Since the arrival of Covid-19, companies have been forced to diversify their business model and look for different sustainable alternatives to remain competitive. This is where the ‘product as a service’ (PaaS) model comes in: you don’t actually sell the product, but you charge for its use or functionality. In this article we explain the concept!
PRODUCT OR SERVICE? COVID HAS CHANGED THE GAME
Covid has brought about many social and technological changes with the widespread and often forced adoption of trends such as teleworking, online retailing, pick-up and delivery services, entertainment as a service and even e-learning. This evolution is accompanied by profound changes in behaviour.
From start-ups to large multinationals, many companies are reinventing themselves and moving towards a sustainable business model: Product-As-A-Service.
WHAT IS PRODUCT-AS-A-SERVICE?
In recent years, companies in Brussels have focused more on selling their products in one-off transactions. This is the so-called linear economy. In this system, customers are the owners of the product. Producers, on the other hand, are no longer responsible for maintaining the product.
Product as a service (PaaS) is more in line with the functionality economy and is a combination of products and services. The product is complemented by other functionalities such as repair or replacement. With PaaS, products are offered in subscription systems with associated services. Customers therefore do not own the product, but subscribe to it and pay a recurring fee. Since ownership is not transferred to the customer, there is great potential for the circular economy, as the company is responsible for producing a better product.
Instead of making a one-off payment, customers subscribe to products and pay weekly, monthly or annually. The product is then provided as an additional experience or service. Most of the products we experience every day (like Villo) are services of some kind.
IS PAAS EQUIVALENT TO RENTING A PRODUCT?
In part yes, but the product as a service offers additional benefits to customers. It is a different experience:
- where product quality is paramount: the customer expects a quality product, as good as new
- when the care of the product is important: the customer expects the product to be well cared for
- when the product is reused or recycled: the customer expects the manufacturer to take the product back and give it a second – if not a third – life.
With a Paas, the focus is no longer on the product, but on the experience. Companies that offer ‘Product as a Service’ are the most scalable and rely heavily on an experience where the quality of the product and customer service is at the core of the consumer’s perceived value.
PaaS is not a recent concept, quite the contrary. But in the current context, this business model is directly in line with the need for a transition to circular business models, further enabled by digitisation. Product as a service has also attracted the interest of manufacturers as an effective way to increase the profitability of their products and strengthen customer relationships.
WHAT ARE THE BENEFITS OF PRODUCT AS A SERVICE?
The Product as a Service model offers multiple advantages for both companies/entrepreneurs and customers, such as
STABILITY, PREDICTABILITY OF REVENUES, LONG-TERM CUSTOMER RELATIONSHIPS
While it is difficult to predict orders for product sales due to changing economic conditions and sales fluctuations, service-based products increase stability and revenue predictability. It is also easier to strengthen customer relationships through long-term, multi-year transactions and to understand and respond to specific customer needs where appropriate.
CUSTOMER LOYALTY IS STRONGLY LINKED TO SERVICE
This model provides the tools to strengthen customer relationships. The model generally implies the company’s willingness to provide a product that works. Best of all, you can customise your service to meet a variety of needs or solve problems that affect specific customers. You can also propose trial offers or discounts without losing money. If the customer likes the service or if it does not work for them, you will not have to deal with the costs of returning and storing items, as with a physical product. The services require little or no financial investment or storage space.
HERE ARE SOME SaaP EXAMPLES
THE EXAMPLE OF THE COMPANY COUCOU: THE PaaS OF EVENING DRESSES
Coucou is the brainchild of Marie and Isa, the company’s two co-founders. The company is part of the slow fashion movement and proposes an innovative model, combining clothes rental with an e-shop where customers can find fashion accessories. The company offers more than 200 brands, from luxury to ethical brands to discover.
The concept is simple and is in line with the functionality economy model: customers have the opportunity to try on different clothes and then reserve them and return them after use.
The benefits are the possibility to consume in a sustainable way while saving money and time.
THE EXAMPLE OF MCB ATELIER: THE PAAS OF EVENT FURNITURE
The Brussels-based company MCB, the winner of BeCircular in 2016 – a competition promoting the circular economy in Brussels – has launched its event decoration project.
In the cultural sector, sets are often thrown away after an event, whereas they could be reused and/or recycled. MCB Atelier offers a rental service for durable modular structures (MOD) that meet customers’ needs: whether for stands, decorations or interior design. Thanks to this rental formula, MCB Atelier amortises its investment by dividing the modules among several customers. This model is part of a sustainable development logic.
4 IMPORTANT ELEMENTS FOR STARTING AND SUCCEEDING IN THE PRODUCTS-AS-A-SERVICE SECTOR.
1. THINK ‘CUSTOMER FIRST’.
You must have a clear idea of who wants to buy your product. In essence, it is not only about offering a product, but also about providing an experience and benefits to customers through associated services.
To this end, you need to understand why customers buy your products. What do they want to achieve? Whether it is more freedom, less stress or simply happiness, when you want to highlight the benefits of your PaaS keep in mind the intrinsic reasons why people buy from you.
2. ADAPT YOUR PRICES TO THE PAAS MODEL
How much will you charge your customers and how much do you have to earn to make your business profitable?
In a traditional model, the market often dictates the price. In this model, the price must be based on the customers, the market and the business.
3. MAKE SURE YOUR SERVICES ARE IN LINE WITH YOUR VALUE PROPOSITION
Most customers ask: why you rather than another company?
Adding additional services does not necessarily mean that more people will buy your product. Ask yourself what makes your company unique and focus your communication on this distinctive capability.
4. OFFER AN EXPERIENCE
PaaS offers an attractive proposition as customers seek experiences that go beyond product acquisition and companies seek to become more sustainable.
CONCLUSION
Product as a service is a type of business offering that is still in its infancy, but will certainly grow. The environmental benefits of the model will undoubtedly become more quantifiable as the sector continues to develop. The model has the potential to become part of our current lifestyle and an important part of the corporate approach to sustainability. Changing production and consumption patterns towards a circular and green economy will require a series of technological interventions, a reprioritisation of investments and a series of new business models to bridge the gap between waste and reuse, but the Product as a Service model is an important step in this direction.
