March 2, 2020

Product-as-a-Service: one step towards circularity in e-commerce

Product-as-a-Service models are booming. Not only because they have many economic benefits like customer retention, cross- and upsell potential but also because they offer a way for companies to distribute products in a sustainable way. Find out why this is also interesting for your company.

Sustainability is becoming an indicator of quality 

Customers want to buy sustainable products. According to Harvard Business Review, in 2018 $144bn were spent on sustainable products. Sustainability is becoming a new indicator of quality. But for many companies becoming sustainable poses economical, financial, and social barriers. 

Here is the good news: sustainability can be easy! Imagine if we didn't own products and throw them away when we don’t need them anymore, but if we rented and returned the products, giving them a second, third or fourth life! One aspect of the circular economy is in fact keeping products in use instead of disposing of them. A framework that allows exactly that is the Product-as-a-Service model. 

According to a Frost & Sullivan study, 70% of all Fortune 500 companies will develop a business model based on Product-as-a-Service principles. This can be applied to digital as well as physical goods - in the B2C and the B2B world. 

But what is a Product-as-a-Service? 

Keeping it short and simple: the customer purchases the desired result instead of the equipment or product itself. This is often offered as a bundle including service at a monthly or annual fee. 

Products-as-a-Service are booming! 

In almost every branch Products-as-a-Service are emerging - sometimes even disrupting a whole industry like Uber did offering Transportation-as-a-Service. Amsterdam based Startup Swapfiets offers Bikes-as-a-service, Zahnarzt Helden offers Dental Equipment-as-a service, Brandschutz Zentrale offers Fire Extinguisher-as-a-Service (... and the list goes on and on…). But PaaS models are not only for startups. Especially for established players like Philips, who offers Light-as-a-Service at Amsterdam Schiphol Airport, the Product-as-a-Service offers the opportunity to redefine industry standards.

Now you are thinking: “That is interesting for us, too!”

Great idea! But before creating a Product-as-a Service, you need to set goals, analyze customer needs and ascertain what additional features they would be willing to pay. Here are five questions you should answer before offering a Product-as-a-Service: 

#1 What are your goals when setting up a Product-as-a-Service?

Do you want to increase your revenue, extend your customer base or increase customer lifetime by binding them to your brand or products? Do you want to access a new customer target group? Or do you want to differentiate from your competitors? Be clear in your goals and measure them against the PaaS model. 

#2 What is the job your product is fulfilling?

If you have never heard about Clayton Christensen and “jobs to be done” - this is the essence:

“What causes us to buy products and services is the stuff that happens to us all day, every day. We all have jobs we need to do that arise in our day-to-day lives, and when we do, we hire products or services to get these jobs done.”

Christensen uses the example of a milkshake. At first, the job of a milkshake seems obvious: customers want food. Christensen found that actually people are hiring the milkshake to kill the boredom on their daily commute to work! So - think about it - for what job do your customers hire your products? Understanding this is pretty much the secret formula to 100% customer satisfaction with a Product-as-a-Service. You have to ask yourself the question: Can we create more services around our product that get the job done for our customers? 

#3 What's your market position?

Is your company market leader or always chasing the number one? Offering a Product-as-a-Service is a good way to distinguish yourself from competitors with a new business model for more customer-centricity and satisfaction. A second business model can be easily set up with the help of the right software. But be aware: PaaS offerings can also disrupt a whole market (like Uber did with the transportation market) - so better be the leading force in the disruption and guide the way for your competitors. 

#4 What is the ecological impact your company wants to achieve with a PaaS model?

Customers want to buy sustainable products. The only question is - can you offer them your products in a sustainable way? With a Product-as-a-Service model you take on responsibility for your products as the ownership of the product remains with you. Ultimately you contribute to the reduction of waste when your products are being returned instead of disposed and used over and over again. 

 

So, what are you waiting for? Gather some clever minds in your company and think about your possible future business model for Products-as-a-Service!

Also, check out circuly.io and find out how we are empowering companies to take the step towards sustainable e-commerce with a Product-as-a-Service.