Learning from other industries is not easy. Recipes for success are difficult to imitate, especially when it comes to services. However, if you want to offer "integrated services" and thus apply XaaS business models, it is worth taking a look at the software industry.
Software-as-a-Service business models entered the software industry in the 2000s. Cloud computing and the ever-faster internet have allowed companies to sell the use of their software rather than the software itself.
Business models in the software industry
Pay per use in a wide range of variations is usually based on subscription models in which customers commit to using the services for a certain period of time. Models with a minimum contract term of twelve months, basic fees (base fees) and certain usage fees are frequently found. However, variants with a fixed monthly fee per user or minimum purchase quantities (committed usage) are also common. There are virtually no limits to creativity here, as long as customers are prepared to accept them.
If the customer buys a product, the manufacturer naturally also benefits from its frequent use (after all, it is probably the basis for a repeat purchase). However, the manufacturer's influence on this largely ends at the moment the product is delivered. In SaaS models, however, increased usage leads to a win-win situation for both provider and customer. The aim of the provider is therefore to continuously increase customer benefit. This results in important lessons that service managers should also take into account:
From customer service to customer success
Setting up customer success management (CSM) - unlike traditional customer service, which is primarily concerned with solving problems, the aim of customer success is to enable the customer to derive maximum value from the use of the underlying product. Depending on the level of engagement, a distinction is made between high-touch, low-touch and tech-touch.
-> High-Touch means that the customer can expect a lot of personal contact with their CSM. From onboarding onwards, there are regular status meetings, often also quarterly business reviews at a strategic level and regular health checks to see whether the software is actually doing what it is supposed to.
-> Low-Touch says nothing about the quality of customer service, but about the frequency of personal contact between CSM and customer. This is deliberately reduced. After standardized onboarding, there are automated health checks and only one "Annual Business Review".
-> Tech-Touch is the goal of particularly scalable software providers. Personal contact between providers and customers only takes place if there are problems with the software. Webinars, podcasts, instructions integrated into the software and automated recommendations as well as communities replace active services.
Of course, nothing works here without a strong product - if it does not create sufficient customer value and the customer is not in a position to benefit from it themselves, there can be no customer success.
Scalability as a success factor
Scalability is the answer to the question of why there are these three levels of commitment. Analyzing the Four stages of servitizationIf you look at the growth of a company, you realize that all stages are based on the assumption of naturally limited growth (number of units that can be produced, service technician hours, etc. ...). For me, scalability represents a fifth stage of the model. Growth here is (theoretically exclusively) limited by demand (which is not at all unrealistic, especially in the software industry).
Physical products work a little differently, of course. BUT: the boundaries are beginning to blur! The smartphone is just one of many examples of this development. While the technical features of the smartphone no longer change after production, the benefits can constantly increase through new apps, meaning that considerable additional revenue can be generated over the entire life cycle of the device.
Value Based Pricing
Another important element is value-based pricing - unlike what is still common in many industries today (cost-plus pricing or competition-oriented pricing), the software industry tries to base the price point on customer benefit. This often requires learning from the market. Different models and prices are experimented with. Of course, these companies gain detailed insights into how the product is used, as the customer's use of the service is analyzed in detail. This results in many opportunities for further optimization, cross-sell and upsell services, consulting activities and much more.
Cross- and up-sales - In software-based business models, too, butter is often only put on the bread through additional business. Uptime guarantees, additional software features, professional services, reports and much more are particularly popular here too. Here too, services with Marginal costs close to zero.
Performance is king
The monthly recurring revenue (MRR) generated by SaaS business models also leads to ongoing pressure to deliver performance and customer value. The spectre of "churn", i.e. customer loss, is always present when customer expectations cannot be (sufficiently) met and the customer does not wish to continue their subscription or contract. This is why churn prevention is often KPI-based and one of the main tasks of the CSM.
Following the Kano model of customer satisfaction, this leads to a certain "feature inflation", especially in pay-per-use business models - more and more is expected for the same money. The good news is that this perceived churn pressure results in greater innovative strength and the urge to automate.
In summary, it can be said that many of these elements are transferable to the manufacturing industry. The expectations regarding customer service, the pace of innovation and the need to be able to react quickly to customer requests (on scale) naturally pose major challenges.
This is precisely why it is advisable to start in small steps. Ask yourself the question: Do I have something in my portfolio that could be used to experiment with new business models? (For example, software or standardized machines?). Which target group could be open to these offers? Test your ideas (e.g. initial sales documents) with potential customers and learn from their reaction. As you can see from all these questions, X as a service is also a very agile business model in which a trial-and-error approach has proven its worth.
Georg Hofstadler
Georg Hofstadler is Director Client Service Excellence at Smarter Ecommerce GmbH. In previous years, he worked as a product and lean manager in the industrial after-sales service environment. Today, he is intensively involved with XaaS business models, experimental innovation based on services and the scalability of services.
