Earlier this week we established how technology has historically impacted consumer behavior. Technology is changing businesses’ perception of what’s possible – and it’s making innovation more accessible and readily available to larger audiences than was ever possible in the past.
Thanks to that accessibility, the subscription economy is constantly growing, causing the need to purchase and own products to slowly go by the wayside. And, for original equipment manufacturers (OEMs) specifically, the dominant, product-based economic model of the last century is coming to an end, making way for servitization – the transition from selling products to selling the output or value that products deliver.
This shift to servitization has many OEMs panicking, though, leaving them thinking, “How will my business survive such a significant drop in product sales?” But, a drop in ownership doesn’t necessarily mean a drop in usership – just a change in usership.
A Drop in Ownership Doesn’t Mean a Drop in Usership
Take the US automotive economy and car-dependent culture: ditching your own car rarely means never getting into a car thanks to car-sharing services or rentals. And, in the age of GenZ social media madness, where every outfit of the day is documented, and every cross-country trip is vlogged (video-blogged, for the laymen) the prestige of using expensive things has only heightened – bringing rise to luxury subscription services like Rent the Runway and Private Jet Studio, a photo studio on a tarmac with a Gulfstream G650 jet, where customers can take pictures both inside and out.
So, the need for OEMs to continue manufacturing these products is not only critical to their survival, but they need to get even better at keeping those products up and running consistently, which is a concept known as maximized product uptime. Usership over ownership doesn’t mean OEMs’ production business is done for, just that they need to reconfigure how they provide access to those products and maximize product uptime for their customers.
Maximized product uptime is critical for OEMs to meet customer delivery expectations and maintain an edge over both direct competitors and third-party e-commerce sites, and when revenue is tied to usage, OEMs can’t afford any downtime. And, as both competition and customer demands increase, it will be even more difficult to optimize prices, creating unique advantages and differentiating from the competition with these legacy tools and methods.
When revenue is tied to usage, maximized product uptime is critical for OEMs to meet customer delivery expectations and maintain an edge over competitors.
Usership and Servitization Encourage Sustainability
One of the unique advantages to this new way of doing business is sustainability. Sustainability and efficiency are not only becoming more important worldwide, but thanks to emerging technologies, new and innovative brands are constantly providing consumers with sustainable alternatives, driving up competition for OEMs.
For example, Lynk & Co, a flexible car subscription company focused on connectivity as a new form of ownership, is putting traditional car purchasing models in question thanks to sustainable car-sharing model. And, as always, Amazon is constantly finding efficient new ways to meet customer demands, providing business services in industries spanning from fashion to groceries to automotive parts – all with service levels that are rarely matched by OEMs.
So, as OEMs rethink the entire relationship between the products they make, and the way consumers access them, they have the opportunity to reconfigure the product lifecycle to incorporate more sustainable design principles. And, ultimately, making products, and subsequently organizations, more sustainable long-term, is all part of the quest to use the world’s scarce resources in a much more efficient way.
The fact is: usership and servitization encourage sustainability and efficiency. With servitization, the margin incentive shifts from “units” to “utilization,” and if OEMs don’t make sure that their products last as long as possible, and that the materials used to build said products are recycled or repurposed effectively, they will lose out to their competitors.
Over the past 7 years, companies across North America, Europe and Asia Pacific have seen their subscription-based PaaS sales grow by more than 300%. – “The End of Ownership,” Zuora.com
As this shift from ownership to access continues to make its way to the forefront of consumer trends, it’s garnering the attention of C-level executives, resulting in the deployment of new business and operating models. These new models are enabling manufacturers to pivot to the future and transition toward servitization, also known as Products-as-a-Service (PaaS). In fact, the previously mentioned Zuora research also indicates that businesses who adapt to this shift in buying behavior are growing faster and making more money – over the past 7 years, companies across North America, Europe and Asia Pacific have seen their subscription-based PaaS sales grow by more than 300%, representing an 18% compound annual growth rate.
At the end of the day, today’s customers will pay for access alone, and brand loyalty is less of a factor than ever. But because today’s customers aren’t consuming less – just consuming things differently – leading OEMs need to embrace technology in order to remain competitive and make the shift toward servitization. Once they recognize that – whether they realize it or not – they’re in the service industry now, they’ll need to find unique ways to prioritize usership over ownership, just like their customers. And, by leaning on the knowledge of some of the industry’s most trusted experts who are helping guide OEMs into this new territory, successful OEMs will be able to capitalize on the opportunities servitization presents.