Published December 12, 2020 Servitization model: How successful businesses do it

Servitization model: How successful businesses do it

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As manufacturers face increasing pressure from the servitization model, they need to come up with new sources of revenue. There are a number of service offerings that some may have never even heard of.

But for companies that want to servitize their business, it’s important to invest wisely so they don’t fall victim to the “service paradox.” That’s when companies invest heavily to increase their service portfolio, only to achieve higher costs with no return on their investment.

Servitization means that companies shift their focus from only making, selling and installing equipment to making money servicing them. This poses a challenge for manufacturers because their products are often so good in quality that a customer won’t come back for 30 years to buy a new one.

So what’s a successful approach to the servitization model? There are three classification servitization models, originally mentioned in a report by Cambridge Service Alliance, that businesses can offer their customers: product-oriented, use-oriented, and results-oriented.

To these servitization models, I would argue for a shift towards a new one: customer-oriented.

However, let’s start by looking at existing and successful methods of servitization.

Servitization model: Product-oriented services

When integrating servitization into your business model, offering product-oriented services gives you the most options. Many businesses choose to go the route of offering advice, training, consulting, or help-desk services for product use. This helps their customers efficiently use the product they’ve purchased. Still, there are so many other options.

In the medical industry, GE’s healthcare division offers installation of their large medical devices throughout the entire hospital as well as post-installation performance maintenance and monitoring.

Once you’ve sold a product to a customer, you may be able to offer these additional services:

1.Delivery
2. Product installation
3. Spare parts
4. Updates and upgrades
5. Refurbishing, cleaning
6. Recycling
7. Inspection and diagnosis
8. Extended warranty
9. Maintenance contracts

Use-oriented services: Taking a cue from Netflix

This servitization model most resembles subscription services such as Netflix. With use-oriented services, companies can offer product leasing, sharing, renting, and pooling with short-term or long-term contracts. Leasing a product means you pay a set fee to be the sole user of a product. If you offer a product renting service, it means the customer renting it can use the product exclusively for a limited amount of time.

With a sharing service, exclusive rights are waived, and the products can be used by a customer for a set amount of time before the product must be passed on to the next customer. Pooling service means a number of customers can use the product at the same time. For the eco-minded, both sharing and pooling products are better for the environment.

Rolls-Royce created the TotalCare package, which lets the company rent airplane engines to customers who then pay only for the hours the airplane is in flight. Simultaneously, Rolls-Royce collects data on their engines that predicts failures and allows the company to create better maintenance schedules.

Results-oriented services: Pay only for what you use

For businesses that want to look outside of product or use-oriented services, this servitization model focuses more on results. With results-oriented services, businesses pay-per-use for services instead of paying for the whole product. For example, a field service management software product could require customers to pay only for the amount of storage space they actually use.

In this model, how much or how little a product is used is left up to the customer, not the service provider. Xerox also provides a pay-per-use model to its Managed Print Services customers that allows them to have two-year or longer contracts for document solutions.

Making the leap to customer-oriented services

As mentioned, customer-oriented services are an attempt by companies to distinguish themselves in a market saturated with similar products and savvy consumers.

It’s no longer enough to offer the best product on the market. Consumers are looking for more: real-time responses, effective self-service options, predictive maintenance, and more. They want solutions that cater to their digital products, busy schedules, and global locations.

Manufacturers have to expand their goals beyond production and sales to include lifelong service support. Consumers want to know that technical support is available for the lifespan of their machines and devices. Successful manufacturers will be the ones who integrate digital solutions into their business plans. This can range from AI-powered self-service tools to augmented reality assisted field service technicians to digital twins that provide virtual imagery for the operating life of industrial machinery.

Whatever the service solution, this model enables a business to convey a clear message to its customers: We’re here for you and your devices beyond the purchase date. An approach like this will win customers for life.

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Anna Irniger

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