Aberdeen has been tracking how service organizations are transforming their business. We continue to see that transformation occur in 2013. If you look at a spectrum, when we started looking at where service organizations were, it was at a reactive responsive mode of service, if you will. It's better reacting to occurrences that have happened. We're putting out fires. We've seen that transition to a more preventive, predictive model, if you will, and even one where organizations are looking to deliver better services to their customers, on top of the service provided. It's really more of a value add, as opposed to let's fix a problem. We see that transformation continuing in 2013. That's really to understand customer needs better, develop better insights into what customers want, and deliver that service to improve the overall customer experience.
A lot of that is happening because organizations now understand that there's really a profitability impact on better service, which they perhaps didn't know before. It really is a lot more profitable to service and maintain and retain and up-sell customers than it is to go out there and find new customers. That said, customers and organizations need to balance sort of those new customer insights and customer service strategy with operational excellence. We don't find a lot of companies saying, 'Hey. We're going to invest a lot in customer service with no regard for cost.' Only 8% of companies actually say that. About 82% of organizations say, 'The investment in customer service is going to happen with little or no increase in cost.' It's really about mobilizing the resources you have, to improve customer satisfaction.
We really see that transformation from a reactive, to predictive, to a services mode occur, looking to move from a cost center to a profit center, develop better insights into customer needs, then eventually, do that in a more profitable manner.
Internally, we see companies really understand that the margins in service are greater than the margins on product. By a three to one margin, companies say that the margins of service are greater than those on product. Actually, about 40% of companies say the margins in service are about 10% greater or more than that on the product side of the business.
Companies also understand it's much cheaper to retain and manage and bring back customers than it is to go out and acquire new customers. We also find that customers retained at the end of year account for about 80% of the revenue for the next year. There are internal profitability metrics that are really driving greater interest in service. Externally, we still see some softness in the global economy. Organizations are worrying about the impact that the economy has on customer spending. Customers are a lot more selective in the vendors they work with, in the vendors they spend money with, in the vendors they choose to buy new products and services with. Service has sort of a differentiating factor there. If you're able to provide a better level of service than your competitors, you're much more likely to hold onto customers. If you look at the flip side of that, more and more competitors are emerging in the service market. Competition is becoming a significant factor. There's a significant pressure for organizations to really focus and bear down on their service performance.
For the best in class organizations in our research, the improvement or the initiatives that they're focused on to improve service in 2013 kind of stem around four pillars. The first is executive stewardship or ownership of service. That comes down to having a chief service officer in place to really oversee the entire service business. The second comes in the development, the pricing, the support, the management of new services, really to focus on driving more revenue from an existing customer base. The third is around knowledge, management, and collaboration. It's improving response rates throughout the organization by acquiring and managing the knowledge of the business, as well as promoting collaboration between service and other functions. The fourth pillar is automation, which kind of enables the first three pillars. Looking at solutions tied to knowledge management, looking at analytics and customer insights, and looking and end-to-end service automation, if you will, to integrate the view of the service organization. Not just treat service or service functions as independent silos, but to treat them as an overall business to really promote results. The technology piece is the enabler that brings the other pillars together.