In today’s fast-changing technological landscape, with disruption evolving as the new constant, the need for the companies to stand out in the competition is not just eminent, but also more than ever before. And to achieve that differentiation in the market, you may need to constantly innovate and initiate various new measures, including the consideration of several revenue models, implementation of inspiring technologies, and deployment of novel strategies that could add value to your products and help you gain customer loyalty.
Let us consider the case of manufacturing companies that have traditionally been following the product sales business model, where the business cycle usually ends with the sale of products to the customers. With digitization reducing the overall production, and sales cycles and technologies like IoT and telematics making it easier to track equipment, manufacturing companies are now moving from the traditional model to the service-based model, also known as product-as-a-service (PaaS).
PaaS — what is it and why is it critical for equipment manufacturers?
PaaS is a business model that helps manufacturers deliver not just products, but also rental support services, as part of long- or short-term subscription contracts. In this model, the current customers either rent or lease equipment instead of buying it. They can source products directly from the manufacturers, use them as long as they need, and once their requirements are addressed, they can return them to the manufacturers.
Win-win situation for manufacturers and their customers
The PaaS model is fast gaining popularity. Many big names in the manufacturing industry, such as Xerox, HP, Rolls-Royce, and Philips, have long realized its importance and have been reaping its benefits for considerable time now.
Philips, for instance, offers lighting-as-a-service to their clients. The customers only pay for using the lights, while Philips takes responsibility for all the after-sales services, repairs, and replacements. It’s a win-win situation, as the customers do not need to be concerned with the repair and maintenance hassle, while Philips still gets to own their assets.
Here is how a typical PaaS lifecycle looks like:
How can equipment manufacturers benefit from PaaS model?
Instead of focusing on one-off sales, by turning to the PaaS model, equipment manufacturers can develop innovative strategies to create multiple revenue streams through their services. For instance, let us look at how the German power tool manufacturer, Hilti, uses the PaaS model to its advantage. Hilti offers fleet management services through a usage-based model, which covers use, service, and repair costs against a fixed monthly payment. They help the customer select the right mix of tools to limit redundancy. They also provide upgrades, in which all the tools are replaced with the latest models, helping the clients avoid costly downtime. With this move, Hilti has been able to win customers’ hearts and minds, increase revenue, and achieve differentiation in a highly competitive global market.
The PaaS model can help you:
Increase profitability: PaaS helps ensure regular and recurring sales revenue. Additional services, such as repairs, maintenance, upgrades, replacements that are provided under this model, aids manufacturers in retaining customers and boosts profitability.
Accelerate market penetration: PaaS is a low capital expenditure model, which makes it more attractive to customers. Additionally, with technologies like Big Data and IoT, manufacturers can make key business decisions and chalk out strategies to penetrate new markets.
Reduce the overall business risk: The service platform builds long-term customer relationships by offering the right product and quality services. It also provides a sustainable revenue stream, thereby enabling manufacturers to manage their finances better.
Drive sustainability: Once the customers return the equipment to the manufacturers after use, it can then be recycled and delivered to another user.
What steps should you take to be PaaS ready?
Apart from planning and strategizing, here are some crucial steps you need to take before implementing the PaaS model:
Ensure your application landscape is ready to adopt a new model.
Make your equipment IoT ready so that you can read and translate data and use payment models, such as pay-per-use and power-by-the-hour.
Train your sales team to start delivering this model, including contracts based on performance.
Put an ERP back-end system in place that can handle flexible contract accounting.
Build an efficient customer portal to provide the latest contract details and performance to customers.
What does the future hold for PaaS?
To be successful or to get ahead of the competition, you need to develop strategies that focus beyond the sale of your products. You need to work on how you can retain your customers and gain a competitive edge in the market. As the concept of “equipment sharing” benefits all the parties that are involved, PaaS is becoming a critical alternative for equipment manufacturing companies to future-proof their business in a rapidly evolving technology landscape.
How can we at To-Increase help with PaaS?
Adopting a new business model, such as PaaS, requires specific technical understanding and significant knowledge of the current business landscape. With our deep domain expertise and 17 years of experience in developing solutions for companies in the equipment rental space, we at To-Increase are poised to help you embrace the PaaS model and augment and transform your business to new heights.
Our business applications are specifically designed to address the requirements of equipment manufacturing companies. They can help you operate effectively in the PaaS model and lay the foundation for you to establish or enhance relationship with your potential and existing customers.