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.

Business models and PSS

Business models and PSS

The business model is more than just shortly explaining the earning logic. It is rather the whole business plan, how the value is designed, captured, delivered and communicated. Business model includes the value proposition, market segment, value chain, company position, cost structure, revenue stream and strategy. Business model alone can change the market and be hard to copy – that is a true competitive advantage. Good examples are Amazon and Dell. Amazon did not re-invent the book, nor did they change the end customer user experience, what they did was the process of how the value for the user was built and delivered. This is the same in case of Dell. As the business model change may be disruptive innovation it requires good communication for customers. Customer must feel safe or confident when entering into new model with a supplier. Often this is selling running hours, availability, usage or lifts etc. instead of the machine. Because in industry it is often about the production machines it is often likely that customers would like to have the ownership of their production units. Thus

value communication plays a major role in a winning business model

This yields into the fact that obviously pricing and marketing are strategic functions that are in the center of execution when introducing the new model for markets. From communications and marketing point of view the crucial thing is that now there would be a paradigm change at three sectors simultaneously:

·       Change from technology leadership to leadership of use

·       Change from product marketing to relationship marketing

·       Change from labor driven operation to data driven operation

Disrupting with business model requires deep understanding of own offering, the limitations and possibilities but also very good communication channel for customers. Customers should be well aware of what the company offers. Change and new things are often something to avoid in order to play safe. Thus, your kimono should be wide open for customers to clearly see everything you got. It must be crystal clear what they get if they purchase from you with this new model. This decreases the barrier to enter into new type of business relationship. It is important to gain that trust, because when you sell activities instead of goods, you soon know a lot of your customer basic business as well.

Customers should trust you like they trust into their mother

Thus, take off the kimono and be open in your communication and put a little extra effort into the communications and marketing efforts.

Exceptional business model puts you into spotlight. It is difficult to compare you with anybody – you are different. This might scare some customers away but on the other hand gives you a competitive advantage. Communications and planning is the key. You must make no mistake making sure that every relevant person working for your customers has somehow heard of you and your offering. Internet and all the social media tools gives an excellent platform for the communications. Become a thought leader of your business by publishing in all medias and making some noise. According to resources in hand all data available about the purchasers and decision makers should be used in order to make sure they hear the message. Message is of course the value they will or would gain with your offering. That should be visualized and put into numbers. Show me the money! There must be a clear value proposition which is easy to understand and explains your unique selling proposal.         

Pricing models and PSS

Pricing models and 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 you stop selling investment products with relatively large price tag, there are many changes that should be recognized prior making such a fundamental change. Like pointed out in previous posts, the fundamental starting point in case of true PSS is in customer requirements rather than in some technical product or service. This is true also in terms of business model. Traditional manufacturing companies must re-plan their business model because the value gained by the customer is in the focus point and that should be visible also in the whole chain, including the pricing as well.

Business model alone can be a competitive advantage.

Amazon is a good example of the disruptive business model with great effect into traditional business. They did not change the product (book), nor the actual end result for customer. They changed the process how customers are being served and thus the value chain was replanned.

Figure 1 Change of focus

PSS and value based pricing models

There are researches saying that companies utilizing vale based pricing are capable of gaining even 30% more profit than compared companies utilizing traditional models. This is possible when the price tag is based on customer gained value rather than the cost of some equipment. After customer value is estimated, it is relatively easy to set a price tag. Whenever the value is estimated, it must be communicated to customer. With estimated value and a payback calculation it is a safe move from customer to make the purchase decision. Important is to understand that actually pricing is highly important strategic function. Typically value based pricing is present when instead of investing into production equipment, customer is paying for act, e.g. copies, lifts, sets, running hours, inspections or then availability of the equipment, like hours, monthly fee with SLA or such. However, keep in mind that value based pricing can be utilized also when customer is investing into equipment.

Effects of the value based pricing models

In order to gain good profitable business with value based pricing models and true PSS, one must know and understand the customer business very well. There must be an understanding of the performance level of own products in the operation – how much the equipment must be maintained, how often they are in service and what are the typical defects etc. This is of course available information if the company is mature with established service business. For those and for young companies there are luckily technology enabled possibilities to monitor and gain data to make preventive and predictive maintenance to avoid uncontrolled down time. Also when changing the base of the pricing from investment product to pay per use, common marketing need is created. If I invoice washes instead of a car washing machine, it is my benefit to gain as many washes as possible – happens to be my customer goal as well. There is common marketing need created and also I should learn as much and as deeply the business of or customers as possible. I should change my mindset

from leadership of technology to leadership of use

For my organization this means that more people in various functions in several levels of our organization should be in touch with customer’s daily issues. In practice it means our performance will improve and also our focus in R&D should be driven by real customer needs. PSS and value based pricing often leads into a long term business relationships. They are likely to be more profitable than one offs. That is also logic, when gaining more information from customer operations, the company becomes an expert of precisely that customer business. It is natural for customers to ask help from the ones that they know and they have already made co-operation with. Going into PSS and value based pricing should help in competition, internal expertise and profitability.