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Almost every product or service has some form of seasonality. Having seasonality affecting your business represents some challenges, as there are different requirements depending on the season. Maintaining revenue streams over a year can thus be a challenge.
Product-as-a-Service (PaaS) can be a solution for seasonality. In this article we will explain why and how Product-as-a-Service (PaaS) can help you deal with seasonality.
Temporariness in use (infrequent usage) and flexibility are often seen as disadvantages if your product is influenced by some form of seasonality, because these types of products are easily cancelled. Flexibility is often also seen as a characteristic of Product-as-a-Service. Thus, it may seem like PaaS propositions are thus not suitable to combat seasonality. But you have to let it work to your advantage, as PaaS provides more incentives for the inclusion and influence of customers in the sales process, this model especially allows for this.
Traditional ways to deal with seasonality
There are many ‘traditional’ ways that are used to combat seasonality. For companies these measures vary between; forecasting sales (understanding sales cycles in your industry), adapting inventory to demand, hiring temporary workers at peak-season, finding compatibility in items sold (complementary items in different seasons), general diversification of products (alternative income sources), and creating a financial buffer for off-season. These measures can help flattening out peaks and provide a solid revenue stream.
Is there a demand for a product or service offering that makes more sense to focus your sales efforts?
Tapping into these market segments can be lucrative at different times in the year. In general it is important to stay in touch with your customers, also in off-season periods, but this is hard to do when you are not selling to them in off-season and there is no direct client contact.
PaaS helps you to stay in touch with your customers better and more frequently providing you the benefit of building your relationship even in the off-season periods. So use your off-season period wisely and look for ways to stay in touch with your customers, this maintains the interest in what you offer.
With PaaS you don’t have to prime your customer for when the season ramps up again, as you have continued your relationship off-season.
However, the flexibility in the contract can provide that customers only use the item in high season and cancel afterwards. PaaS companies have to have a strategy for this. If you plan to do any promotions, reach out sooner rather than later and look for ways to entice prospects and clients to stay connected with you even in off-season periods.
How Product-as-a-Service can be the answer to seasonality
Many seasonal business owners can flip their businesses to overcome the effect of seasonality. However most of them are not doing it with a Product-as-a-Service business model. PaaS exists of two characteristics: a product and a service where you can use both; the product and the service to your advantage.
One of the more common examples of PaaS dealing with seasonality is: storage in winter and usage in summer (or the other way around). In which you provide the product during one ‘season’ and provide maintenance, repair and storage during the other seasons. This way clients can still benefit from ‘ownership’ of the product without having the hassle of truly owning it. Companies can calculate different price-settings over the different seasons; charging higher prices in-season and lower prices off-season.
Seasonality impacts nearly every product and service.
Lately, some trends like Work From Home (WFH) subscriptions and quarantine/home related products such as exercise equipment (like home-trainers) had a large increase in sales over the last couple of months.
Product subscription businesses are having a peak in sales because of the latest events and trends. More people consuming products from home and at an affordable price. Subscription businesses can use this.
For brands selling these products it would be easy to sit on their laurels, since it is already hard to keep up with demand. It seems easy to stick around and wait because demands are so high.
Companies can also use this period with solid cash-flow to build out a strategic extension to your business model when they actually have the liquidity to do so.
When you sell a product that has a high seasonality, you will have less contact with customers in off-season periods. What Product-as-a-Service can enable you, is to provide a subscription with additional services that help strengthen your customer relationship while providing more benefit and overall value to those customers.
One example could be a company that sells inline-skates in the summer and ice-skates in the winter (the functionality of skates). However, they manage to innovate their product in such a way they can easily swap the wheels for skates and provide additional services in switching like maintenance, repair, adjusting, and storage. This way you don’t pay for two pairs of products, that you have to dust off every time a season starts. Rather, you pay for good functioning of the skates. Especially for growing kids this model could provide the additional benefit of a size that continues to grow with them.
But it does not have to be a complementary asset; e.g. indoor exercise equipment like hometrainers, rollers or bike trainers are also good examples suitable for PaaS. You can have a home-trainer compatible with a real bike; this way you can cycle in the summer outside on your real bike and in winter you can stay inside cycling on the machine.
What will people do with a home or bike trainer in summer when they have no use for it? As explained, they could bring it back for repairs and storage, or people could cancel a subscription so they only pay for the months they use it for. This will result in a more modular approach to selling; pay-per-use or pay-as-you-go.
One of the examples of a company that provides pay-per-use model to combat seasonality in the hotel branch is Elitebeds from Switzerland. Hotels are notorious of having seasonal influences; that is why companies don't have to pay for a bed that is not used; they call it smart lease. No customer = no charges, so hotels are adapting to seasonality. They have combined this proposition with additional services like deep cleaning (disinfection) activities and monitoring and optimization of bedding wear.
These types of models can lead to a higher revenue per product in the long run. Alternatively, you provide innovative additions to your business model so you can provide value off-season too like (e-health) monitoring, but more on this later. Companies have to provide incentives for retention, like cheaper offers (discount codes) off-season or loyalty programs for next season. This produces a dynamic model in which prices can fluctuate based on the season. One way of doing so is by cascading the asset:
Cascading your asset - calculating example for dynamic offers and loyalty program:
If someone would like to start over, without taking the off-season subscription, they will have to pay €100,- per month.
If someone would have stopped a subscription after a year; they would have only paid 82,5% of the value of the purchase price (€990,-). From a company perspective this does not seem directly more profitable but you still own the asset.
As a company you can refurbish the item and sell it, or extract a lot of value out of it again by putting it out for a lower amount each month. You still own the asset; so it's yours to do what you can with it. If you refurbish it and send it out again you can make more profit (€1230,- after 1,5 years) over time than a company would have done if they would have sold the product without any subscription.
Sales opportunities in markets with rapid technological advancement
One other common way to have a low churn and high retention, is just to have happy customers. This can be done by providing the right services, like always having access to the newest or latest product. This can be achieved by being proactive in the counteracting cancellations.
Make sure that before the off-season period starts you provide enough incentive for your customer to keep with your product subscription.
Product-as-a-Service enables companies, especially in markets with rapid technological advancements, to always offer the best or latest product to their customer. This does not have to be unsustainable as long as you use the old asset well. You can either sell this as an occasion on the second hand market. Or companies can use that item they would not sell anymore (e.g. because there is a newer model on the market), to be put on a subscription basis. This way PaaS could be a good way to still get most value out of these products and counteract perceived (psychological) obsolescence.
Using the aforementioned method is not only a great way to use ‘old’ products (occasions), b-stock or out of season products, also an ideal way to start learning and experimenting with PaaS. The underlying asset value is not as high, so possible losses will be limited. As a company you will start with providing more services, and in the end return logistic activities. This will provide you with a solid knowledge base for future subscriptions, especially when the asset value and the quantity of product (scale of operations) increases.
In the end, with a PaaS model, the products will be returned to you. Therefore you should have processes in place that can help to extract the most value out from these products. Mainly by following the 10R-Hierarchy explained in this blog; first re-using, repair, refurbish, remanufacture etc. Basically keeping the product in the highest value as long as possible. This can only be achieved with a modular product, which is designed for reassembly. Thus, PaaS has significant positive effects on your product and your business.
Services and convenience are key
For Product-as-a-Service to be successful in a seasonal business, additional services and the convenience you bring are key. The services and the convenience make it worthwhile for a customer to keep on continuing with a contract in off-season periods when contracts are a bit more flexible (and not prone to long contract periods).
A good example of this is to rent out mobile airco’s in summer and special heating (UV/Infrared) heating systems in winter. Especially for some historical buildings with large temperature fluctuations and bad insulation this could be a really beneficial proposition that provides a lot of convenience, plus no investment is needed into permanent heating/cooling systems in the building. So in essence this convenience could be provided by finding combinations that do it well or by providing additional services.
We know that seasonality can be prevalent with most services, and it can influence your overall strategy as a company. Fall is just around the corner, and seasonal companies have to start thinking about the switch from summer to autumn.
Marketing efforts need to be adapted, and strategies have to be in place. In fact, during summer, it is a really good time to start exploring the opportunities of Product-as-a-Service as there might be less of a peak on current operations because of the holidays.
Do you want to start with Product-as-a-Service or Subscription models? Firmhouse can help you launch your propositions in no-time. Get in contact with us for more information.
Note: Another tip for cash-flow prognosis is to use DockDock or other agencies that prepay your outstanding invoices, so you gain more liquidity and use that money to reinvest in your business.