Subscriptions in the manufacturing industry
Industrial Subscriptions, also referred to as Equipment-as-a-Service or XaaS (Everything-as-a-Service) are business models in which hardware, software and complementary services are bundled into a complete offering over a multi-year period.
In exchange, customers pay a recurring fee that is either subscription-, usage- or output--based (or a mix of it).
Since physical goods are different from traditional software subscriptions such as Netflix, Spotify, and Salesforce; manufacturers need guidance; a step-by-step plan to execute their business model transformation.
This "how-to" guide, our Subscription Action Plan, provides a practical step-by-step way for manufacturers to develop their own subscription business model.
Subscriptions for hardware, software, and complementary services
Numerous variations of subscription models exist. Manufacturers can bundle hardware, software, and complementary services into a single subscription or offer sperate standalone subscriptions.
Hardware only subscriptions are known as rentals or leasing.
Software only subscriptions are known as Software-as-a-Service (SaaS) or digital products.
Services only subscriptions are known as maintenance agreements.
The biggest potential lies when bundling hardware, software, and complementary services into a single subscription. These models are also known as Equipment-as-a-Service or XaaS (Everything-as-a-Service). Manufacturers bundle their hardware, software and complementary services into a multi-year subscription. In exchange, customers pay a recurring fee that is either subscription-, usage- or outcome-based (or a mix of it).
Though, individual subscriptions for either hardware only, software only or services only have also proven to be successful.
Customers prefer subscribing to outcomes
As early as 1962, Rolls-Royce invented 'Power-by-the-Hour', a complete subscription for their jet engines. Instead of selling jet engines, Rolls-Royce offers its customers (airline companies) a functioning engine on a fixed-cost-per-flying-hour basis. All associated products and services included.
For certain products, customers are happier subscribing to an outcome/solution rather than purchasing a product with the burdens of ownership.
The Subscription Economy is here.
Where are you?
Manufacturers love Subscriptions
New, recurring, predictable, revenue streams.
Strategic differentiation and restrained competition.
Deeper customer relationships and more customer insights.
Higher margins thanks to a higher proportion of sale of services.
Increased customer loyalty (lock-in effect), cross- and add-on sales.
Sustainability and used equipment potential (+ improved corporate image).
Higher company valuation
Complementary to traditional product-selling model.
Customers love Subscriptions
Reduced investment hurdles: many small payments vs. one big payment
Flexible and scalable vs. burdens of traditional ownership.
Transforming CapEx to OpEx.
Outsourced operational risk towards subscription company.
When infrequent usage, does not make sense to buy.
Planet Earth loves Subscriptions
Incentive to prolong lifetime of products.
Incentive to implement end-of-life strategies (3 R's).
Incentive to increase product utilisation.
Reduced raw material and energy consumption.
Incentive to design easily repairable products.
Compliance with policy makers' regulations (e.g. European Commission's Green Deal).