Asset finance and equipment leasing companies are undergoing transformative changes in how they offer and deliver their products and services. The driving force behind these changes is the evolving expectations of customers who seek flexibility, scalability, and security in their consumption choices. Customers now want the freedom to decide where, how, and how much they consume, as well as how they pay for these services. To meet these demands, companies are required to adopt entirely new business models that challenge the traditional ways of selling products and services.
Transitioning to a pay-per-use business model, often referred to as “XaaS” or “Everything-as-a-Service,” entails not only shifts in pricing strategies but also changes in business capabilities, operating models, and technology platforms. Executives leading these companies must embark on a journey to define what this new business model should look like. This process starts with a clear understanding of the current state and an analysis of where the organization needs to be to meet customer demands and respond to market shifts effectively.
However, achieving such clarity goes beyond merely deciding to shift to a XaaS model or unbundle existing offerings. It requires a deep understanding of the industry’s evolution, potential competition, and potential disruptive forces. To succeed in this transition, businesses need to scrutinize every aspect of their future business model to ensure it aligns with their long-term goals and customer needs.
Shifting to XaaS-Based Pricing
Transitioning to a full-fledged “subscription company” represents a fundamental transformation of the entire business model. To navigate this journey successfully, a gradual approach is recommended. Begin by selecting a limited number of products or services as “test cases.” Once the value of this new approach is proven, a more comprehensive rollout can be considered.
Selecting the Right Products and Services: Start by evaluating your current portfolio of products and services. To ensure the success of an everything-as-a-service model, it’s essential to continuously demonstrate value. Therefore, choose products or services with a proven track record, a history of delivering excellent outcomes, and for which you possess sufficient customer insights. Also, consider the operational implications to ensure that customer service remains consistent with the shift to a subscription-based pricing model.
Segmenting Your Customers: Instead of implementing a XaaS-based pricing model across your entire customer base, target those customers who stand to benefit the most from this approach. For example, consider making expensive equipment in industries like healthcare and manufacturing accessible to smaller, budget-conscious customers by offering it as a service.
Articulating a Clear Value Proposition: Communicate the benefits of your subscription-based offering clearly to your customers. A solid understanding of these benefits will guide the development of the right pricing model and help educate customers about the new way of doing business.
Determining Price Metrics: Various metrics, such as charge per kilogram, per kilometer, per usage, per year, per visit, or per outcome, can be used to calculate pricing. However, it’s crucial to select a metric that aligns with the value experienced by your customers, making your model more appealing. This approach also allows you to charge higher prices when delivering more value, as exemplified by Netflix’s shift from daily charges to a more attractive monthly membership fee.
Defining Price Levels: Recognize that the solutions you offer to your customers are typically more valuable than selling standalone products. Therefore, you can often justify higher prices. Consider past product prices and your understanding of the value you provide to determine appropriate price levels.
Invoice Frequency and Timing: Decide how frequently and when you will invoice customers—whether it’s one-time, recurring, usage-based, or a mix of these options. Ensure that customers understand why they are invoiced at specific intervals, especially when offering personalized and bundled subscription products. Implement the necessary technology to automate this process effectively.
Technology: Technology plays a pivotal role in enabling the successful transition to subscription-based pricing models, especially in the context of the evolving “as-a-service” landscape. It is essential to have the right technological infrastructure in place to support these innovative business models. Here, we delve deeper into the importance of technology and its role in addressing the limitations of legacy systems.
In today’s dynamic business environment, legacy technology systems often struggle to keep pace with the demands of subscription-based pricing models. These traditional systems were designed with a different era in mind, where one-time product sales dominated the landscape. Consequently, they often lack the flexibility, scalability, and agility required to support the dynamic nature of modern as-a-service offerings.
One of the primary limitations of legacy technology is its inability to adapt to various pricing models. Subscription-based billing encompasses a wide range of models, from flat-rate monthly subscriptions to usage-based billing and outcome-based pricing. Legacy systems may struggle to accommodate these diverse pricing structures, making it challenging to meet customer preferences and needs effectively.
Moreover, legacy systems often lack the capability for seamless subscription bundling. Modern customers often expect tailored bundles of services that cater to their specific requirements. Legacy systems may struggle to create and manage these customized bundles efficiently, limiting the organization’s ability to offer personalized solutions.
Real-time billing calculations are another critical aspect of subscription-based pricing. Customers expect accuracy and transparency in their billing, and delays or errors can lead to dissatisfaction. Legacy systems might not possess the real-time processing capabilities required for these complex calculations, potentially leading to billing inaccuracies and customer frustration.
Furthermore, as subscription-based models often rely on data-driven insights and measurements, integration with the Internet of Things (IoT) becomes vital. IoT provides real-time data that is instrumental in monitoring usage and delivering a value-based pricing model. However, legacy technology may not seamlessly integrate with IoT devices and platforms, hindering an organization’s ability to gather the necessary data for informed decision-making.
Educating Your Customers: As you shift to a subscription-based model, your customers will need education about how products and services are now delivered, priced, and billed. Continuous reminders of the value provided will become increasingly important. To achieve this, train your commercial teams to communicate the right value messages. In the initial stages, maintain close contact with your customers through increased visits, clear communication, targeted promotions, and regular follow-ups.
Refining Processes: While implementing this new model for a subset of products or services, assess the impact on your operating model and make necessary adjustments. Ensure that changes align with your long-term objectives and enhance customer experiences.
In conclusion, the shift to subscription-based pricing represents a significant transformation that requires careful planning, adaptability, and a customer-centric approach. Starting with a gradual implementation, choosing the right products and services, and investing in technology, education, and communication will help asset finance solution and equipment leasing companies navigate this evolving business landscape successfully. By adopting a customer-focused approach, companies can meet changing expectations and position themselves for long-term success in the XaaS era.