You've heard of the subscription economy, and how people are becoming more and more interested in "renting" products rather than owning them. This is arguably one of the biggest and most important trends, as of recently; spearheading the move from product ownership to product-as-a-service accessibility and subscriptions. You have been wondering how you can join this movement and become one of the leading "product-as-a-service" parties. Here's how to get started.
As a product manager, marketing director, or sales lead it's hard to not have heard about on this trend. Consumer brands are actively pushing the boundaries on releasing products-as-a-service. You might have seen large companies and brands already doing it, like IKEA or Philips Lighting (Signify), or even entrants like Bloomon, HelloFresh, or SwapFiets.
But you're a B2B company. You feel this is going to be relevant to you, and you'd rather be one of the first movers. You've had several talks with colleagues or your leadership. One of the biggest objections being a fear you will create channel conflict with your wholesalers, dealers or retail channel partners.
We feel you! This can be a sensitive topic, but with some clear answers and direction, one that you can move forward. Let's dive in.
Enter: the subscription economy
At Firmhouse, we help companies launch their subscription model around their durable products (e.g.: bikes, personal care, appliances, etc.) or physical goods (e.g.: pet food, flowers, razor blades, cooking ingredients, etc.).
The trend we see is that consumers are more and more interested in an affordable and easy way to get access to the benefits of a product, but not necessarily by owning the product itself. With examples like SwapFiets, a specific customer segment is more interested in the benefits of the product as part of a full-service model. This is even when the total offer comes at a slight premium.
We see that consumers are already making this shift, and that government organizations are following by increasingly expecting "as-a-service" in tenders, due to circular requirements defined by their sustainability policies.
At the same time, an increasing amount of companies are looking to lower the amount of investments (Capital expenditures - CapEx) and move their spending to Operating Expenditures (OpEx). Subscriptions and product-as-a-service models enable them to do so. Not only does this lower the amount of assets a company has on their balance sheet, purchasing becomes easier as well.
The B2B market is getting ready for a service based economy, because it will create flexibility for them.
Why a subscription model for your products?
A product never exists in a vacuum. Customers are using your product to produce an outcome they desire. The products that are most successful take this into account. The best companies offer services around their products to ensure users achieve the outcomes they want.
As a B2B company it's likely you work with channel partners. And therefore, you lack a direct relationship with your end-users and customers. Subscription and service models allow you to create this relationship. Some of the benefits you can expect from that direct relationship:
- Increase loyalty and prevent (ad-hoc) switching of end-users to competitors
- Direct data + market intelligence on your product usage from end-users
- Reduce the administrative purchasing load for your customer
- Differentiate yourself for wholesalers and intermediaries
The end-result of this model is a lower-barrier for new customers to start using your products. Depending on the monthly cost for your product, it's faster for a company to approve (temporary) operating expenses than it is to make capital expenses.
The B2B2X value chain explained
A B2B2X subscription is a proposition that includes three main parties in the proposition chain:
- Source of the goods (for example: a brand, manufacturer, wholesaler)
- The buying organisation that represents end-users or customers
- The end-user of the service/goods
The following image explains the main responsibilities between the different actors in the supply chain. As you see, it's not that different, what is created is the direct relationship to the consumer, but one that still involves your channel partners.
The producer or manufacturer of the services is on the left. Normally, you would re-sell your products or services to the end customer via your retailers, wholesalers or service partners.
In this B2B2X model, you take an active and direct part of delivering your solution to the end user. You also get all the benefits of direct insight into the usage behavior of your end user. Of course, you might want to add one or multiple supporting partners, like a logistics partner or a service partner.
Some of the responsibilities might be flowing differently, that's the beauty of the model. You can handle the payments between you and the consumers directly, and on a monthly basis pay your channel partners a fee.
And as you might have figured, instead of a gatekeeper to your customers, your channel partners are now becoming a service to your company.
An early example of a company doing so successfully is b8ta - they introduced Retail as a Service. They take no margin, but get paid by brands & makers to sell have customers experience their products in beautiful stores. At the end of the day the consumer buys directly from the manufacturer and a direct relationship is established.
Exciting times for the market are ahead! Don't fall behind and start exploring subscription opportunities today. We can help you launch a pilot of any size to test if this can work for you. Contact us and we'll be in touch soon!