Competitive positioning in "as-a-service" business models

As published by numerous trend analyses and forecasts, the revenue share of service-oriented business models in the industrial sector will grow steadily. For companies that are competing and have so far been primarily product-oriented, it is therefore essential to position their service offering profitably in good time and to continuously develop new competitive advantages. To do this, it is necessary not only to understand the changed business mechanics, but also to strategically implement new approaches and design principles as well as changed revenue models across the entire service portfolio. In the following article, you will learn what this means and what measures we believe need to be taken. We briefly go into the background and explain the most promising options for action from our point of view.

What does "as-a-Service" mean in the context of industrial product service systems?

As with so many buzzwords, everyone understands it differently and there is no uniform definition. The spectrum ranges from classic equipment rental or leasing, to simple licensing models for value-added services, to complex modular hybrid service bundles. What they all have in common, however, is that the focus is no longer on the one-off exchange of resources for money, but on developing business models that aim to monetise benefits.

Direct vs. indirect monetisation

Providing benefits means creating added value! However, it is especially true for services that only in the rarest cases can standardised measurement parameters be used to quantify the benefit, which could then form the basis for the price-sales strategy. Rather, the benefit depends on the subjective perception of the service recipient and often eludes objective comparison criteria. In general, however, two basic monetisation strategies can be distinguished. In the case of direct monetarisation, a product-oriented approach is chosen. Accordingly, an attempt is made to bundle the value-adding features in a service package and to price them with the help of a suitable scaling factor. Indirect monetisation, on the other hand, primarily aims for a high level of adaptation in the target market and the business potential resulting from broad use is to be exploited either through service differentiation or secondary marketing. This approach is often found in the digital economy, while industrial service development often still aims to monetise identified added values directly. For example, machines and process data are compiled in self-developed dashboards and made available in a proprietary portal. The target group is then expected to pay a lunar price for access to the portal, derived from an apparent value-added argument. Such a strategy often leads to a sustainable positioning problem that makes successful business field development difficult.

Special challenges of "as-a-service" business models?

The trend towards "as-a-service" business models in the industrial capital goods sector in particular carries the risk of running into a positioning problem that can threaten the existence of many companies. This is due to the fact that by concentrating the provision of services on the price/output ratio, the scope for differentiation is severely limited in the long term and with progressive market penetration and customer acceptance of such revenue models, only individual companies with strong resources or highly innovative companies will succeed in assuming a relevant positioning that enables significant competitive advantages. The effects of this price/output dilemma can be observed in many sectors (e.g. telecommunications, renewable energies, IT hardware, etc.) in which comparable business models have become established. They all have one thing in common: only a few succeed in positioning themselves successfully and this depends on whether an "extreme" position can be occupied in the field of tension between cost and innovation leadership. The latter, however, presupposes that in the application under consideration, innovation potentials that are still perceptible to the user can be tapped. With increasing market maturity and commoditisation, an entire market segment moves towards cost leadership with oligopoly-type market structures. Only in the case of business models that are based on a resource-intensive infrastructure that must be available in the service provision area can sufficient market entry barriers be created that at least slow down price competition.

In the consumer goods sector, this positioning problem can often be countered with further marketing instruments and the development of a brand identity, which address benefit needs independent of the application (e.g. status needs). However, this set of instruments will only be applicable to a lesser extent in the B2B investment goods sector.

The German and European mechanical and plant engineering industry, which is characterised by its diversification of services and medium-sized structures, must therefore find a suitable positioning, for example, that enables clear differentiation beyond cost leadership and brings with it a clear benefit advantage. So far, this has been achieved primarily through a historically grown quality leadership. However, it must be considered that in "as-a-service" business models, quality risks are gradually shifted from the customer to the provider, as the customer only pays for the service used. In the case of an underlying availability agreement, it is then up to the provider whether the availability targets are achieved through quality advantages or are compensated with resource strength.

How can successful positioning be achieved?

In our view, the most promising positioning is to focus on measurable sustainability values. These will have a significant impact on investment decisions in the foreseeable future and it is in this field that we see the greatest potential to build long-term competitive advantages over primarily cost-driven competitors. Due to the increasing dynamics, there are many indications that there will be significant changes in this regard in the current decade. This is already demonstrated by decisions taken in the automotive industry. We see this as an accelerator for gaining new competitive advantages. It is therefore important to create a sustainable value contribution, to continuously expand it and to indirectly profit from it. Ideally, this value contribution goes hand in hand with a sustainable overall performance balance. These objectives must be taken into account directly in the development of a product-service system.

Reduction	Expansion	Complete values
Reduction of required material resources Reduction of energy intensity Reduction of any harmful substances	Expanding recyclability Maximising sustainable and renewable resources Extending useful life Increasing service intensity	Inclusion of compensation measures in the business model Integration of sustainability functions

The above sustainability goals include maximising the useful life. This can only be achieved economically if system performance and other essential functional goals are synchronised with technological progress through an appropriate maintenance and service strategy.

How we support our clients

For the implementation of these goals, we have developed an optimisation target and design principles. We have bundled corresponding tools and methods in our solution kit, which forms the basis for our Engineering & Design Services. Our understanding of technology and the market enables us to develop suitable solution approaches, implement them at our customers and successfully accompany them in the market phase.