Luxury Subscription Services are Driving a New Wave in Servitization

In the new age of minimalism where the main qualifier is, “if it doesn’t spark joy – get rid of it,” we’re asking even deeper questions. What if it doesn’t spark financial profitability? Or customer loyalty? Or organizational sustainability? That’s what’s happening to the traditional idea of ownership: People are breaking up with owning things outright, and are instead opting for luxury subscription services as a way to save, streamline and sustain these big ticket items. This shift to access is ultimately known as servitization – the selling of service and outcomes versus the selling of new products – and it’s making the cut on many organizations’ priority lists.

Are you Subscribed?

If you take Uber everywhere you go – you’re not alone, according to Tien Tzuo in “Subscribed: Why the Subscription Model Will Be Your Company’s Future—and What to Do About It.” Tzuo, who’s also co-founder and CEO to Zuora, a company that creates software for subscription businesses, claims that, “simply put, the world is moving from products to services. Subscriptions are exploding because billions of digital customers are increasingly favoring access over ownership.” But, despite this major wave of servitization, even Tzuo admits that most companies are still built to sell products.

That’s beginning to change, though. It started small – first by cutting traditional home phone lines for cellular service subscriptions. Then, magazines and newspapers started to fade away. And let’s not forget cable bundles – most of which are disappearing faster than you can binge watch the latest series on Netflix. Now, more and more customers are turning to subscription over ownership every day, from simple pleasures to luxury markets. According to Clutch, the leading vehicle luxury subscription services technology platform for the automotive industry, the typical subscriber to luxury subscription services are most valuable, subscribing for 3.5 years, flipping between vehicles 100 times, and driving 25 different makes and models with a total value of $4 million.

Shifting to Luxury Subscription Services

Agapi Boating, the Swedish sharing economy innovator and boating manufacturer, is pioneering the area of luxury subscription services for boating with a unique combination of their own software and purpose-built boats for the premium segment of motor boats. The sea-worthy organization offers subscription-based memberships to both the private and corporate segments, promoting the ideals behind modern sustainability and servitization. But, under the mission of mimicking boat ownership as closely as possible, Agapi doesn’t just provide the process – but the hybrid, high-tech boats themselves. Let’s talk Netflix again: they don’t just provide access to past cable-born shows and movies, but they create their own critically-acclaimed series as a way to provide best-in-class entertainment to their subscribers.

This kind of business model, where luxury subscription services not only provide the subscription model, but the products, as well, is possible due to advancing technology that closes the gap between companies and their customers. WSJ attributes this to subscription businesses deriving “information from their customers’ behavior in real time, [which] are better at fast adaptation than companies dependent on their in-store employees for feedback.” For Netflix, think customer viewing behavior, and, in Agapi’s case, customer boat rental behavior.

Servitization: Where Customer is King

This is all because, at the end of the day, customers really are at the heart of servitization and this new wave of subscription-based business models. “It’s about the feeling of ownership, just with sustainability,” says Peder Asplund, co-founder of Agapi. The goal of the organization was to change boating into a more sustainable industry, long term. “The quest to use the world’s scarce resources in a much more efficient way is a key pillar to our business idea and a true win/win for everyone, including the environment, of course,” says Asplund.

Average boat usage in Sweden is approximately five days per year – not nearly enough incentive to outright own a luxury boat, especially when you factor in the unpredictability of boat performance and unplanned maintenance. So, instead of building 10,000 boats just to gather barnacles in marinas, Agapi builds only a fraction of that amount and uses the fleet model of boats in a much more balanced manner. And, like Volvo’s luxury subscription services that cover everything but the gas, Agapi lets its customer’s behavior dictate the level of membership from a more holistic equation. Want to reserve a boat an entire month? Level up your subscription. Want beneficial kickbacks and offers? The better you leave the boat, the higher your user rating. If you promote usability rather than individual ownership, the possibilities really start to open up.

Redefining the Service Organization

But, for companies to actually buy into this subscription model of service, Tzuo says it’s time to redefine the service side of your organization. “Product cultures are built around thinking and organizing like assembly lines: stay in your lane, do your job, then pass it on… Subscription cultures are about making sure your customer continues to succeed with your service over time, and translating that ongoing value into revenue.” This means not only a shift to servitization, but a complete pivot towards outcome-based sales. The keys to servitization and outcome-based success are simple – improve efficiency, enable innovation and ultimately, transform your business:

  • Improve efficiency: Connect disparate line-of-business assets to automate and improve business processes. Monitor and track the health of your assets to reduce costs. Collect and secure large amounts of data from your assets for future analysis.
  • Enable innovation: Analyze data from multiple sources in real-time to drive revenue. Apply historical data to new problems to successfully predict future behavior and trends. Create operational intelligence to improve performance and decision-making.
  • Transform your business: Convert the raw data into actionable insights and business results. Create new insights for the right people in your company to access easily. Leverage advanced analytics to create new business models and revenue streams.

How can you start today?

Start smart, and start small. Get feedback from the field and customer demand reports. Pilot small groups of users to provide valid feedback to your team. Deploy focused processes that best fit your organization’s overall future needs. In today’s changing world, product advancements alone will not enable you to gain or sustain the competitive differentiation needed to ensure long term financial performance.

Shifting from a product-led growth strategy – which has sustained organizations for many decades – to an outcome-based servitization strategy will require companies to embrace change, think differently, act differently, and embrace technology to completely transform their businesses. After all, changing customer expectations demand it, and if you don’t shift now, Tzuo says, “chances are that in a few years you might not have any business left to shift.”