Focus on delivering products OR delivering service and value?
Approx. time to read: 8 minutes
The “everybody knows” way to grow a business in the 20th century was to grow product sales – and once you were in the market to continuously develop new products with more features.
• Most of the time, what people want is the benefit of the product they buy, not the product itself. Their interest in how it is made is minimal.
They don’t want the car – they want available transport, comfortable travel, some style, and occasionally a status marker.
- When you focus on increasing sales volumes instead of customer value, then you put your business on a treadmill of delivering more products, with more features – always something new.
- Focussing on making more of what you make can lead you to identify with the technology you use. You can lose sight of the value you deliver. So an energy generator takes on the identity of coal miner. Your focus shifts – and you lose flexibility.
When you understand the value people are buying – their “why” – and the results they’re seeking, then YOU can innovate the process that delivers those results.
You probably already know about delivering value
The idea of delivering value and selling Product as a Service (PaaS) used to be a weird concept – and when it happened, it used to be expensive (hire cars and hotel rooms, for example)
Then music and video went digital, and people started paying for the tracks they watched or listened too – instead of CDs and DVDs (and vinyl disks). So high-volume sales of physical products has been largely replace by streaming services. Also gone is the need for the various players you viewed them on.
Transport is also moving into the service category, with a whole range of car share services and apps available. Platforms like Car Next Door are the “AirBNB” for cars. (Most cars are used for about 4% of their life – the rest of the time they sit in a parking space taking up room and costing money. It’s a high price for convenience.)
Software is rapidly becoming a service – SaaS – so instead of buying a licence and installing wordprocessing software on your computer, you now pay for it as a service in the form of Google Docs or Microsoft 365.
The advantages of buying a service
When you buy something then you own it – and a lot of the time that immediately creates waste. Check any stationery cupboard or warehouse for stuff that’s been there forever. (Or your fridge for that collection of bottles of half-used sauces and those limp vegetables in the “crisper”.)
Once you own an item, you then have a thing that you have to dispose of. And you only own that particular thing.
With a streaming service, you pay for what you listen to – AND get suggestions about titles you’ve never heard of. Plus you can add your own value, with playlists you make – or other people’s play lists.
The advantages of SELLING a service
When you sell a service rather than a product, you’re in the driving seat – you have flexibility on HOW you deliver the value that you deliver.
Selling a serice (usually under a leasing model) changes your cash flow from lumpy and irregular to smooth.
For some businesses, buying a service also requires a whole lot less paperwork and authorisation than a Capital Expenditure application.
Industrial products are becoming services
At an industrial scale, companies like Carrier Air Conditioining are starting to sell the service “coolth” instead of plant and equipment. Instead of selling machinery, they undertake to keep commercial premises cool – within a contracted temperature range.
How they do it and when they upgrade equipment is up to them. So they can install shades instead of compressors, or upgrade existing chillers with new efficiency-building technology.
Lighting of commercial buildings is also becoming a service, with contracts about lumens and lighting levels rather than fixtures, fittings and light globes.
At a smaller scale, Information Technology is enabling all sorts of service-based offerings, from music editing to legal services.
In one example, an Australian law firm has moved legal advice into a service-based model, reinventing “retainer” so that small businesses don’t have to pay by the hour for legal advice – instead they buy a support service package that combines ongoing education with advice and support.
What else is becoming a service?
MUD Jeans offer organic jeans for rent by the month. After renting them for 12 months you get to:
- Swap them for another pair and lease that pair for a year.
- Keep them – with the ability to send them back for recycling.
The jeans are also made using environmentally friendly production processes – and when you send them back they’re either re-sold or recycled.
Kaer Air is another company that offers airconditioning as a service, allowing a building owner to simply specify a required temperature for their indoor environment. The design, installation and operation of the air-conditioning system is up to to Kaer, who use modular systems they can roll in or out as required. Capex costs for building equipment are replaced by a fixed pay-as-you-use rate based on consumption.
The limits to product as a service opportunities are probably that of an entrepreneur’s imagination – and with advanced measurement technologies, the scope is growing all the time.
The supporting body of knowledge
Delivering value rather than products is becoming an increasing part of Circular Economy strategy discussions.
- There’s a good introduction to product as service in this article (which you might have read from INSIGHT-03) on Circular Economy Business Strategies on Medium written by The UnSchool’s Leyla Acaroglu.
- The online Circular Design Guide includes a whole section on The Service Flip
- The Circular Economy Toolkit has some very practical resources on Product as a Service.
- Tools for identifying customer value have been around for decades – there’s a great discussion of transport as a service in the book Lean Solutions by Womack and Jones.
- Tools for pulling apart and developing new business Value Propositions in the book Blue Ocean Strategy – designed to really push the boundaries of your thinking.
- The next generation of Lean has moved into 21st century startup land, with the publication of the book The Lean Startup.
So what are the questions that could be worth asking?
Here are some queries to help kick-start your question-answering brain into creativity:
- How much detail do you actually have about the value your customers find in your products (or commodity, time-based services)?
- How well do you monitor customer needs? Or are you too caught up in meeting production schedules and making payroll to think about that?
- What do you sell “by the unit” to customers that could become a high-value service rather than a product?
Over the next few days, see what shows up for you as you start to re-imagine Business-As-Usual.
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About the Author
Leigh is a supply chain analyst turned sustainable business writer, with over 30 years of business experience. Leigh blogs and podcasts on the commercial climate solutions scaling in the marketplace and the business opportunities they offer – particularly to SMEs.
Climate solutions have been called “the biggest business opportunity in human history” – and SME businesses need to know how to find their opportunities.
Leigh is the leader of the Better Business for Good Company Regenerative Business Expert Panel.