Can you let users rent light bulbs? - The "subscription economy" in manufacturing

Who can hate LED products more than the LED industry?

Due to continuous breakthroughs in technology, manufacturers continue to introduce LED light bulbs that are more energy efficient and last longer. Back in 2015, LED bulbs had a lifespan of 27 years. This means that unless users want to change their needs, you will have a hard time trying to get users to pay for your product for the next 20+ years.

This is definitely not the most advantageous business model for the lighting industry. So Philips used its brains and came up with a leasing model called "pay-per-lux". In this model, Philips allows users in commercial buildings to subscribe to lighting services on a regular basis. Users do not need to buy bulbs, but pay according to the amount of lighting used, which can save a lot of purchase costs, and the hassle of recycling old equipment and replacing new equipment can also be dumped on the provider. Philips can also use sensors to collect data, and according to changes in natural light, design lighting solutions that not only meet the needs of users, but also minimize energy consumption, maximizing customer stickiness.

High-end gear too expensive? "Rent instead of buy" is good

Transforming a manufacturer's product supply from a one-time purchase to a long-term lease is nothing new. The high-end equipment manufacturing industry has been using this model for a long time. For example, Rolls-Royce, the world's largest aero engine manufacturer, does not directly sell engines to customers, but provides them in the form of "rented service time", and promises to undertake all maintenance, Repair and Service.

Once the engine fails, you don't have to do it yourself, there will be Rolls-Royce on-site repairs at every major airport. In this way, aircraft manufacturers such as Boeing and Airbus are "happy", and low-cost airlines also have room for development because they save the cost of maintaining a dedicated engine maintenance team. Rolls-Royce has also changed its operating model, improved its engine services, and expanded services such as maintenance, leasing, and data analysis management, thereby binding users and increasing service-based revenue. It is reported that the company's services revenue in 2018 accounted for about half of the company's total revenue.

In the industry, this model is called the device as a service EaaS/DaaS model (Equipment/DeviceasaService). For enterprise users, the benefits are mainly in the following categories:

The first is financial. Compared with the one-time purchase of expensive equipment, changing to the leasing model can convert the early, one-time capital investment into Deferred, time-of-use, decentralized investment can maximize cash flow while reducing asset-liability ratios and minimizing the time between project investment and return generation. For example, Dalian Machine Tool Group has launched a model of "equipment leasing, move-in with bags" for the intelligent numerical control equipment at the core of mobile phone manufacturing, and built an entrepreneurial incubator in Dongguan, which not only greatly saves the early stage venture capital of mobile phone manufacturing-related startups, but also helps start-ups. The average start-up period of enterprises is 8-12 months, which is greatly shortened.

Secondly, in terms of operation, not only can the required software and hardware be quickly obtained during the business expansion period, but also the funds and equipment will not be idle during the business contraction period, thus greatly improving the business flexibility of the enterprise. For example, XCMG Guanglian Leasing relies on the strong machinery manufacturing capabilities of XCMG Group, integrates social resources such as XCMG OEMs and lessors, and actively benefits customers through various business models such as equipment leasing and leasing on behalf of sales, helping customers achieve light Asset operation.

Finally, in terms of technology, since the provider usually provides services such as regular replacement and maintenance, there is no need to worry about the problem of the operation efficiency drop caused by the aging of the equipment, and the operation efficiency of the machine can be well guaranteed. In addition, it can also avoid the trouble of complicated machine types and increased operation complexity due to untimely equipment replacement.

For manufacturers, long-term leases/subscriptions generate steady cash flow, leaving more room for longer-term investments, allowing manufacturers to adjust their business models and Build deeper connections with customers and save money on market research and publicity. Tien Tzuo, CEO of Zuora, an American software company, claims that companies using a subscription model are growing nine times faster than product companies.

The car rental test was frustrated

Such an easy-to-use model, of course, will not be exclusively used by the high-end equipment manufacturing industry. Some industries with higher physical product value are also beginning to test the waters, including the automotive industry.

The car subscription service was born in 2014 and was only launched on some Internet platforms at the earliest. Then Cadillac took the lead in testing the waters as the world's first car company in 2017. After that, many car companies such as Porsche, Volvo, and Mercedes-Benz followed up in the United States and Europe, providing lease contracts ranging from a few days to several years, and the requirements for mileage and replacement models were also different. .

Volvo is the most aggressive of all brands, with its CarebyVolvo subscription service already available in Sweden, the US, Italy and other countries. Its subscription service for Volvo XC40 models also caused supply shortages after its launch. At the 2018 Los Angeles Auto Show, Volvo did not even exhibit a car, but only provided an experience service to view the vehicle configuration, encouraging users to subscribe rather than buy, which is an outlier among car companies. Volvo also predicts that by 2025, more than half of the cars it offers will be on a subscription model, serving more than 5 million consumers directly.

However, the transformation of car companies in the leasing model is not so smooth. Cadillac's leasing model was shut down a year and a half after its launch (and then restarted in early 2019); Volvo has repeatedly delayed delivery due to limited supply capacity, resulting in a decline in user satisfaction, and due to alleged "bypassing dealer direct sales" "Invited itself a class-action lawsuit from thousands of auto dealers.

In addition, although many brands have begun to deploy subscription services, many car manufacturers have launched flashy solutions and inflated prices, making it difficult to expand the market. Cars.com, the world's second-largest car classification website, has estimated that switching between sedans, convertibles and SUVs through a subscription model costs more than double the cost of leasing one of those cars. Perhaps because of this, car companies currently launching car subscription services are mainly luxury brands, attracting high-end users who are not price-sensitive but have high requirements for services.

Switching Mindsets: The Key to the Subscription Model

Why is the auto industry's attempt to copy the subscription model frustrated? Because the implementation of the subscription model is not just to label ready-made products, but to set a rental price and everything will be fine. Disguised "renting and selling" cannot give full play to the advantages of the subscription model. This requires manufacturing companies to change their thinking first, abandon the product-centric thinking, and start from experience and service, and consider what customers need, not what their own products are.

In the process of this transformation, manufacturing enterprises need to abandon the mentality of "playing tickets", let go of the contempt for the subscription model, and master three elements:

The first is to convert new business Patterns and business thinking. Manufacturers need to think beyond the one-time capital drain and shift the focus from the product to the operational process. The South Korean water purifier industry switched from selling to renting during the economic downturn, and exploring customers with weaker spending power is a typical example. Before 1997, South Korea's water purifier market was originally dominated by the wealthy class. However, after the financial crisis, the backlog of inventory made some companies think about change. They developed a new model for the middle class and developed a leasing plan according to their consumption level. They only need to pay a deposit of less than 600 yuan and a monthly fee of 60 yuan. Get a water purifier. After a long period of publicity, Koreans have gradually accepted the concept of "water purifiers are a necessity", and the penetration rate of Korean water purifiers has exceeded 60%. With this model, companies led by OmniVision even squeezed out big companies like Samsung and LG from the market for a time.

Second, design thinking must run through the entire operational process. Because of the subscription model, products should be manufactured and marketed with reuse and recycling in mind as the focus of future product design. The Agency of Design (AoD), a design company, has learned through research on LED light bulbs that its materials can be recycled and reused. With the development of LED technology, the efficiency of LED bulbs is getting higher and higher, and customers have the demand for replacement, but due to cost considerations, they do not want to update the whole set. Therefore, the company has carried out a modular design for LED bulbs. Consumers only need to send back the old LED core modules by mail to replace them, achieving more power-saving effects.

Finally, the key to the subscription model is collaboration, an ongoing connection between manufacturer and customer. In the IoT era, this means using sensors and intelligent management platforms to continuously interact with customers to discover customer pain points, improve customer experience, and increase customer stickiness. For example, the AoD company mentioned above has added IoT technology to the design of LED light bulbs, allowing manufacturers to collect data on usage status and help designers design light bulbs that better meet their needs; at the same time, manufacturers can also know the light bulb in advance. Replacement timing, send new modules to users' homes in advance to ensure a continuous and consistent user experience.

In fact, the subscription model is a node of the manufacturer's transformation to service, which is a switch from "ownership" to "use right" in response to user needs, in the pursuit of the ultimate user experience. The subscription economy is not just a means for companies to increase revenue, it will profoundly change the way companies are organized in the future