At Firmhouse we've noticed that recent quarantine and the global pandemic shifted the context for new and circular business models quite a lot. Here are our thoughts on the opportunity that COVID-19 brings to speed up adoption for (Product) Subscriptions and Product-as-a-Service (PaaS) business models.
November 25, 2020
Reading time: 4-5 minutes
This week I luckily got the positive news; I had tested negative for COVID-19. Which was a relief since testing positive could be quite a big hassle. This made me think; if COVID-19 can affect my life so much, how does it affect businesses? I’ve noticed that recent quarantine and global pandemic shifted the context for new and circular business models quite a lot. Let’s dive in, here are my thoughts on the opportunity that COVID-19 brings, to speed up adoption for (Product) Subscriptions and Product-as-a-Service (PaaS) business models.
Change in retail experience
With the current quarantining/lock-down happening around the world, we see that retail shops have a hard time attracting customers. Shopping streets are less busy than they used to be, and more and more shopping is done online. These events changed the retail experience as we know it. More people are shopping online and companies are investing heavily in an e-commerce experience. For producer and consumer brands, a direct-to-consumer strategy becomes more and more relevant than ever.
Increase in Work from Home (WFH)
With the lock-down, more people are forced to work from home.It remains uncertain for how long this will last. This means that a lot of people had to invest in WFH set-up (desk, monitor, keyboard, chair etc.), that might have a temporary aspect to them. Furthermore, additional accessories like for example noise-cancelling headsets, microphones or webcams were bought for better experience during online meetings. This has led a lot of consumers to experience some way or form of subscription services. Effectively affecting the awareness of, and positive attitude towards, Product-as-a-Service or Product Subscription business models.
Rise of e-commerce and convenience
With the increase in e-commerce experience, and more direct-to-consumer strategies, also other aspects of business become more important. In a store, companies can give a retail experience, which is often why retail stores (need to) charge more than online web-shops.
In e-commerce, price -and not experience- is often more important, as consumers can look up the same products for a cheaper price somewhere else with just a few clicks. Differentiating on price alone is no longer enough. Providing additional value and benefits (and diversificate) in your propositions, helps standing out from the market.
This means that companies need to provide additional benefits and diversificate their propositions to stand out from the market. A great way of doing this, is by providing new business models and providing more value and benefits. Making subscriptions and product-as-a-service business models more attractive.
Access over ownership: accelerate the transition to the circular economy
The latter fits perfectly with the trend that consumers value the benefits a product offers, over the ownership of a product and the hassle that comes with it. You should of course take good care of a product; but the producers are responsible for repairs and upkeep more than ever. This means that if you can be a user, you can enjoy the value a product brings even more.
Furthermore, a particular consumer segment, called the ‘green consumer’, values these types of business models because of these circular aspects and the Extended Producer Responsibility (EPR). When the ownership, and thus the responsibility changes, the producer is now responsible for making a better, longer lasting product, that is easier to repair and maintain.
For these ‘green’ consumers this is really important and it might be one of the reasons they chose such a proposition. Unfortunately, this tactic alone (sustainable propositions) is often not enough to reach a solid customer base though, as most sustainable startups have noticed that reaching a critical mass for a healthy company with only sustainable customers is not cutting it for them.
Change in personal finance
According to the Dutch Statistics Bureau (CBS) people are currently more conservative with their money, more pessimistic about the economic situation, and thus often postpone big investments. This happens usually when a recession hits and people are more careful with their spending. It means that they might postpone that big investment that they might have been saving up for. This is why business models or concepts where no big initial investment is needed thrive.
Multiple studies have shown that this particular aspect of a Product-as-a-Service business model is still a very highly valued aspect. In times of recession, where people are more hesitant, this might be a unique opportunity to start with product subscriptions. Keep in mind that PaaS or subscriptions should never be about pre-financing alone; it should always offer more benefits than only financing, together with additional services or value makes these offerings worth it.
My company does great; why change things or try something new?
This is off course a typical fallacy best described by Clayton Christensen in the Innovator's Dilemma. If you are doing well; why change or innovate?
Well, this is two-fold; for one you have to keep on innovating to not be disrupted, secondly product-segments that thrive now; should especially invest in innovating their business model. Since the pre-financing of this business model is now available. Now is the time!
Even if you're busy, make sure you hop on the Product-as-a-Service train in time! PaaS requires pre-financing and starting this up from a perspective where pre-financing is difficult is extremely hard. In my opinion as a PaaS-specialist in the last two years, this turned out to be an underrated aspect by companies.
To conclude; don’t miss the Product-as-a-Service and (Product) Subscription shift, because if you get in (too) late other companies will already have:
Built strong customer relationships;
Have gained a strong recurring business model that is hard to beat/ be competitive against;
Have the resources of tomorrow already bought for the price of yesterday;
Have solved most of the issues that you still need to solve; bringing them ahead of the competition;
Gained huge brand awareness around their company as a PaaS-provider. Second mover advantages make it hard to bridge the gap; these companies by now also gained trust and legitimacy; which makes it hard as a starting company to fight against;
Since trust in the provision of the service component (also in the future) is super important. Furthermore access to capital to scale is easier for those companies that have shown to be successful in the future too.
Looking to get started with Product-as-a-Service or Product Subscriptions? It seems like COVID-19 has only accelerated the shift towards these types of business models.
Keep in mind that Product-as-a-Service works best if you also have a circular product in place; since circularity and modularity are key to successful PaaS propositions. Firmhouse provides a good platform for companies that run PaaS models or want to start with this. Get in contact with us if you want to know how we might be able to assist you.