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From Product to Customer Value!

May 9, 2017

From selling your customer a product, to supporting your customers business through providing value based solutions - the product to service migration.

As a producer of things, a business makes its money in the making and selling of things - the Product! This is an event based relationship (notwithstanding an ongoing support relationship). Your customers relationship with this product is different, very different!

A customer derives their value over time, not at the point of purchase. A purchased product (other than consumables) provides a value for the life of the product. Some products, particularly equipment and plant, lend themselves to a maintenance relationship that provides a residual revenue steam. In some cases we have seen financial/rental models stretch the product revenue over time in line with the product life-cycle. This can be seen in the consumer space with car leases and old-fashioned hire purchase, and in the industrial space with vendor finance models in a large number of industries. These are not product to service migration of a business offering - they are financial packaging of a product purchase.

Migrating from a product to a service model is wholly defined in term of the customer experience - it is about the customer purchasing the value they derive from a product, rather than the product itself.

Like most things it is not that this hasn’t occurred - a simple example is the sale of production capacity on a press rather then the press itself, ie. usage based pricing! What’s missing is that the information to support a full service based model is not captured, analysed and worked to deliver a true service based customer offering.

In the press model, as a customer I want to pay for pressings that I can use - quality is a vital measure. I may pay more for more complex pressings - pay more for higher value output.

The challenge, “in selling the sizzle rather than the frypan”, is knowledge! To base my offer to a customer on the value they derive from the utility requires a lot of timely information about the customer use of the underlying product (which is still required to enable the activity).

Looking specifically at the B2B marketplace, the value the customer derives will be specifically related to the business process being supported. As a vendor it is critical to know if your product supports a customer sales or service process, is part of their product/service offering to their customers, part of their distribution process.

This customer application understanding, along with information about the consumption behaviour of your product, are the inputs to a service based supply model.

Communications becomes a vital aspect of the solution as information on the performance of the product as well as its consumption are the critical supplies being made.

As a supplier your business model is turned around. The key impacts include:

  • Revenue and Cash-flow

  • Customer Service model

  • Sales Model

  • Product development and production

Revenue & Cash-flow

Any change in how and when you invoice your customers has an impact on cashflow and its management. This requires careful planning and communication with all stakeholders (especially shareholders).

Customer Service impact

Moving to a service based model has to be based on an automated information model or success will bring an unbearable cost. It’s not just more of what you already do in terms of service, Service becomes the core business process delivering to the customer.

Sales

Selling the value delivering service requires an implicit understanding of the customers business and the role your service plays. Your very best in Product sales will probably be the minimum starting point.

Product

The product still underpins everything - it is the service enabler. The difference is, it’s still yours. Yours to evolve, recycle, virtualise,.... - you have a lot more flexibility in managing the life-cycle. If that doesn’t change your approach to product management, development and production, you’re just not trying.

For every business each of these is a substantial change to manage, and success will only come where the customer, and what they value, is kept at the centre of the process.

The opportunity for a business to migrate from a product centric to a service based model are bigger and smoother revenues, and improved margins.

For the customer, they have a lower risk model where there costs are more closely aligned to their revenues - a risk that the supplier can take on at lower cost than the customer.

If this is a challenge you would like to scope further I’d welcome the opportunity to explore your world with you.

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