Machine in Factory

Industrial Subscriptions

Digital transformation initiatives are increasingly seen by manufacturers as an opportunity to improve the bottom line of their companies by leveraging technologies from Industry 4.0 for efficiency, optimisation and cost savings.

Business model innovation, however, will be the key to transforming performance. In order to do this, industry leaders must adopt a new mindset around value creation and capture. 

Recurring revenue models such as subscriptions are generating new opportunities for industrial companies. Subscription models benefit both, manufacturers (recurring revenue, monetising the complete lifecycle of products) and their customers (convenience, flexibility, peace of mind).

Industrial Subscriptions, also referred to as Equipment-as-a-Service or Pay-per-Use are business models in which hardware, software and 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).

Customers prefer subscribing to an outcome.

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.

100% tax-deductible.

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).