What are Subscription, Pay-per-Use or As-a-Service models?
Goodbye ownership, hello usership
Over the past few years, companies across various sectors have developed a wide range of Subscription, Pay-per-Use and As-a-Service business models to deliver more value to customers by selling access and performance instead of ownership.
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.
Every company seeks to establish a "forever deal" with the customers they serve. They want predictable recurring revenue, direct relationships that avoid middlemen, and behavioural data that allows them to continue planning for the future.
It is a major shift in a company's mindset that has the potential to generate dramatically higher value - but which also involves deep changes throughout the company, requiring a thorough business model transformation.
What is the idea behind Subscription, Pay-per-Use and As-a-Service models for physical products?
Consider what the majority of us do with our cars. We make an effort to bring the car in at the recommended 10.000km maintenance service intervals to get the oil changed, tires checked, etc.
But whether I faithfully bring my car in for routine maintenance or whether I ignore maintenance and have to bring the car in for significant repairs, which generates more income for the car dealership? It is a ruse of a question. The reply is "both". Nevertheless, let's imagine that my car operated on an “as-a-Service” model. The car dealer is now motivated to keep the car functioning for as long as possible. Since I only pay for the hours that the car is functional, the dealer does not benefit if my car breaks down and idles on the side of the road.
The main distinction with the subscription economy is this. Now, it serves the interests of both the customer AND the dealership to ensure the best and most efficient operation of the vehicle. When a customer understands that their dealer shares their interests and the situation is genuinely a win-win, the whole foundation of the relationship is altered. When that occurs, I want my dealer to be successful. I wish to give them information on my car's performance. I would want to let them know that I intend to drive to go skiing in the mountains and ask them for tips on how to get my car ready. I want to help them assist me since we are on the same team.
Benefits of Subscription, Pay-per-Use and As-a-Service models
Stable recurring revenue stream
Enhanced customer relationships and loyalty
Strategic differentiation towards competitors
Enter new market/customer segments
Opportunity for data-driven insights
Benefits for customers
Lower upfront costs and improved affordability
Access to the latest technology and upgrades
Flexibility to scale equipment usage
Peace of mind - Outsourced operational risk
Simplified equipment disposal and replacement
Benefits for our planet
Reduced resource consumption
Lower carbon footprint
Optimal resource utilisation
Sustainable equipment lifecycle management
Business model part of the circular economy
Examples of Subscription, Pay-per-Use and As-a-Service models in various industries
Engel’s pay-per-use model is a type of Equipment-as-a-Service offering for the plastic injection moulding industry. Customers are able to use Engel's injection moulding machines and only pay for the actual usage of the equipment. This model eliminates the upfront cost of purchasing the equipment and provides customers with greater flexibility and lower costs compared to traditional machine ownership. The model is based on a usage fee that is determined by the number of cycles of the machine and the duration of use.
Customers that take advantage of the Heidelberg Subscription pay a monthly print volume rather than purchasing a printing machine. For a predetermined monthly print volume, the consumer pays a fixed fee. Heidelberger offers customers the equipment, workflow, consumables pre-matched to their requirements, internal expertise from print professionals, and continuing support through the Heidelberg Subscription.
In 1962, Rolls-Royce developed the Power-by-the-Hour model, otherwise known as Engine-as-a-Service (EaaS). This subscription model allowed airlines to pay a flat hourly rate per engine, while Rolls-Royce managed the installation, check-ups, maintenance, and decommissioning.
From selling light bulbs towards selling an illuminance level per square meter. Customers pay for the service (e.g. annually) instead of buying LED lights. The subscription offers customers lighting for an annual fee, while Signify retains ownership of all fixtures and lights. Signify installs, maintains, services, upgrades, repairs, replaces, and ultimately recycles the light bulbs.
From selling drills towards selling holes via a fleet management programme.
The industrial equipment manufacturer Hilti offers their products in a subscription-based deal that includes product availability, maintenance, and possible replacements. It is essentially a guarantee that work on construction sites is never interrupted due to malfunction.
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). Such a system has been praised by customers such as Go-Ahead Group and HE Payne, who have found it to be beneficial in financial planning and cash flow optimization.
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