I often hear people saying that products that have too long a lifespan are not good for business. Indeed a product which has a very long life will not recreate complementary sales cycles. Take for example the century-old light bulb from Livermore, California, which has been burning since 1901, and almost never switched off.
It is certainly true that having the light bulb in use for more than a century makes it a very sustainable product. At the same time, selling light bulbs with endless longevity looks like an unattractive business model. In the previous article of this series we have shown the importance of having the right circular business case for applying the circular economy at scale.
So how can sustainability and business interests be met at the same time? How do you enable the introduction of sustainable products into your product line while reaching a larger market segment and be profitable in the long run?
“Product-as-a-service” is one solution allowing you to adopt a new business model that is in line with the principles of the circular economy and thus is contributing to sustainability. At the same time it allows you to expand into new markets and to deepen customer relationships.
The price of sustainable products
Durable products usually come with a price. Take the example of washing machines:
SOFIE is a Belgian company collecting and recovering second-hand electrical goods in the province of Liège. In its shops SOFIE is among others reselling washing machines. You almost exclusively find the top-end brands like Miele or AEG. They are the ones that are worth repairing and offering for sales for a second or third life.
A great circular washing machine comes under the name of “L’increvable”, meaning unresting or free of breakdowns. The machine has been designed in order to be repairable and upgradable.
Both, the big brand machines, as well as “L’increvable” have prices of around € 1.000,-. Thus, only certain market segments are able or willing to afford such long living products. As long as durable products are only affordable to narrow customer groups, there will be single use and short-lived product solutions for the main market.
How does the “product-as-a-service” model work?
If your product is made to last, and is inspired by the circular economy, you can adopt a new model that is good for business too. The main features of this model are:
- The end-user does not own the product
- The customer pays for the time she or he is using the product
- Usually, maintenance and repair are included in the service
- At the end of the contract period the consumer gets the choice to keep, give back or exchange the product.
- Subscriptions can include the right to upgrade once a better version is available.
It is also a very good opportunity to keep your customers longer instead of invest continuously in getting new ones.
This service is available on a subscription basis and manages product delivery and ongoing interaction with customers. The model does not just mean that you offer to the interested customer an investment payable in monthly installments or a payment on credit. No, the model is a service offering, of which the product is a part, and a subscription to pay for this service.
Widely known examples of product-as-a-service are the renting out light system ‘pay-per-lux’ by Siemens and the Mud Jeans twelve months leasing scheme. The latter allows customers to either keep the jeans after the leasing period, exchange them for a new pair or send them back.
Extending product lifetime and expanding the customer relationship
This business model is based on a strong customer relationship over time. It thus opens many opportunities for interacting with your clients, collecting data and personalizing the user experience. Instead of customers buying anonymously in a shop, the subscription model means continuous service support, regular contact about news, feedback loops and more.
Thanks to this continuous service, you can also guarantee the end of the circular life of your products (reuse, repair or recycling, etc.).
Further advantages of “product-as-a-service” for your business:
- The price is spread over the life of the product. The customer takes less risk and lets himself be tempted more quickly, thus reducing the price of access to the product for the customer and leading to a higher conversion rate.
- Longer product life: The longer the cycle of your product, the more it will earn you
- More regular monthly income, every month. The monthly volatility of the number of subscribers is also lower. These regularities generate more consistent sales income.
- This regularity of income, with this new business model, will appeal to your banker, and to your investors. And in these times of low interest rates, this banker’s peace of mind is particularly appealing.
Entering the subscription era?
More and more businesses read the signs of our times and come up with “product-as-a-service” models. In selected European countries, Ikea is currently testing models of product ownership, offering furniture as a service. In Japan heating as a service has been established already for many years. In The Netherlands Bundles is offering washing machines, dryers and dishwashers in a “Pay-per-wash” scheme as well as “Coffee as a service”.
In Germany, the tech provider Grover is entirely based on a renting model. Customers can rent tech devices against a monthly price. Clients can extend the duration of the rental flexibly. At the end of the period they can buy the product or exchange the device against a newer model. Furthermore, Grover covers damage costs to a large extent.
Have you already wondered how much it cost to get new customers, why don’t we just keep them?
The benefits of “product-as-a-service” for business, for the client and for sustainability are clear. Changing consumer habits will further drive businesses to develop service-based product solutions.
Currently, there is rooms for improvement, innovation, and pricing adaptation for new solutions and products. It is also a very good opportunity to keep your customers longer instead of invest continuously in getting new ones. That can save budget to invest differently.
If customer-centricity, sustainability and a stronger business relationship is important for you, product-as-a-Service is the right solution for you to explore.
?Read the next article on March 17th on the business case of “Building on intrinsic motivation”