Optimising B2B bundling and packaging for XaaS/As-a-Service and Subscription models.

‍Introduction

The landscape of B2B sales is undergoing a monumental shift, with companies across various sectors embracing XaaS (As-a-Service) and Subscription business models. In these models, a company's offerings - such as hardware, software or services - are not sold as one-off products but as ongoing solutions that can be charged to customers in a recurring way. This transformation is driven by a desire to deliver greater value to customers by providing access and performance, rather than mere ownership. In this evolving market, the choice of an effective XaaS/Subscription packaging or bundling strategy is critical.

This blog post offers a deep dive into the different strategies available, shedding light on their benefits, challenges, and best application scenarios. Our aim is to equip businesses with the knowledge to tailor their offerings to meet customer needs and thrive in dynamic market conditions.

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The Evolution of XaaS/Subscription Models

The journey from traditional one-time sales to XaaS/Subscription-based models marks a significant evolution in the B2B sector. Historically, the focus was on single transactions with the aim of maximizing immediate revenue. However, the digital revolution and changing consumer expectations have paved the way for a more sustainable and customer-centric approach. XaaS/Subscriptions offer predictable revenue streams, deeper customer relationships, and ongoing value delivery, aligning more closely with the modern business ethos of continuous engagement.

In 1962, Rolls-Royce developed the Power-by-the-Hour model, otherwise known as Engine-as-a-Service (EaaS). This XaaS/Subscription model allowed airlines to pay a flat hourly rate per engine, while Rolls-Royce managed the installation, check-ups, maintenance, and decommissioning.

In 2013, Michelin launched a Tires-as-a-Service offering called EFFITIRES. This system provides a combination of outsourced tire procurement and a payment model based on usage (pay-per-driven-km).

Let’s review the most common XaaS/Subscription bundling and packaging strategies.

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XaaS/Subscription Packaging and Bundling Strategies

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One-Size-Fits-All Strategy

This strategy is builton simplicity, offering a single, comprehensive package to streamline the buying process. It is particularly effective in the early market stages or for products with broad appeal.

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Examples

1. Industrial Safety Equipment: A company that manufactures safety helmets, goggles, and ear protection offers a comprehensive safety kit XaaS/Subscription. This kit is designed to meet the basic safety requirements across various industries, making it an ideal solution for small to medium-sized businesses looking for a straightforward way to ensure their employees are protected.
2. Office Printers and Supplies: A manufacturer of office printers provides a XaaS/Subscription that includes a high-quality printer, along with a monthly supply of ink or toner, paper, and maintenance services. This offering simplifies the decision-making process for businesses by providing all necessary components in one package, ensuring continuous operation without the need for frequent purchases.

Pros

• Simplicity and Accessibility: Reduces complexity for customers, making it easier to understand and buy.
• Market  Penetration: Facilitates rapid market entry and adoption by lowering the decision-making barrier.

Cons

• Limited Customization: May not cater to all customer needs, leading to potential dissatisfaction as the market matures.
• Scalability: As customer preferences diversify, this model may struggle to accommodate evolving demands.

This model shines in markets where customer needs are homogenous and the product’s value proposition is clear and universally recognized. It is also advantageous when the goal is to quickly establish a market presence and build a customer base.

Good-Better-Best (GBB) Strategy

The GBB model offers tiered service levels, balancing simplicity with customization. It caters to diverse customer preferences by providing structured choices.

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Examples

1. Construction Equipment Rental: A company offers three tiers of XaaS/Subscription services for construction equipment rental: Good (basic equipment package), Better (advanced equipment with some premium tools), and Best (comprehensive package including the latest technology and full support). This structure allows construction companies of different sizes and project scopes to choose the most appropriate level for their needs.
2. Software for Manufacturing Automation: A software provider offers three XaaS/Subscription tiers for its manufacturing automation platform: Basic (core functionalities), Professional (advanced features and integrations), and Enterprise (all features, premium support, and customization options). This GBB strategy caters to manufacturers at different stages of digital transformation, allowing them to scale their XaaS/Subscription as their business grows.

Pros

• Flexibility and Choice: Enables customers to select the service level that matches their requirements, enhancing satisfaction.
• Revenue Optimization: Provides opportunities for up-selling and cross-selling, increasing average revenue per user.

Cons

• Complexity in Tier Definition: Requires careful consideration to ensure clear differentiation between tiers without overwhelming customers.

GBB is particularly effective for products or services with scalable features or varying levels of support, where businesses can clearly differentiate between basic, intermediate, and premium offerings.

Objective-Specific Plans

Objective-Specific Plans are custom-tailored to meet the unique goals of different customer segments, offering a high degree of personalization. This strategy acknowledges the diversity in customer objectives across industries and seeks to align offerings closely with these goals.

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Examples

1. Agricultural Machinery: A manufacturer provides customized XaaS/Subscription plans for agricultural machinery, tailored to specific farming objectives such as crop-cultivation, livestock management, or organic farming. Each plan includes machinery, maintenance, and support services designed to meet the unique needs of each farming operation, enhancing productivity and sustainability.
2. Medical Equipment for Clinics and Hospitals: A company offers specialized XaaS/Subscription plans for medical equipment, focusing on different healthcare objectives such as diagnostics, patient monitoring, or rehabilitation. Each plan is curated to include equipment and services tailored to the specific needs of clinics and hospitals, improving patient care and operational efficiency.

Pros

• Deep Market Penetration: By addressing specific customer needs, companies can achieve deeper market penetration and customer loyalty.
• Enhanced Customer Satisfaction: Tailored plans ensure that customers receive exactly what they need, improving overall satisfaction and retention.

Cons

• Resource Intensity: Requires a deep understanding of customer segments and may demand more resources to implement effectively.

This approach is ideal for companies with a diverse customer base or those operating in markets where customer needs are highly specific and varied.

À La Carte Packaging

À La Carte Packaging offers the ultimate in flexibility and customization, allowing customers to pick and choose exactly which features or services they want. This model caters to the modern consumer's desire for personalization and control over their purchases.

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Examples

1. Commercial Cleaning Equipment: A manufacturer of commercial cleaning equipment allows businesses to customize their XaaS/Subscriptions by selecting from a range of products like floor cleaners, vacuum cleaners, and sanitation systems. Customers can tailor their XaaS/Subscription to their specific facility size and cleaning needs, ensuring they only pay for what they truly require.
2. Industrial IoT Solutions: An industrial IoT (Internet of Things) solutions provider offers an à la carte XaaS/Subscription model, where manufacturing businesses can select specific IoT devices, platforms, and support services based on their operational needs. This model enables highly customized solutions that can evolve with the business, optimizing efficiency and data-driven decision-making.

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Pros

• Maximum Personalization: Meets individual customer needs precisely, enhancing satisfaction and loyalty.
• Market Insights: Provides valuable data on customer preferences, informing product development and marketing strategies.

Cons

• Operational Complexity: Requires sophisticated systems to manage the customization and fulfillment process.

This model is most effective in environments where customer preferences are highly individualized and where businesses can manage the complexity of offering a wide range of options.

Strategic Considerations for Choosing a Packaging Model

Selecting the right XaaS/Subscription packaging model necessitates a deep understanding of your customer base, product value proposition, and market dynamics. It's essential to balance simplicity against customization demand, considering operational capabilities and market objectives to align with your long-term strategy.

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Challenges and Solutions in XaaS/Subscription Packaging

Adopting a XaaS/Subscription model comes with its set of challenges, from managing customer expectations to ensuring a smooth transition from one-time sales. Solutions range from leveraging technology to streamline operations, to fostering a culture of continuous innovation and customer feedback.

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Conclusion

Adopting a XaaS/Subscription model offers a pathway to growth, customer loyalty, and consistent revenue. By carefully selecting a packaging strategy that aligns with your offerings, customer base, and market dynamics, you can establish a strong market presenceand build lasting customer relationships. As businesses continue to evolve towards more sustainable and customer-focused models, understanding and implementing effective XaaS/Subscription packaging strategies will be key to success.

P2S Management Consulting: Helping Companies Make the Shift to XaaS/Subscription Business Models

Since our inception in 2019, P2S Management Consulting has been at the forefront of transforming traditional sales into recurring revenue streams. Specializing in Subscription, Pay-per-Use, and As-a-Service models, we've helped businesses across Europe and North America pivot their product offerings into service-oriented solutions that promise sustainability and recurring added value. Our approach is to accompany businesses on their journey of innovation, aiding them in conceptualizing, developing, and launching successful recurring revenue models.

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Expertise and Methodology

Our domain expertise is built on a foundation of best practices and insights from numerous successful implementations across diverse industries. This deep well of experience allows us to craft solutions tailored to each client's specific needs and market conditions.

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Proprietary Tools and Networks

At the core of our methodology are the P2S Subscription Action Plan™ and P2S Subscription Experts Ecosystem™. These proprietary frameworks and networks underscore our dedication to providing comprehensive solutions. From strategy and concept development to scaling your models, we offer an all-encompassing approach, supported by a robust partnership ecosystem. This ensures not just the development but also the successful market scaling of your models.

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Why Partner with P2S

Opting for P2S Management Consulting means choosing a partner with deep insights into Subscription and As-a-service models and a track record of facilitating smooth and effective business transitions. Our collaborative, innovative approach is results-driven, positioning our clients for success in an increasingly customer-centric and sustainable business landscape.

As the market continues its shift towards more sustainable and customer-focused models, P2S stands ready to lead your business through its transformative journey.

To learn more about how we can support your transformation, book a call with us here.