4 approaches to increase connectivity in the field and collect necessary data

For the development of new, innovative services, it is usually essential to have access to data from the field. Unfortunately, the installed base is not always as digitally informative as we would like in service.

Data-driven services such as predictive maintenance, performance monitoring and remote diagnostics, but also new business models from the XaaS environment, which are billed on a usage basis, require products to be connected to the Internet in the field. Unfortunately, this so-called connectivity rate is not as pronounced in many companies and markets as scaling these new services would require.

As a result, many business cases have a hard time becoming profitable in this environment. This is because they can never address the entire installed base, but in some cases only a very small fraction of it. In this respect, a high connectivity rate is a basic prerequisite for the profitable deployment of future-oriented services. In the following, we show you four ways to address the issue - and which one is most promising!

The classic approach very often does not lead to success

The transactional strategy is the classic approach taken by most vendors at the outset. The connectivity solution is treated the same as any other product. It has development, manufacturing and distribution costs, and on this basis a price is formed that meets the typical margin requirements of the company.

Unfortunately, this approach often leads to the problem that sales fall well short of expectations. There are a number of reasons for this. The sales apparatus is not used to selling digital topics or digital "enablers" and therefore does not approach the topic proactively. Incentivization for sales is based on the classic sales model and is primarily linked to a commission based on the revenue generated by a product.

Since these solutions are usually much cheaper in comparison than other options, products and accessories, little incentive is created here for sales. Or the benefit cannot be conclusively presented by the responsible sales teams at all, because it is new, digital, and unfamiliar, and there is no high affinity with the offering.

The reasons can be manifold, but they usually lead to the sales targets being missed by a wide margin, which in turn massively weakens the basis for the business cases of the data-driven services. But there are other ways to deal with the issue. We will go through these with examples from the Mercedes Group (status 2021).

Integration ex works with activation option offers alternative approach

Mercedes-Benz Group AG has chosen a different approach for its Smart brand vehicles. They already install the connectivity solution at the factory, but do not automatically activate it. For this, the customer must purchase an additional option. This can also be done after purchase and no technical retrofitting is required to unlock the feature for a fee.

The sales hurdle has thus been lowered, as the hardware has already been installed and no complete retrofit has to be purchased. This offers an alternative to transactional sales with a lower barrier to entry. However, Smart's figures show that this approach has achieved only moderate success. By the end of 2021, only 1% of the fleet is estimated to have purchased the connectivity solution (source: ratio of app downloads based on App Annie with correction factor / vehicles sold based on IHS Markit).

Free retrofit further lowers barriers to entry

The main brand Mercedes pursues two other strategies. For older vehicles, there is the Mercedes me retrofit. As the name suggests, this is not installed ex works, but is offered free of charge to all compatible vehicles. Vehicle owners can have the option retrofitted free of charge at all authorized repair shops. This strategy to increase the connectivity rate in the field lowers the barrier to entry even further.

No costs are incurred for the hardware. Nevertheless, the customer must actively seek retrofitting and the topic is not a foregone conclusion even in this environment. At the end of 2021, around 5% of vehicle owners with a compatible vehicle will have opted for retrofitting (source: ratio of sold units of adapters / sold compatible vehicles based on IHS Markit).

Ex-factory connectivity with holistic benefit assessment from an overall company perspective as the most promising approach

For new vehicles, Mercedes is going one step further and installing the connectivity solution that underpins Mercedes me as standard. Customers can use Mercedes me free of charge for the first few years, and the calculation is that most customers will have embedded themselves so deeply in the Mercedes me ecosystem at the end of the trial that they will stick with it thereafter, even if some of the services have to be paid for from this period onward.

By the end of 2021, this strategy has resulted in around 15% of new car buyers actively using Mercedes me (source: ratio of app downloads based on App Annie with correction factor / vehicles sold based on IHS Markit). The trend is even upward. Active efforts are being made here to keep the barriers to entry into the digital ecosystem as low as possible and to initially bind customers to the ecosystem as part of a trial lasting several years.

The monetization of the business model does not start until after that, but it still lays the foundation for there to be a broad addressable base for the digital services. Mercedes subsidizes standard factory shoring up to this point through the benefits that the operational data generates in other business functions around development, market research, product management, production, and sales, as these can achieve significant savings through the active use of the data.

Again, the service business case does not have to be self-sustaining, at least initially. The view of connectivity and the associated access to the fleet's operational data is viewed holistically from an overall company perspective.

The concept can be transferred in a similar way to other industries such as mechanical engineering and, in our view, is the key to success in increasing the connectivity rate across the board. If you can first use remote service and operating data for a large proportion of your machines, services such as priedictive maintenance or remote service, the business case for your company will also look much better as a result. Your customers benefit from outstanding services, your colleagues in other departments from the operational data, and you from a positive business case. A classic win-win-win scenario based on the holistic benefit assessment of the connectivity rate from an overall company perspective.