In recent years, we have seen a trend from companies that are now shifting to Product-as-a-Services business models; this is in part because the online market has grown at a fast pace. According to McKinsey, only the subscription e-commerce market has grown by more than 100% a year over the last five years. Online retailers are generating more than $2.6 billion in sales, with 15% of online shoppers signing up for subscriptions to receive products on a recurring basis. This increasing trend has attracted companies such as P&G, Philips, Sonos, and Sephora to start using subscription models for their products.
In this blog post, we'll explain why implementing a product-as-a-service model into your business is a great revenue opportunity and introduces the potential to work closely with your customers across your supply chain. We'll also provide 5 aspects to transition from product to product-as-a-service.
First, let's start by understanding what a product-as-a-service model is:
In a Product-as-a-Service model, the product does not necessarily have to change, but instead, companies can potentially keep products in circulation longer, saving on materials, energy, and other resources related to the product development processes. Customers also benefit because they only pay for what they need or use; this not only saves costs for companies but also provide higher business value and enhances customer satisfaction.
Companies are finding new ways to build relationships and creating new value for their customers, and product-as-a-service allows companies to transform the notion of product ownership and encourages customers to think about how a product is used over its lifetime. This solution applies to several industries, from customer goods and electronics to manufacturing companies to fashion.
Some of the benefits for companies when having a product-as-a-service proposition is that they can generate business from new customers while better engaging with their existing customers by providing recurrent services. Also, there are lower barriers for customers to purchase products since PaaS offers a lower customer entry price, with a pay-as-you-go revenue model that expands your company customer base and that have more frequent end-user feedback and engagement.
Additionally, to connect your company to a product-as-a-service model does not require a significant IT infrastructure rebuild, but rather adding some layers to the existing systems, that companies like Firmhouse can provide.
But, wait which other companies are providing these services?
We still remember how software was used to be sold in boxes with licenses tied to hardware. Fast-forward to today — these types of products are transitioning more as subscription models, where the software is also sold with other support services, upgrades, and accessibility across platforms; Adobe is one of the companies that embraces this model. This is not the only example of these services; Philips is now shifting from selling lamps to selling light, Michelin is not only selling truck tires, but also offering truck-tire management, and Swapfiets with its bicycle renting that is becoming very popular specially in The Netherlands.
More than ever, customers desire a product that is within their budget, and that has a convenient service with minimum hassle, where they can have simple payment terms. By doing so, companies are providing higher value for their customers while reducing the up-front payment that results in more customer satisfaction and enhancement of the quality of their products. After all, satisfied customers are one of the best business strategies.
Product-as-a-Service presents multiple possibilities for companies because it offers customisation and a broader end-to-end perspective for companies. To better understand whether these opportunities are relevant for your company, you shall consider the following aspects when launching a product-as-a-service business model:
Define your goals early on the process
Set some time with your team and a PaaS provider to establish some goals before you start with this process. What exactly your company wants to accomplish through having a product with a subscription model? Is it more growth, revenue, or just increase your customer base? Or is your company trying to become more sustainable and responsible for its customers? The earlier your company starts defining these goals, the better results you would have. Think also about the strategic direction of your company, and the relationship you want to build with your customers over the long term.
Drive the change from top to bottom
Identifying who will be the leader responsible in your company for investing in building these new services. Also, what would be the support needed to execute the transformation? Designate some dedicated resources and create a cross-functional team from different areas of your company that will be in charge of working on this effort, supported by a trustworthy partner that can help you implement the solution.
Transfer the ownership from consumer to producer
Customers are becoming more aware of the impact of products on the environment. By shifting ownership from consumer to producer, the value chain is redesigned to make the most efficient use of materials, creating a positive impact on resource consumption and reducing waste, creating a more sustainable way of delivering value for customers.
Technology is at the core of the product-as-a-service-model
Technology systems will allow for more connectivity in the value chain. Data that was previously unavailable can now be used to build customer interactions. Your company can start re-thinking its propositions with technology in mind; chances are that you can design a smart service-model that differentiates your company from competitors.
The customer is the decision-maker
Ultimately, the customer is the decision-maker. The need for product ownership is fading, changing to a more accessible experience, and sustainable ways of living. Product-as-a-service initiatives are already happening in multiple industries, such as manufacturing, mobility, fashion, consumer appliances, and medical instruments. With the adoption of these services, customers and businesses interest is growing, and they are getting more used to them.
It is important as a company to consider also:
- What do our customers expect and value? What is the best way to create more value for our customers?
- What is the ecological impact that my company is trying to make?
- Could we create more services around our product that would solve our customers' needs?
- Could we use technology to enable this?
In summary, product-as-a-service presents opportunities for companies to increase its revenue because it enables more product customization, recurrent revenue streams, deliver higher value to customers by allowing them to pay for what they consume, and ultimately, a broader end-to-end experience with more in-depth insights and lower operational costs.
Increase the lifetime profitability of your products by driving recurring revenue and save costs with a Product-as-a-Service model. You can sign up on our website and start trying our products, or you can contact our team for a more tailored solution.
- Deloitte. (2018). The shift to flexible consumption. Retrieved from https://www2.deloitte.com/us/en/insights/topics/strategy/as-a-service-business-model-flexible-consumption.html
- Khalamayzer, A. (2018, February 15). 7 companies advancing the circular economy by selling products as a service. Retrieved from https://www.greenbiz.com/article/7-companies-offering-circular-economy-service
- McKinsey. (2017). Thinking inside the subscription box: New research on e-commerce consumers. Retrieved from https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/thinking-inside-the-subscription-box-new-research-on-ecommerce-consumers
- Simapro. (2016, May 24). Five ways to circular economy and lca: Product as a service. Retrieved from https://simapro.com/2016/five-ways-to-circular-economy-and-lca-product-as-a-service/