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As a Service trend research – products to services

One of the chapters I am covering in a trend report I am working on (As a Service Trend) will explain how even tangible products can be open to “servicification” and purchased or subscribed to. For example, razors for personal grooming, cars for transport, fork lifts for logistics, etc.

This post lays out the key premises for the chapter and some of the research I will be referencing.

Lets start with an explanation and borrow shamelessly to do that, because why reinvent the wheel. And besides, the point of the trend report is to show that others are thinking the same thing 😉

Customers don’t simply buy products anymore and are increasingly looking to pay for the services they provide. They don’t want to own their devices or use their own resources to manage and maintain them, and prefer to outsource the management of their assets to the original equipment provider or third party service providers. Digital and Industry 4.0 are creating new opportunities to offer more services and establish outcome-based business models (e.g. pay for performance, availability). Such value-added services can be very lucrative and generate high gross margins. In addition, implementing successful service strategies allow companies to become much more entwined in the customers’ process and generate more value which in turn creates greater customer loyalty.

From Deloitte: Transitioning from products to services to fuel growth.

That quote really does encapsulate rather neatly this sub trend. If you follow the link in the citation you can read more about how Deloitte see this playing out. What you will discover is an important distinction that needs to be made – that between industrial and consumer product companies.

The industrial consumer divide

As you can imagine, it would be rather simpler to “servicify” a product in the consumer category than in the industrial one. That is because of the nature and complexity of the product in each category. For industrial products it will be rather more complex. The buyer is different too. Rather than an individual or small group (like a family) making the decision, it is an organisation that will make a decision for industrial products.

Complex evolution to a service business for a manufacturer – from this article.

On the consumer side, although you will still have to think about some of the after sales services that the industrial company does, they still wont be as complex.

Taking a product like a razor and offering it to customers “As a Service” will be a lot easier than offering a car on the same basis. On the former there are now many offerings, kickstarted by the wildly popular Dollar Shave Club.

Now look at the automotive industry, as I have done more than once. Here is an article from McKinsey which documents their view on how the European car industry needs to change to become a Mobility (as a Service) company. One of the topics they cover is how the industry needs to move from a product to a service centric model. But you will also find there are many other complex considerations needed for transformation.

Complexity notwithstanding, this has not prevented automotive companies from trying to offer their products as services. See further down for where I have documented announcements in this area.

The product service divide

There is some blurring in this area too, even confusion. This article (From Products to Services?) does a really good job of clarifying the distinction between products and services, even an incorrect distinction.

These days the distinction doesn’t hold as much water as a “product is, in fact, a variable number of goods and/or services bundled together as a value proposition offer”.

The emphasis in the quote from the article above is mine and intended to convey the different meaning to “product” that is explained. Product in this sense, as a good, is just a physical attribute in a broader offering alongside service elements.

Which is a great segue to introduce an important service concept which is Service-Dominant (S-D) logic (an alternative theoretical framework for explaining value creation). S-D logic has a focus on service and steers attention to the process, patterns, and benefits of exchange, rather than the units of output that are exchanged (e.g. goods).

As a Service trend updates

If you want to learn or know about the many companies making decisions and announcements about their move to this new service (some call it subscription) oriented economy, check out the posts below. And if you subscribe (see what I did there 😁) you will forever be kept up to date.

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