Consumer goods – disrupting the model with pay per use and XaaS

consumer-XaaS-coffee-machine

‘Who actually buys a mobile phone outright these days?’ was the question I asked the sales assistant this weekend while I was looking to upgrade. ‘Some people do,’ said the sales assistant, ‘…. but not many.’

The fact is that I don’t actually need a new mobile phone – my current 2-year-old model does everything I need – so why am I so tempted to upgrade? The mobile phone business model is certainly a compelling one, and I am always surprised that it is not duplicated more within the consumer devices space.

Pay-per-use for machines and equipment is already in action across various industries – office equipment, medical equipment and jet engines are all currently available on a non-outright-purchase basis. This offers the benefits of lower whole-life equipment cost, reduced upfront capital investment, and a more transparent pricing structure for customers. For machine and equipment manufacturers, this pricing model can create longer-term sustainable revenue streams. Switching from CAPEX to OPEX enables manufacturers to access improved service provision from their suppliers, which in turn leads to increased equipment uptime on the factory floor, and more streamlined supply chains.

Typically, pay-per-use equipment is IoT enabled, offering additional value and capabilities such as predictive maintenance and service through leveraging technologies such as predictive analytics and machine learning. Predictive maintenance powered by IoT technologies is a key driver for optimising machine operating costs. Devices like this robotic paint atomizer allow for real-time smart diagnostics and precision quality bringing a new level of digitalisation to support robot users’ transition towards the factories of the future.

But could such an approach be successful for consumer devices? Could manufacturers and service providers adopt this kind of model in such a price-sensitive area? What would tempt the consumer away from making a CAPEX purchase and steer them towards an OPEX investment, or a mixture of both? Deciding factors include the cost of device, length of service, and shortening product lifecycles driven by the development of desirable new features, such as reduction in energy consumption.

A further added-value opportunity for manufacturers, retailers and consumers is the development of additional services and complementary products such as the automated replenishment of consumable products like washing powder, shampoo or coffee. Retailers are in a better position to benefit from this trend as they have more direct relationships with consumers than manufacturers. Retailers also have the motivation to gain insight from the consumer, resulting in more potential purchases. But do retailers have influence on product roadmaps?

Currently, consumers have access to smart subscription packages for consumables such as coffee and printer ink – with connected printers that monitor usage. The convenience of never running out of these ‘life essentials’ is not to be underestimated as a benefit to consumers.

Applying this model to consumer goods where data is of high value to manufacturers and retailers can optimise lifetime utilisation profit, enable upselling of consumables to accompany the product, and offer visibility of utilisation to inform tailored service plans. Incorporating connected technologies into products can enhance customer experience, improve service levels, and provide greater potential for profit throughout the supply chain.

By Paul Evans

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