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December, 2018

Product as a Service
Circular economy
Business models

5 reasons why customers want to subscribe to your product

by | Dec 7, 2018 | Product as a Service, Subscriptions

This blog covers the Product as a Service (PaaS) business model and its market opportunities. It is a follow up from my earlier article on the relationship between PaaS and the Circular Economy. This article will explore the current shift in customer behavior, which opens up many opportunities for PaaS providers. 

If you live in a Dutch city, like me, you will have surely seen them.. those bright-colored traditional “oma-bikes” with a blue front wheel. They are usually driven by a student or young professional, or you find them parked in almost every public parking. It is the Swapfiets – a very trendy bicycle-as-a-service offering. The offer is simple; pay 15€ per month and get access to a bicycle that always works. No worries about repairs or theft, no upfront investments and the subscription is flexible to stop anytime. Exactly what young urban consumers are looking for, it’s freedom to them. To me it is a clear signal that the rise of the “access economy” is unstoppable.

Product-as-a-Service (PaaS) is the term used for any packaged combinations of tangible products and intangible services. Over the last ten years I have gained extensive experience creating and commercializing some of these offerings. And whether it was bundled smartphone services, agricultural soil scanning or even lease-a-jeans, it became very clear that there is one single most important criteria for success; is your service solving a key need of your target customer?

Well, I believe that the needs of customers, both business and consumer, are increasingly shifting at the favor of PaaS providers, let me give you 5 reasons why;

Product-as-a-Service: keeping control of the product lifecycle and designing services around customer the customer need

1. Customers prefer experience over ownership

Buying and owning goods was a cornerstone of our society: we acquired items for survival and indulgence, basic needs and luxury. Some items are consumed in seconds, some last a lifetime. And the more we own, the happier we are.. right? Well, there seems to be a trend going the other way. Especially younger generations are growing up with the benefits of owning less and experiencing more. Social status is no longer derived from the goods you own, but from the experiences you gather, the communities you belong too. Strong PaaS providers understand this and offer more than just the product. Look at Spotify; 10 years ago, which music lover would have thought that he would own no records and would still discover more about music every day? 

In B2B it exactly the same: while product-centric companies are fighting the margin-struggle, smart innovators are moving towards “servitization”, adding value to their customers by providing services around the product. . 

Swiss architect Walter Stahel was the first to understand the value of converting products into services – “the product life factor” (1982)

2. Customers want to be unburdened

Life is complex, life is short, so why worry about things like repair, insurance or the hassle of maintenance? The rise of the private lease car is a typical example. In the Netherlands more than 50% of all sold consumer cars are currently offered on the basis of operational lease. A giant leap from 5 years ago. Car ownership rests with the leasing provider, the customer is just using it for as long as the lease runs. Admittedly, there is still the commitment of a leasing period, but there are brands that are already taking it one step further. In the US, BMW has introduced a car-subscription service, that will make a lot of men happy, it will let you swap all their latest models whenever you want.

3. Customers want access to the latest technology

Technological developments have led to ever shortening product lifecycles, and a clear “fear to be outdated”. Providers of PaaS can take away this fear by offering guaranteed access to the latest technology. The healthcare division of Philips is doing this with their MRI hospital equipment – where product updates are provided as “over-the-air” software upgrades without requiring physical product replacement. Of course, there are customer segments that are fine with a slightly older product version, such as a refurbished iPhone. As a provider of PaaS, you can apply a segmented pricing strategy that optimizes your product lifecycle and creates customer demand. .

4. Customers want flexibility

Everybody wants flexibility. Whether it the Swapfiets-rider, who might be going backpacking in the next months, or the hospital which is temporarily increasing its need for MRI diagnostics – we don’t want to miss out on opportunities. This also holds from a financial point of view. As both businesses and consumers are increasingly looking for flexible cost structures. Business prefers overhead expenditure over CAPEX investment. And consumers opt to spread the cost rather than make an expensive purchase right now. As a PaaS provider you can accommodate for that flexibility.

5. Customers demand sustainability

Sustainability is no longer a niche market. Customers expect their suppliers to assume responsibility for the products they sell. Research of Dossier Duurzaam shows that 72% of Dutch consumers are critical about the environmental contribution of brands. And a growing group is willing to pay extra in return for sustainable solutions. Although offering PaaS is not automatically a sustainable solution – in most cases it is. Increasing the product utilization and extending the product lifecycle generally has a large impact on ecological footprint. If it does, tell your customers about it! 

So just in case you were still doubting whether Product-as-a-Service propositions will flourish over the next years… I hope that has changed now. I might be overstating the trends and am aware that customer generalization is slippy territory, but the signals are very clear: customers expect smart and affordable services that make them experience more!

I am very curious to get your perspective on this exciting development, so please leave any comment or feedback. Together we need to lead the transition to a new economic model. So feel free to contact me if you want to explore some of these exciting opportunities together! Want to know more about Subspot – check our website and subscribe to our newsletter.

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