Traditionally the divide between product and service has been very clear. Companies have typically specialised in selling one or the other. But this divide is now starting to blur. The once sharp distinction is becoming increasingly unclear.
Why is this the case? Smartness and connectivity open up a whole new world of possibilities for companies in the way they market and sell their products and services. Instead of fitting into one of two categories (a product company or a service company), companies now have a new question to answer: should we deliver the value of our things as a product that we sell? Or should we bundle that product and some services that go with it together, so that we have an initial transaction and then a follow on relationship? Or should we forget about selling the product entirely and instead use the product as a means to a service. Then it’ll be the service that we sell – perhaps on a subscription basis.
How does this work in practice?
Here’s an example from Philips Lighting. Recently, they entered into a contract to provide lighting as a service for car parks in Washington D.C. As part of this work, Philips is going to be using LED lighting (which can be quite expensive to purchase upfront – especially when compared to traditional fluorescent or incandescent bulbs). However, it consumes a fraction of the electricity, meaning the benefit of using LEDs will come over time.
So, what Philips did was enter into a contract to provide a lighting service for 10 years, where they provide the light bulbs (the expensive upfront cost) and the end customer is subscribing to service of getting well-lit car parks. It’s also Philips responsibility to maintain the service for the duration of the contract. But Philips will get the benefits of the electricity savings over the length of the contract. All this is made possible by having a new approach to product delivery and the smart technology to enable effective maintenance of the product while it is in service.
This is just one example of what is a growing trend in the marketplace. The transition from transaction based sales to bundles of products and services. This includes spare parts, extended warranties, performance based contracts all the way through to complete product as a service.
But, actually, this change in the relationship between product and service is part of a wide evolution in manufacturing. To find out more, download our eBook on the new industrial revolution: