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Servitization and Pay-Per-Use for manufacturers Servitization and Pay-Per-Use as Revenue Models for Manufacturers

Some products in manufacturing are no longer purchased, but rented, leased or shared. This enables manufacturers to also sell services in the future. Portfolios that bundle product use with maintenance and service are a viable option here.

In the past, not even very long ago, the status quo of almost all industries was a RTF (run-to-fail) maintenance: A manufacturer sold an efficient and ideally matching installation to its customer. If anything ever went wrong with that machine, the manufacturer could supply and install some replacement parts, but that was about it.

Not only didn’t the vendor customize the machine to new needs, nor did the customer let the manufacturer in on future ideas to grow. Nowadays, there is a noticeable shift towards servitization. Manufacturers recognize that their product, their machine, is a platform to deliver a service.

 

What is servitization?

In a servitization business model, not only machines and spare parts are delivered to the customer, but also a dedicated lifetime maintenance service, which guarantees an always running machine.

 

What is pay-per-use?

With a 'pay-per-use' model, customers only pay for the use and maintenance of the machine, with a price for each machine operation to be carried out.

 

What are the benefits of servitization and pay-per-use?

Servitization and pay-per-use have the great advantage that the users of machines no longer have to carry out the complex maintenance operations themselves. More so, this model guarantees that production will never stop unexpectedly – or at least the financial risk of a broken machine lies no longer at the client’s side.

For the supplier of machines and spare parts, the 'pay-per-use' model offers long-term customer loyalty due to a close collaboration between manufacturer and customer. Is the machine in question still fulfilling the customer’s needs? Is there any chance to optimize the processes around the actual use of the machine? What does the customer need in 3 years? An enormous strive for innovation and customer-centric optimization emerges from running such a new form of business (besides the obvious constant flow of revenue).

 

Servitization leads to predictive maintenance

A servitization business obviously calls for the use of all kinds of new, intelligent solutions. Keeping in mind that an average IoT sensor nowadays costs about 35 cents, IoT-connected machines or predictive maintenance come into play. Whereas until recently the after-sales business was still known as reactive and not very receptive to new developments, significant steps are now being taken in the collection of data or the design of processes that enable fast and proactive action. Machines will soon send a notification when, for example, its transmission begins to deteriorate, so that parts can be replaced even before the machine breaks down.

Whatever the path taken, one thing is certain: in the spare parts business, the 'run-to-failure maintenance' model has become an outdated one. It is the 'manufacturing-as-a-service’ or servitization model that will now play the complex but very promising leading role. 

And where to host such a new business model? We say: in a digital customer portal.

 

Pay-Per-Use example with cryptocurrency

Intershop has created a show case for pay-per-use: A drill, that is not sold, but billed according to the pay-per-use method. In this case, billing takes place promptly, using a cryptocurrency and up-front payments. In order to start the machine, the user pays an amount into their account.  The drill can be adjusted to three different capacity levels. It reports utilization and speed in real time to the e-commerce platform, which in turn translates these figures into the intensity of use and debits them to the crypto account - all this in real time. Take a look:

SmartDrill

The advantages are obvious: no investment is required on the customer side. The customer has no capital commitment, he or she can scale freely up and down. The supplier in turn has fast access to the market. He does not have to argue the ROI for higher investment sums. Suppliers and demand come together faster because there is no investment risk for the customer. The cash flow is guaranteed.


How can the aftermarket be digitalized?

When purchasing a spare part for service or repair, customers need to be provided with accurate aftermarket information. This whitepaper discusses the importance of a tight integration of an aftermarket PIM and a digital customer portal with personalization strategies:

Free Whitepaper: Challenges and Potential of Aftermarket E-Commerce