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In this blog, you will learn about why there has not been a better time for you to launch your Product-as-a-Service or subscription service. If you are a company that has experienced channel conflict when starting a direct-to-consumer proposition; the current crisis can be a big opportunity for you.
An opportunity for Product-as-a-Service and subscriptions
We currently live in crazy times, the coronavirus (COVID19) has the world and the economy in a headlock. Businesses are struggling and people (might) lose their jobs. Everyone is advised to stay inside as much as possible, which leads to empty shopping streets and a big decrease in turnover for traditional shop-based retailers. The economy is halting to a stop, and retailers and physical shops are facing the biggest challenges.
To decrease the impact of this global crisis many companies find innovative ways to adapt to the situation; restaurants start a takeaway business, hairdressers are selling haircuts for in the ‘future’, most teams start working remotely, and companies start investing more in e-commerce.
The latter is specifically interesting for businesses that have been struggling to implement omnichannel methods before; examples are most prominent in retail. This crisis can force these companies into thinking creatively and acting upon these issues of loss of the conventional retail-channel. Therefore, it is time to reinvent the role of retail as we know it; invest in e-commerce and look for opportunities beyond that. Product-as-a-Service and subscription services are some of those looming opportunities.
Dutch Prime minister Mark Rutte already said; ‘People who think that after this crisis everything will be the same as before are living in an illusion. This crisis, however, does provide opportunities to rethink how we would like the world to be’. This is true on many levels, and this also might be true for retailers. There has not been a better time to steer your business model in a more future-proof and sustainable direction. When your customer is currently not in the position to come to your store for service and inspiration, you will have to go to your customer yourselves.
One of the business models of the future are Product-as-a-Service and subscription services. Both provide the opportunity to gain direct client relationships and sell directly to your customers. Furthermore, PaaS also has a big potential to enable the transition to a circular economy. A possible win-win situation is emerging.
Why Product-as-a-Service or a subscription service?
A product never exists in a vacuum. Customers are using your product to produce an outcome they desire. The most successful products take this into account. The best companies offer services around these products to ensure users achieve the outcomes they want. As a B2B company, or a company that sells mainly through conventional retail-channels, you likely work with channel partners. Therefore, you might lack a direct relationship with your end-users and customers. Subscription and service models allow you to create this relationship.
Normally, when you are thinking about executing a subscription or PaaS business model, or opening up a webshop or e-commerce channel for a direct relationship with your customer, you will have the traditional retailer relationship to care about. Building a direct-to-consumer (D2C) relationship for your brand might feel risky. Likely, your retail partners might be concerned, but they don't have to be. Here is why.
Surpassing channel conflicts
Most retailers know that the way we currently do business with the end-customer is changing. In the end, as a company, you want to acquire and retain customers, even in a changing world. Being involved in new business approaches like PaaS or subscriptions at an early stage will enable you to respond to changes in the world, faster and at scale. Some of these changes are compelled by the current corona crisis.
If you bring enough value, you can succeed, and even associated retailers will collaborate with you. Here are some quick tips on how to collaborate with your retail channel, instead of bypassing them:
- See an opportunity in new customers: you might be tapping into new customer segments with a subscription or PaaS proposition. These segments could also be interesting for you (or your retailers) as you were not able to reach these people before. You need to make these other retail channels aware that you are not in it to take customers away from them, but also to offer them new business.
- Start small - pilot your model: pilot your PaaS, subscription or e-commerce model first with a small group of customers that you've acquired. The scale of your pilot is often too small for your retailers to be worried about. It will open opportunities that you weren't aware of yet, like how the retailers can benefit from this in the near future as well.
Retail channels will most likely not disappear, they remain valuable for possible touch-points with customers. Nevertheless, if shops reopen and shopping streets get filled again, the need to rethink retail as we know it will remain a pressing issue. Hence you should also;
- Promote retail channels in your strategy - share your new customers: with your direct model you are now able to activate your customers to visit a retail store nearby them. If you are executing a PaaS or subscription business model, have retailers offer the model in their stores in exchange for revenue as well. You could also offer your customers location-targeted offers, based on a retailer nearby. You could have retailers have a place in your communication with your customers.
Time will tell how the market will evolve, but in the meantime: choose to work together as you will also benefit from the location-based advantage that your retailers have for retaining customers. In the end, you are coming to your customer; you will provide more convenience, inspiration, and services. But this time on their doorstep. But not only that; by implementing Product-as-a-Service you are providing a flexible option, that consumers are not bound to like they are when purchasing a product since PaaS is in general quite easy to quit.
Lastly, currently, consumers might not want to put in that ‘big investment’ for a product (e.g. a washing machine), while they still have a need for it. This again provides a big opportunity for Product-as-a-Service. Since the flexibility (to get out) of a PaaS is also one of its strengths. In the short-term, introducing a Product as a Service is a great method to access a new market of customers — or to convince switching customers that your device works for their problems.
Some of the benefits you can expect from PaaS and a direct relationship:
- Increase loyalty and prevent (ad-hoc) switching of end-users to competitors
- Direct data + market intelligence on your product usage from end-users
- Reduce the initial investment for your customer
- Differentiate yourself for wholesalers and/or other intermediaries
The result of this model is a lower-barrier for new customers to start using your products instead of owning them. Depending on the (monthly) cost for your product, it's faster for a company to approve (temporary) operating expenses than it is to make capital expenses.
Currently, you are competing with other manufacturers or companies that sell the same type of device and you are competing on product features: size, color, aesthetics, price, ease of use, etc. This is a constant battle in marketing costs, social media campaigns, retail channels, etc. A direct-to-consumer (D2C) Product-as-a-Service proposition for your products or devices would allow you to compete outside of your current market.
If you are now selling through conventional retail-channels, do you actually know your customer well? When you start a Product-as-a-Service proposition, you can get in touch with customers better, because you will know them individually, and gain direct feedback from them. This feedback can be used to better services or increase your product design or performance. To conclude; there has not been a better time to start your Product-as-a-Service or subscription business and avoid channel conflicts. This crisis does not have to mean you can not innovate your business model or lose a big part of your revenue stream. There is a looming possibility to keep your business running and to potentially even increase your revenue.
Starting your own subscription business
Got interested in launching your product-as-a-service or subscription business? At Firmhouse we can help you start your proposition on our platform. We can fully automate all back-end processes and help you launch in no-time. Check our website for more information, or contact us for scheduling a demo. Stay safe!