Subscriptions are exploding because billions of digital consumers prefer access to owning, but most businesses are still designed to sell products one way.
What changes when a company gets on the “as-a-service” train? And what changes when adopting business models like pay-per-use and equipment-as-a-service?
• The era of the product economy is being replaced today by the era of the subscription economy.
So far, companies have always been advised to develop a successful product and sell as much as possible, then lower fixed costs in order to increase the margin. This model is now being replaced by the subscription economy. To many consumers it is not important to own a product. Instead, they want permanent and personalized services. The industries and the companies have to adapt to this.
The real disruption of the digital age doesn’t come from technology. A much broader change arises when companies begin to understand their customers and take them seriously. In the past, the focus was on the product, today it is on the customer.
• Behind every product there is a service that needs to be defined and used.
The reason why every company can consider a pay-per-use business model for its product is very simple: Behind every product there is a desire for a service. Whoever buys an excavator does not usually need an excavator, but rather the removal of earth. This service needs to be identified and optimized. This is how the entire sales strategy changes. For the seller, the question is no longer: “How many excavators can I sell you?”, But rather: “How much soil do you have to remove?”
The manufacturing industry in particular will change enormously as a result of the switch to the service economy – and it will benefit enormously. The Internet of Things ensures the digitization of the world through networking and sensors. At the moment it is mainly improving the efficiency of industrial processes, but it will soon be generating a new quality: Because it seamlessly networks not only the products themselves, but also customers, manufacturers and processes, it merges our conventional division of labor.
• The new business model leads to a decline in sales before success is achieved.
The road is rocky and the changeover is tough: the pay-per-use business model brings sales declines before success can be achieved. Instead of large sales, after switching to the subscription model, companies only record smaller monthly fees and at the same time have to invest even more in infrastructure and innovations. All of this always with the confidence that the customers will stay.
The “fish model” represents the transition to consumption-based revenue models
The status quo reflects the current situation and the starting position of the company. Starting the transition to a usage-based business model will result in an income as the complete payment modality will be changed to smaller monthly fees. At the same time, costs rise when investments are made in new functions, innovations and infrastructures. With increasing dynamics of the transition, the income from the service increases and the costs decrease. The new business model becomes a viable source of income. As a result, revenues exceed costs and the service can be further developed as a sustainable usage-based business model.
In order to support the transformation from Level 1 to Level 3 we at Findustrial developed a “Pay-per-Use light” concept. If you want to find out more get in contact with the Team of FINDUSTRIAL and we will forward additional information.