Sierra Swaisland, who graduated from the Rotterdam University of Applied Sciences in July 2020, wrote her thesis report on Product-as-a-Service. Sierra noticed the shift from ownership towards usage, and found it an interesting topic to graduate on. She noticed that Firmhouse is responding to this shift by designing and building software platforms to help businesses launch PaaS subscription-model offerings. We found a good match with her graduating research. In this blog we are sharing the most important findings from her thesis.
Introduction into Product-as-a-Service
Dame Ellen MacArthur, female entrepreneur and advocate for the circular economy once said,
“If we could build an economy that would use things rather than use them up, we could build a future.”
Today, organizations around the globe are beginning to take notice that changes to the transactional (take-make-dispose) economy need to occur. One example of a circular system advancement is the introduction, and use, of the Product-as-a-Service (PaaS) business model (or subscription-based services).
Sierra focused her research objective on analyzing the links and gaps in knowledge related to a Product-as-a-Service (PaaS) subscription model between end-consumers and clients/external organizations. She specifically focused on the consumer electronic sector. The goal of her research is to formulate advice concerning marketing strategies to help educate clients and external organizations on a PaaS (subscription) business.
She investigated literature relating to the PaaS (subscription) model alongside end-consumer awareness of this model, factors that influence end-consumers to accept consumer electronic (PaaS)-subscription services and the main driving factors clients and external organizations have regarding the implementation of a PaaS model.
After several interviews, Sierra also included a quantitative part to her thesis in which she surveyed 103 respondents. These are her main results.
Consumers are frequently still unaware of the term Product-as-a-Service (PaaS), with 71% of the respondents not having heard of the term Product-as-a-Service. However, 78% of the respondents had used a subscription-based service before. The awareness of the term PaaS thus remains low. However, consumers have probably already experienced the business model in their life. Thus, it can be concluded that for businesses providing these types of PaaS-propositions, creating more awareness can be a good tactic to increase possible adoption of the Product-as-a-Service. One of the interviewees worded it well: ‘The business model was relatively new, at least for electronics. A lot of people just didn't understand what it was that they were buying. This makes your sales process incredibly difficult”. Increasing the awareness will increase the understanding, acceptance and ultimately the adoption of PaaS.
Reasons to choose PaaS or a subscription-based service
Sierra found that, from the 78% of the people that had used PaaS before (n=80), 29% choose Product-as-a-Service mainly because of the convenience aspect. This was closely followed by the need for the product, the cost-effectiveness of the proposition and because a certain PaaS subscription was recommended to them. An overview of why consumers used a subscription-based service is provided in the next figure:
When asked why the people that did not use a PaaS-subscription before, most respondents answered that they prefered to own (31%), they were unaware of that these existed (27%), they think that they are not good at keeping track of what subscriptions they are subscribed (19%), this was equal to respondents that said to have no need to use subscription based services (19%). The remaining percentage had other reasons like privacy concerns, or data storage. In short, most of the respondents are in an awareness phase, recognising the products that are offered on a subscription basis and are still in the PaaS companies to educate consumers in showing the benefits of paying per month instead of buying upfront.
In short, most of the respondents still wanted to buy their own products & it's difficult to change this mindset of a consumer in using a PaaS or subscription-based service to suddenly expect them to pay month-to-month for a product they’re used to buying.
Describes benefits of the PaaS or renting
Most important benefits of PaaS according to this ranking were:
- Ability to change products easily when desired | flexibility (29%)
- Ability to save money on purchasing electronics (22%)
- Wider choice of different products (6%)
- Lower risk of personal liability than owning (6%)
The factors; better for the environment and try something out before buying it were least important according to the respondents. This means that explicitly selling on the sustainability aspect alone will not result in a successful marketing strategy. Making sustainability and/or circularity implicit in your business model does. Secondly, PaaS is not a substitute for trial-periods for buying.
According to Sierra’s research, customer service (28%) was the most important value-adding component to the business model, followed by warranty/guarantee (19%), followed by maintenance (12%), the trial period (8%) and delivery (7%). Furthermore the main factors that drive consumers to accept electronic PaaS-subscriptions are:
- Product/service quality
- Subscription prices
- Availability of product/service
- Additional services being offered alongside the product
- Environmental impact of the product/service
According to several active companies within the consumer electronics PaaS-industry, pre-financing the products is still difficult, especially when a company starts with putting PaaS on the market (long ROI). To make PaaS financially viable remains a challenge. Also unawareness by the customer (as explained before) remains, and how to go about the model were some challenges when starting with Product-as-a-Service.
Most importantly, the interviews showed great value in the implementation of PaaS. These are some of the benefits of working with Product-as-a-Service:
- Better meeting customer demands and strengthen relationships;
The PaaS allows companies to be closer to the end consumer and develop relationships with the end consumer. As one of the interviewees mentioned: “[We] are focused to do a direct-to-consumer model, which gives a lot of insight into who your client is"
- PaaS provides a way into highly saturated and competitive markets.
- Increasing the accessibility of their products to customers.
- Increasing profitability for companies.
- Better targeting to specific customer segments.
- Producing more circularity and creating a better world, as one of the interviewees said it:
‘PaaS is the holy grail of the circular economy. With this model we hope to inspire other companies’.
The circular economy plays a large part in the interest of organizations to implement a PaaS business model, yet many of the respondents steer away from communicating this to their consumers.
There are off course a lot of benefits to the model, but PaaS also has some large implications. As one of the interviewees mentioned it best:
‘You move away from ownership and go towards a rental or leasing model. Then it really disrupts the way that we produce and consume the products'.
Both the company and the customer have to change their production and consumption behavior, but Product-as-a-Service has the potential to change the world, it is well worth the effort. Want to know more about Product-as-a-Service? Or how to launch your own product-as-a-service or subscription proposition? Get in contact with us and we gladly help you further!
If you want to see the condensed version of the report of Sierra Swaisland send us an email, or download her Thesis Slidedeck here. Lastly we would like to thank Sierra for all her work on her thesis project and we wish her all the best in the future!