From the smallest corner shop to the largest conglomerate, everyone is vying for recurring business in a bid to gain more predictable revenue streams and create a more valuable supplier-customer relationship.
This new subscription-based model benefits suppliers by providing an opportunity to interact repeatedly with customers; get feedback from them and use the intelligence gained to cross-sell and up-sell new services. In short, the business model is changing from a product-based sale to a relationship-based service engagement.
Many retailers are trying to keep in touch with their customers post sale, but have only blunt tools at their disposal to do so. Take the example of the warranty card that comes with most electrical goods. This is an attempt by the retailer or product manufacturer to change the sale from a one-off product-based transaction to a service-based relationship with long-term potential.
With the warranty approach, if the product is faulty and the provider needs to recall it, they know who to contact. Alternatively, if they are launching a new product version, they instantly have a list of people to which they can market that solution, while upselling other services along the way. The problem of course is that most warranty cards go in the bottom drawer never to see the light of day again.
New model emerges
The logical extension of the warranty service model is “goods-as-a-service”, where rather than buying physical goods outright the customer is provided with the goods as part of a service agreement that runs over an extended period.
Initially, goods-as-a-service is being mainly applied to low-ticket regular-use consumables such as razor blades, nappies, medication, vitamins and certain foods. Traditionally, these products are repeat purchases for the consumer and offer repeat business to the retailer.
Moving to a goods-as-a-service approach brings benefits to both parties. The customer gets a regular supply whenever needed and getting access to this is quicker, easier and more convenient. The retailer can sign the customer up to a long-term service agreement and can therefore effectively guarantee that the customer buys from them rather than a competitor, with the added benefit that the retailer gains access to a predictable revenue stream.
However, we are now seeing the focus of goods-as-a-service progress to bigger ticket items like TVs, or white goods such as fridges, freezers, dishwashers and washing machines.
In some ways, it is a throwback to the old rental model for electrical goods which held sway back in the 1960s and 1970s. At that time, televisions were widely considered a luxury and too expensive to buy outright. A Sony 19 inch set cost approximately £172 in 1970, roughly 9.5% of the average annual wage at the time of £1,801. Therefore, many people took the more affordable option of renting their sets from companies such as Radio Rentals or Rumbelows in exchange for a monthly rental fee.
With service engineers often a key element of the deal, the relationship between business and customer was close. And for customers the other great benefit of the model was that whenever technology took an innovative leap forward, the advent of stereo TVs and the emergence of VCRs, for example, they could upgrade to take advantage.
Today, the headline ticket price for the latest HD LED TVs is around £2,500, approximately 10% of today’s annual average UK earnings, almost exactly the same proportion of average salary as the equivalent was 44 years ago. So, it is perhaps not surprising that we are seeing the rental model re-emerging in the form of goods-as-a-service.
Freeing up the market with cloud billing
Goods-as-a-service remains an embryonic market at the moment but such are the benefits to retailers and customers that we do expect it to grow quickly over time. In doing so, however, there will inevitably be challenges to overcome. Retailers used to dealing with individual point-of-sale transactions will have to transition to a recurring billing relationship.
Many retailers with stock and inventory systems and financial systems set up for one-off payments don’t have the infrastructure they need to sell a repeat service and administer that smoothly and efficiently. In the past, they might have had to meet this need through deploying an expensive and complex on-premise billing system.
Now, the advent of cloud billing, or ‘billing-as-a-service’, is making the flexible business model that retailers need to make a success of goods-as-a-service much more accessible. Cloud billing applications are hosted securely in the public cloud, and implementation is typically a matter of days rather than weeks or months. Goods-as-a-service is a market with great potential that is poised for rapid growth. In capitalising on this potential, cloud billing may provide just the kick-start that this fast emerging new business model needs.