and holding of inventory (Gaiardelli, et al, 2005, p 259). It needs to be recognised that small organisations are restricted by the size of their operations, the availability of cash flows and availability of employees. New organisations furthermore have many clients within warranty periods and have to provide after sales services free of charge. Whilst the needs for such companies to offer high quality after sales service is imperative on account of competitive pressures, the development of facilities to do so imposes substantial financial burdens (Miragliotta, et al, 2003, p 160). Many small companies are known to engage in cost cutting in this area, especially so in times of recession or sluggish sales (Miragliotta, et al, 2003, p 160). Such measures are primarily adopted out of compulsion and lack of necessary resources but result in customer dissatisfaction and adverse consequences, not just in terms of loss of market reputation, customer sales and profitability, but also by way of penalties and legal action for breach of after sales service obligations with customers (Miragliotta, et al, 2003, p 160). 2.4. Research Questions The research question for this dissertation have been formulated in line with the purpose of the study, the aims and objectives of the dissertation and the information obtained during the course of the literature review. The research questions are formulated as under. Research Question 1: What is the importance of after sales service for customers of capital equipment like boilers and turbines provided by small organisations? Research Question 2: what is the role of after sales service in the operations of small firms engaged in supply of such capital goods? Research Question 3: How can small companies engaged in the supply of capital goods use after sales service to improve their performance and growth? 3. Research Methodology 3.1. Available Research Methods It is important to obtain a broad idea on the theory of social research before deciding upon the appropriate research method (Sarma, 2004, p 84). Such understanding will help, not only in the choice of research methods and the conduct of the research assignment, but also in obtaining a holistic perspective of the issue and in approaching the subject with greater maturity Whilst the theory of social research is a vast area, a few important concepts, namely deductive and inductive thinking and positivist and interpretivist epistemology, are taken up here for discussion (Sarma, 2004, p 84). Deductive reasoning is termed as a top down approach and moves from the general to the specific (Thyer, 2001, p 9). Researchers in such circumstances commence by thinking up a theory on the topic of interest and then narrowing such theory into more specific hypothesis that can be tested during the course of research (Thyer, 2001, p 9). Such research entails the collection of observations to address these hypotheses and enables researchers to test hypothesis with particular data in order to confirm or disprove the original theories (Thyer, 2001, p 9). Inductive reasoning on the other hand grows from specific observations to broader theories and is termed as the bottom up approach (Sarma, 2004, p 84). Researchers, whilst engaging in inductive reasoning, commence with particular observations, make efforts to detect patterns, formulate tentative and primary hypothesis that can be explored and thereafter develop general conclusions and theories. Inductive reasoning is more exploratory and open ended, even as deductive reasoning is narrow and concerned with the confirmation of hypotheses (Sarma, 2004, p 84). The epistemology or philosophy of social research can essentially be segregated into positivist and interpretivist streams of thought (Babbie, 2007, p 42). The positivist way of thinking is associated with the scientific approach and assumes that the objective of knowledge should be restricted to the description of phenomena that can be experienced, and that research should be regulated by what can be observed and measured. Positivist researchers follow specific processes and procedures to ensure that observations are accurate, consistent, and verifiable in order to conduct their investigation (Babbie, 2007, p 42). The interpretivist theory however developed largely as a counterpoint and a criticism of positivism. Whilst interpretivist theorists do not reject the positivist dimension of scientific knowledge, they do question its relevance for the study of societies (Babbie, 2007, p 42). Interpretivism assumes that specific phenomena need to be understood in totality, and that positivism, because it collects and analyses data from parts of the phenomena, can miss many important aspects and thus be inadequate in the achievement of comprehensive understanding of issues (Babbie, 2007, p 42). Social research has for many years witnessed debate over the use of quantitative and qualitative methods for obtaining and analysing information (Bryman Bell, 2003, p 54-55). Quantitative methods arise from positivist epistemologies and are concerned with the measurement of numerical data and their appropriate analysis. Quantitative methods continue to be widely used in social research and are felt to be most applicable when the subjects under study are suitable for numerical observation, quantification, and analysis (Bryman Bell, 2003, p 54-55). Whilst quantitative methods continue to be widely used by social researchers, they are found, not just to be inadequate, but also to be inappropriate for the study of research issues that are essentially subjective and incapable of being measured or analysed through numerical quantification and analysis (Davies, 2007, p 139). With much of social phenomena being subjective, multilayered, multidimensional and open to interpretation, quantitative methods of research are felt to be unsuitable for their study and investigation. Qualitative research methods are used to explore attitudes, behaviours and experiences through specific qualitative research methods (Davies, 2007, p 139). Significant discussion and debate has taken place on the topic of research methodology and theories on how enquiries should proceed (Shacklock Smyth, 1998, p 107). Much of such debate has focused on the issue of quantitative v qualitative enquiry (Shacklock Smyth, 1998, p 107). Research experts now appear to agree that both these methodologies have their own specific strengths and weaknesses (Shacklock Smyth, 1998, p 107). Whilst the theory of social research is a vast area, a few important concepts, namely deductive and inductive thinking and positivist and interpretivist epistemology, are taken up here for discussion (Sarma, 2004, p 84). Social research has for many years witnessed constant debate over the use of quantitative and qualitative methods for obtaining and analysing information (Bryman Bell, 2003, p 54-55). Quantitative methods arise from positivist epistemologies and are concerned with the measurement of numerical data and their appropriate analysis. Quantitative methods continue to be widely used in social research and are felt to be most applicable when the subjects under study are suitable for numerical observation, quantification, and analysis (Bryman Bell, 2003, p 54-55). Many opinion polls and marketing surveys are conducted with the use of quantitative methods. They are particularly suitable for political opinion polls and for assessment of mood swings and their impact on voting patterns (Bryman Bell, 2003, p 54-55). Whilst quantitative methods continue to be widely used by social researchers, they are found, not just to be inadequate, but also to be inappropriate for the study of research issues that are essentially subjective and incapable of being measured or analysed through numerical quantification and analysis (Davies, 2007, p 139). With much of social phenomena being subjective, multilayered, multidimensional and open to interpretation, quantitative methods of research are felt to be unsuitable for their study and investigation. Qualitative research methods are used to explore attitudes, behaviours and experiences through specific qualitative research methods (Davies, 2007, p 139). There has been a great amount of discussion and debate on the topic of research methodology and theories of how enquiries should proceed (Shacklock Smyth, 1998, p 107). Much of such debate has focused on the issue of quantitative v qualitative enquiry, namely which could be more scientific and which could actually be the most appropriate (Shacklock Smyth, 1998, p 107). Research experts now appear to agree that both these methodologies have their own specific strengths and weaknesses which should be appreciated and addressed by researchers (Shacklock Smyth, 1998, p 107). The employment of both quantitative and qualitative methods is nowadays known as the mixed method of social research (Todd, et al, 2004, p 34). The use of multiple approaches helps researchers to capitalise on the strengths of these approaches and compensate for their weaknesses. Such studies try to bring together research methods from different paradigms (Todd, et al, 2004, p 34). Mixed methods however have to be applied with care and thought on the suitability of using both methods for the subject under study (Special Issue, 2008, p 141). It is also important for researchers to decide on the aspects of the study that are best served either by quantitative or by qualitative methods and in deciding upon the sequence of use of these two methods. Mixed method research is becoming increasingly popular and is felt to have an answer to the individual weaknesses of quantitative and qualitative approaches (Special Issue, 2008, p 141). 3.2. Sources of Information The data to be obtained for the conduct of a research study primarily depends upon the chosen research method, namely whether it is quantitative, qualitative, or mixed in nature. Obtaining of data must be preceded by a decision on choice of information sources. Information sources are primarily of two types, i.e. primary and secondary information sources (Denscombe, 2002, p 94). Secondary information sources represent the information available on the topic under investigation in the public domain. Such information is by and large prepared by experts and authors who are not involved in the subject under investigation and is available in the form of publications like books, journals, magazines and online publications (Denscombe, 2002, p 94). Secondary information sources are available either in physical or in online form and researchers have to carefully assess their quality, accuracy and relevance before using them for research. Primary information sources on the other hand represent the information obtained directly from the subjects or organisations under study through the conduct of surveys or interviews. Information contained in organisational or personal websites also fall in the ambit of primary information sources (Denscombe, 2002, p 94). Quantitative data is usually required to be obtained when adopted methods of research are positivist in nature. Such data is usually collected through questionnaire surveys or opinion polls by agents of researchers who are uninvolved in the topic under investigation (Bryman Bell, 2003, p 54). Sampling constitutes a very important element of obtaining quantitative data. Samples represent small segments of populations under study whose reactions and responses can be considered to be representative of the broader population (Davies, 2007, p 53). The determination of sample size is an important component of the sampling process. Such choice of samples can be done through various methods, statistical as well as purposive, and are decided by individual researchers (Davies, 2007, p 53). The size of a sample however has a specific bearing on the validity of the sample findings and has to be taken into account at the time of analysis (Davies, 2007, p 53). Qualitative information on the other hand is obtained through techniques like semi structured interviews and focus group discussions that are conducted by expert researchers who are involved in the study (Davies, 2007, p 140). Such interviews and discussions are often lengthy and are thus conducted with limited numbers of respondents. Interviewers usually record such interviews, use a mix of carefully designed open and close ended questions, and watch the physical responses of the respondents to locate hidden nuances and meanings (Davies, 2007, p 140). 3.3. Adoption of Research Method The research issue is complex. It involves a specific segment of industry that suffers from significant constraints but is at the same time expected to satisfy a number of obligations. The requirements of the dissertation call for information to be obtained from two sets of people, namely responsible officials of small companies engaged in supply of capital goods and the customers of such companies. Information from customers can be both quantitative and qualitative in nature. Information from supplying organisations is also likely to be both qualitative and quantitative in nature. Quantitative information will be required to gauge the broad success of such organisations in meeting after sales service obligations, whereas qualitative information will enable the researcher to locater the various issues about after sales service that are of concern to organisations. The researcher has therefore used the mixed method approach, which involves elements of both qualitative and quantitative research, to conduct the investigation for this dissertation. Information is obtained from primary sources, namely officials of a small boiler manufacturing organisation in the UK and its customers. 3.4. Ethics Care has been taken to adhere to the ethical requirements of social research. The principles of informed consent, absence of coercion, and rights of respondents have been strictly followed. All respondents have been explained the purpose of the dissertation and they have consented in writing to their participation in the research. They have also been provided with options to maintain the confidentiality of their personal identities and of their organisations. All respondents have wished to maintain confidentiality of identity. They have also been informed of their right to answer or not to answer particular questions. Care has also being taken to ensure proper acknowledgement of all information sources used in the dissertation. 4. Data and Analysis 4.1. Procurement of data Data has been obtained from three different sources, i.e. (a) from a questionnaire survey of 50 clients of a small boiler organisation, referred to as Best Boilers LLP for the purposes of this dissertation, (b) direct interviews with two customers of Best Boilers, and (c) two officials of the after sales service and marketing departments of the organisation. Appendix 1, 2 and 3 provide details about the information obtained. 4.2. Findings and Analysis Appendices 1, 2 and 3 provide details about the information obtained from the questionnaire survey and the questions asked of the customers and officials of best boilers. It is seen from the results of the questionnaire survey that 60% of the clients surveyed had dealings of less than 2 years with the company and only 10% had dealt with the company for more than 5 years. This is normal because the organisation has been established recently and is just about 7 years old. This information is also corroborated by the response that 80% of the companys customers have bought just one item from the company. The survey reveals that whilst all the respondents require after sales service, more than 50% require to be serviced only once a year and just about 20% require services more than 2 times in a year. The answers on types of after sales service are spread over various needs, but approximately 24% state that they need all types of services including advice, physical support, and supply of spares. The responses on satisfaction with quality