Product-as-a-Service (PaaS) – a profitable, alternative business model for the manufacturing industry, that can improve significantly:

  • your customer satisfaction.
  • your growth in the value chain & economic system around your product
  • a manufacturer’s revenue with recurring revenue.
  • making cash flow more steady and predictable.
  • a manufacturer’s contribution to circular economy.

 

Product-as-a-Service is NOT a leasing model as often wrongly assumed –

it is a model of selling the services a physical product can provide through a subscription-based pricing rather than the product itself.

Enabled by IoT, manufacturer can work focused with product and customer data and boost the profitability of their products, improve customer engagement and launch new, sustainable business lines around their products.

And there are several well known brands within B2B and B2C, that already have transformed their transactional business model to a PaaS model with success.

It is about: First data, then metrics.

Having worked with Software-as-a-Service in recent years, but having a 20 years background from the manufacturing industry, one of the big learnings I take with me from SaaS, is the dedicated work with product and customer data, that ensures AND increases recurring revenue.

And I believe, that there is a great potential to transfer this approach to the manufacturing industry.

While in the manufacturing industry it is about volume and selling as many of your products as possible and growing in the value chain, taking advantage of e.g. the aftermarket potential often goes along with acquisitions and consolidation, PaaS gives you the possibility to grow in the entire eco system around your product and being less dependent from other players in the value chain – in particular in B2B. And in B2C you have opportunity to serve and profit from the increasing demand of consumers to buy experience rather than a product.

Customers are inclined to a PaaS model because of:

  • Flexibility to pay/upgrade their payment options every month.
  • Lower/no upfront costs to use a product.
  • More customer support and loyalty.
  • The possibility of getting new/renewed products once their subscription is over.
Here I my Top 3 considerations you can make to assess the PaaS potential of your business.

I am aware of, that the thought of not selling a product and remaining the owner sounds revolutionary in particular because we have nurtured our traditional sales channels over decades – however, the revolution actually “only” takes place in our heads. It is our mindset and the pressure to deliver growth and healthy, economic results, that may hinder us to use the product as a platform for delivering additional services to the customers.

Nevertheless, companies like John Deere (agriculture industry) and Rolls Royce (aircraft industry) have shown that, PaaS can improve significantly:

  • your customer satisfaction.
  • your growth in the value chain & economic system around your product
  • a manufacturer’s revenue with recurring revenue.
  • making cash flow more steady and predictable.
  • a manufacturer’s contribution to circular economy.

How can you so start to consider seriously a Product-as-a-Service business model. Here are my Top 3 considerations:

  1. Go in customers shoes…..
…. and check your value chain.

How does the use of your product make the business and personal life of your customers easier? The PaaS model offers a wide variation of opportunities to deliver additional value to your customers. E.g. a subscription might guarantee certain outcomes, such as hours of uptime. It might specify the maintenance and repair services the manufacturer will provide.

Check also whether you are in control of the value chain? Or do rather other players control your value chain?

  1. Look into Growth Drivers / Growth Providers

IoT, sensor technology, data analytics, personal mobile devices and cloud computing are PaaS enabler, that give you a much better insight into product use / customer behavior, that you can use in order to develop new services and business lines.

And these enablers do not necessarily go along with high investment. In contrast – make a calculation of e.g. all the different bonuses you pay to distributors, that pressure your margin or all the expenditure for marketing, branding, influencers without that you gain any better insight why customers “really” buy your product.

I have myself been pressured to pay a “marriage bonus” only because two distributors merged – sometimes it is absurd, what we seriously need to consider in order to maintain our traditional sales channel.

  1. Embrace the opportunity to participate in circular economy

Imagine you keep the owner of the product – would you then not tend to improve the quality of your product and ensure longer durability? And would you then not use technologies or material, that are easier to disassemble and can be re-used again?

Take also into consideration, that the need for aftermarket service extends throughout the product’s lifecycle and the revenue can actually be higher than the earnings of selling the product.

All in all you have a great opportunity to convert your business into a circular economy, making also your cash-flow more sustainable with recurring revenue.

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