Intangible services and tangible products

Intangible services and tangible products

When applying a true PSS there is typically some existing business already running. That business an be service oriented or product oriented. If these are to be translated into a new model of Product-Service-Systems, there usually is simultaneous servitization and productization project ahead.

The intangible service side of 

the offering must be packaged into an easy understandable format. 

This is to be done throughout, the intangible service should be easy to communicate and sell, easy to use and for most easy to buy. The buyer must know what he will get when making the purchase order. This increases the role of communication but it is not just communication – it is the total user experience. Some companies talk about the service design (https://www.kreapal.fi/) and sell their expertise to help other businesses to gain more business. The offering must be easy to understand and buy - the fear or inconvenience feelings related to purchase decision are probably one of the worst enemies of salesmen. Equally when the tangible products are servitized, the same basics are on the background – how to make the purchase easy and less inconvenient, how to communicate the value in effective understandable way and how to package everything.

Both productization and servitization are part of the process towards PSS. If a company decides to change their strategy from traditional model to PSS type of a business, it is critical to make sure that there is enough training and information in place because the effects internally are great as well. In Figure 1 the cornerstones of the productization (or servitization) are presented. This figure gives an idea of what are the main points to remember internally when going into a project aiming to PSS offering.

Figure 1 Cornerstones of the productization

The PSS offering is demanding but rewarding. Everything is dependent on customer success which again is dependent on your ability and capability to deliver. Thus these cornerstones must be in place and well documented – throughout the whole personnel.

Very often in PSS models the contract is 

based on some act or a product availability. 

To maximize the points declared in the contract you should have the offering well packaged. That helps in sales like discussed previously. All parts of your offering but also production should be well documented. That is to give your customer an easy to understand picture of what are you going to deliver but to also for your staff simple guidelines how to act in all situations. The documentation is also part of your safety net – people tend to change their jobs relatively easily and you do not want too much knowledge to transfer with them.

As the contracts often have some time related points, the processes internally should be well known, understood and in use. In some industries the response time for customer claim is short. The processes of how the cases are handled should be well in place when going into these contracts with some service level agreements etc. The details should be defined in contracts to gain mutual understanding of what is the meaning of reaction time. This is to avoid conflicts with customers but also for internal use so that everyone knows your way and processes on how to handle different cases. But when binding into these kinds of deals with possible sanctions, you must have modularity in your offering. If there is no preplanned modules in your offering you easily end up selling tailor made solutions and then it is difficult for your crew members to handle cases when every case has a different contract as backbone. Couple of different modules will keep your cards in order.

As a conclusion, for both tangible and intangible products, there must be a clear understanding of how the products look and feel like. Also, the process of making the product or producing the intangible service is clear and has no holes. That is, the basics are the same, message for the customer is clear and simple enough to understand very quickly. This reflects also to the sales as a process which will be discussed in later posts more in detail.

About PSS

PSS

The figure hereafter illustrates the change of focus when tangible products are sold as services i.e. servitized or intangible services are productized. When discussing about the total offering and productization related at some point the discussion goes into services. Often additional services around the core product. This is typically the starting point for servitization. But when we talk about true Product Service Systems there is a difference. The fundamental starting point is in customer requirements rather than in some technical product or service. That has some major effects in company strategy and in operational model and thus personnel. Probably the best-known example of PSS is:

·       Rolls Royce power by hour

It is anyway difficult to separate Servitization and PSS. Actually there are researchers who claim these two things are the same and the naming is the only differentiator. The operation of the true PSS requires high technical skills and understanding of the customer needs and requirements as well as knowing the features of own offering in detail.

Figure 1 Change of focus

PSS benefits

Some research say that there are companies starting to do PSS sales even before they have properly defined all the facts they should know, including the pricing of their PSS offering. They do it because there is so much value in the feedback data enabled by the model. Example: If I would sell container moves instead of container handling equipment, I would need to know or learn fast the customer operation in much greater detail if selling only the equipment. Then I would really gain deep understanding of customer processes and operations. At the same time, I should understand my responsibility then. The customer business would be on my shoulders. Thus, deeper co-operation with customer in all level of organization is a must thing to do – again a great benefit. Once I had started this, it is really difficult for customer to change the supplier. The mindset inside the company should also change 

from leadership of technology to leadership of use

It is such a change that I should execute a critical evaluation and gap analysis of available skills and resources. The change would become visible in marketing as well. I should make sure the marketing focuses on relationships marketing and the performance rather than the equipment. This is again paradigm change.

The bad news

When the change is done in marketing talks – no more equipment, rather the performance figures or equipment availability numbers etc. It is obvious that some part of the personnel would not anymore have perfect fit or they should be replaced with different set of skills and mindset. Company management structure may also require somewhat different weighing than previously. That all said, the change has wide effect to many parts in the company which means there must be many people rowing the boat with equal pace. It is even more important than in traditional equipment sales because now the operation of the product has straighter forward effect to revenue.

This is also seen as the number of people in direct contact with customers is likely to increase when moving into PSS model.

PSS and digitalization

Technology enables things today that has been the dream of many operations managers in the past. Thus, the business developers have great tools in their hands. Previously it was often mentioned that if we only would have the data online enabling live monitoring of a device or it would be great if there were a system enabling easy and fast established communication with customers and suppliers. Technology is there, now it is just about the people and creativity. In the next blog, there will be some ideas related to PSS benefits and barriers to enter.

Servitization

The figure hereafter illustrates the change of focus when tangible products are sold as services i.e. servitized or intangible services are productized. When discussing about the total offering and productization related at some point the discussion goes into services. Often additional services around the core product. This is typically the starting point for servitization. In real life there are several examples of Servitization. Some of them are clearly already Product Service Systems which means that he fundamental starting point in design of the offering has been customer needs. Examples of servitized products:

·       Rols Royce power by hour

·       Gasum monthly payment for unlimited amount of gas for driving

·       Tammermatic sales of car washes instead of washing machines

In fact, from these three, Gasum is clearly a servitized product but the other two examples are more close to true Product Service Systems (PSS). It is anyway difficult to separate Servitization and PSS. Actually there are researchers who claim these two things are the same and the naming is the only differentiator. The operation of those true PSS require high technical skills and understanding of the customer needs and requirements as well as knowing the features of own offering in detail.

Figure 1 Change of focus

Servitization of intangible and tangible goods

Software (SW) products are often sold as a service. Pricing is a monthly fee, or some annual license, pay per use or pay per use. Whatever the metrics, in SW world it is common to approach the SW product as a service – I pay for the company A so that they let me use their wonderful product which enables or helps me to do my business or my personal tasks. People are familiar for this way of doing business. It is also logical because SW tends to be develop continuously with updates and bug fixes. For a long time companies have been talking about SaaS – Software as a Service model. Most likely there is some new nice refreshed word describing that today. Servitized offering of Hardware (HW) i.e. tangible products is not that common, especially in consumer businesses. There are rental services and selling the equipment in lease. Those are servitized business models, but not that common anyway. Sharing economy is a raising trend but yet it is more common to buy the ownership of HW goods than share them. When taking a look at the corporate finance books and how they teach the subject typically in schools or universities, it is relatively common subject to handle payback calculation of investments. This is related to traditional way of buying HW equipment for production of other goods. It is relatively deep in the business minds that equipment are investments rather than anything else, i.e. buying the operation or output of the equipment. However, it seems that the trend is to increase the servitized model of purchasing the equipment or even PSS in order to gain the benefits and sharing the risk of the investment. Time will show us how it will work.

Drivers of the servitization

Drivers for changing the model for servitization are often rooted to market demand. Customers and competition drives into creative models of doing the business. It is also commonly known that the one closer to customer company core business most likely win the next deal as well. Sercives are often good way to get closer and to really understand and learn customer daily pain. Servitized models and PSS can act as competitive advantage if carefully designed. It seems that it is not the prodcts that define the leadership in the markets, rather the competencies. Who takes the leadership position as a true subject matter expert. Servitized models and PSS are also hard to copy and pricing can turn to be incomparable for customer – the root for differentiating in competition. Equipment manufacturers are willing to relocate themselves as more valuable in food chain.

PSS and servitization

As mentioned hereabove the line between servitized business model and true PSS is so thin that some researchers claim it does not even exist. The ones that say they are different justifies the difference with the fundamental starting point. Example, servitized model would be sell equipment with a lease where customer pays monthly fee or such. Still it is transaction based business and has nothing to do with the operation or performance of the equipment. PSS model for the same equipment would be e.g to sell moved tons or operating hours with full service, customer paying only for the tons or hours or such. In order to make latter successful for both the equipment manufacturer really needs to understand the customer business and have that as a starting point for design. Once a company achieves the position as known PSS producer, they are really strong in competition – probably mostly because everyone knows they must understand the customer business well and that is worth money.

Author is Sales Director at Helmee Imaging

Feel free to contact for further discussions about PSS, Sportsdata business or automated visual inspection of high gloss surfaces. Find my contacts from company page or Linkedin.