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Perspectives

The Strategic Imperative of Building a Product-Service Continuum (Part 1)

2016-08-24


Market-leading companies are actively shifting from making ‘one-time-sale’ products to fostering product-service relationships that deepen customer ties and generate recurring revenues.

The past 10 years have ushered in seismic change for the manufacturing sector, including supply chain globalization and an unnerving rate of technology obsolescence. But perhaps the most significant change has been the embedding and networking of intelligence in and around the product. 

Today’s market-leading companies are navigating from developing and marketing products, to fostering relationships with customers based on innovation and variegated feature sets. Their brands depend not only on product quality but also on an integrated product-based ecosystem, incorporating customer feedback into product development and honing their range of services. 

In response, all manufacturers must continuously assess their business models to determine where and how to establish a product-service continuum, which involves the customer-centric transformation of a business or product line.

Product-Service Continuum: The New Imperative

Manufacturers currently compete in a service economy, which requires a new approach to winning in the market. It is increasingly difficult to differentiate the brand based on features, and competing on price often drives value out of the customer relationship. The true differentiator becomes better customer experiences or shared customer outcomes. 

Traditionally, if a company wanted to understand how customers used its products, the only option was to conduct surveys, which are expensive and time-consuming. Today, however, manufacturers routinely embed logic and sensors into their products to capture data on real-time product use.

The result: data-driven insights into how products perform, what features could be enhanced, even when machines might need service or an upgrade, all of which can help manufacturers build increased value into customer relationships. 

Figure 1

Evolving the Business Model

Initial forays into building a product-service continuum often amount to a patchwork of isolated initiatives. Too often, these projects are more focused on using new technologies and tools and less on solving a business problem. However, a few companies have built spectacular product-service continuums:

  • Apple’s product-service ecosystem comprises not only its Macintosh computers, iPhones and iPads but also an operating software platform that supports a range of revenue-generating entertainment, communications and productivity services. Within the Apple ecosystem, consumers are famously loyal – and increasingly valuable to the company.

  • Über’s peer-based ride-hailing service remains a revolutionary improvement in a sector that’s been highly resistant to change: taxi services. Über’s roots as a peer-to-peer network of drivers has evolved into a simple-to-use, technology-enabled convenience. Ride seekers no longer need to play the lottery to attract a taxi, and they can immediately review and rate the experience – building a virtuous cycle of referrals for other customers while maintaining profitability.

  • Tesla’s product-services continuum was designed into its vehicles from their inception. Customers begin their relationship with Tesla with a favorable impression of the brand, largely driven by savvy public relations. This introduction is followed with a break-through experience of driving (and parking) a vehicle. Tesla further deepens the relationship with buyers based on the vehicle’s embedded technology – a built-in brain that enables the company to progressively improve vehicle operations over time with automatic updates. With drivers’ implicit consent, Tesla captures valuable telematics information, including vehicle location, usage patterns, driving behavior and preferences. 

The Challenge Ahead

Product manufacturers across industries are looking to such examples as they seek to expand their own product portfolios. This is the promise of a product-service continuum: products with a brain and connections with a purpose that closely tie the customer to the business and the brand. Part 2 of this series lays out how to make this actionable.

A logical services model not only enhances product performance but also supports a deep and mutually beneficial customer experience. At every touchpoint, manufacturers transform their customers’ relationship with their products — creating a valuable, differentiating experience for the owner and empowering owners to decide which services they want and how they’re delivered. 

Digital is remaking manufacturing. It offers an ongoing relationship based on services and trust, as well as an improved revenue model and a path to the possible future. That’s the promise of the product-service continuum. 

For more insights, please read Transcending the Hype: A Transformative IoT Emerges and From Strategy to Action: Driving IoT to Scale or visit the IoT section of our website. 

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The Strategic Imperative of Building a Product-Service Continuum (Part 1 of 2)