Subscription Services in a B2B Environment: New Models of Thinking
This is the fifth in a series of blog articles to answer your questions about what digital transformation means for your business and how to get started. In the first article we explored how to weave digital technology into the core of your organization. The second article in the series provides ideas for how to begin. The third article discusses the concept of having a single view of the customer and how to make it happen. The fourth article discusses how important integrations are to a successful strategy, and this article explores the impact of the B2C subscription services model on the B2B environment.
Subscription services are another example of where the B2C world is having a direct impact on the B2B world. The concept of providing a good or service over time is nothing new, but B2B companies need to rethink what exactly they are providing to their customers. In order to get a foundation of what I mean, let us explore some B2C subscription ideas.
The first — and probably one of the more recognizable — is Dollar Shave Club. Dollar Shave Club offered an easier and less expensive way to provide razors and their related products. You shouldn’t just look at them as providing razors, but rather focus on the outcome: convenient and cost-effective personal grooming. They removed friction from the buyer’s journey — now I don’t have to remember to buy razors. At the same time, Dollar Shave Club reduced their cost to serve by eliminating retail packaging and distribution, increasing their margins. They beat the likes of Gillette at their own game; so much so that Unilever purchased Dollar Shave Club for $1 billion.
Even a company such as General Motors is rethinking how to provide transportation. Notice I did not say sell cars to the consumer. Cadillac has introduced a subscription service called BOOK in select markets to provide a transportation service. For a monthly fee, users subscribe to a “curated” fleet of automobiles to use whenever needed. The fee includes use of the car for a number of miles, insurance and maintenance.
What’s my point? GM is looking at new ways to get their core product, as well as additional products, to the end user.
How does the subscription services model apply to B2B?
Well, I would encourage business leaders to take some time and really think about what they are providing to the customer. Is it really your product, or what your product does? I can’t recall where I’ve heard this, but an analogy is a hammer manufacturer. They don’t sell tools — they sell the ability to hang a picture, build a wall or even knock something down.
Let’s think about a machine tool manufacturer. Are they selling machine tools? Yes. Is that what their customer is buying? No. Their customer is buying the ability to make certain parts.
Thinking about the machine tool manufacturer model, they could lease the equipment for a monthly fee, but that’s just breaking down the upfront cost. A subscription service model could be based on parts products and include replacement parts and periodic maintenance. The customer is still getting what they want — parts produced — and the machine tool manufacturer has now opened up additional consistent revenue streams for parts as well as service.
This is becoming an easier possibility with adoption of Internet of Things (IoT). Combining the ability to measure (sensors) with a consumption pricing model now makes success possible. In a recent Q&A session with Bill McDermott, CEO of SAP, Bill explains how all of this innovation is possible. Many of the ideas have been around for quite some time, but technology has become more cost effective to make IoT and digital transformation possible (see image below).
So as a business leader what are you supposed to do?
My advice would be to take some time (you and your key staff) and think about what it is your customers are trying to do. What are the related products or services you can provide? Don’t forget to consider things you don’t do today — you may not want to provide them, but thinking about it may give you insight into who might disrupt your business in the future. Next, look at the barriers in process or technology within your organization and figure out how to break them down.
Want to learn more?
Download the NTT DATA Business Solutions expert brief, Getting Started with Digitization: How to Find the Right Strategy for Your Enterprise, for insights about what digitization means for your business and how to get started on the road to digital transformation.
NTT DATA Business Solutions Can Help
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Stay tuned for my next blog post, which will take a look back at 2017 and give some thoughts on 2018 and beyond.