Is it a product? Is it a service? It’s the new economy!.
21 Jun 2016
Do you own a washing machine? What about a car? A smart phone? Move ahead a few years and there’s a good chance you’ll still have clean clothes, get from A to B and take selfies without owning these products but paying for their service instead.
A shift from ownership to paying for the service they provide is gathering momentum. It’s good for business, the environment and you. Find out why.
Products as services
Through the ‘product as a service’ business model, customers use products by leasing them or paying for their outputs, rather than purchasing them outright. The focus is placed on the service or output, with the supplier retaining ownership.
A familiar example is the photocopier. You can either purchase a photocopier for your office and maintain it yourself, or you can lease a copier and pay per page of printing, while the provider maintains the machine for you. Both Fuji Xerox and Ricoh offer this service.
Businesses that lease photocopiers are more likely to encourage their staff not to print in colour or print unnecessarily to save money, which is also better for the environment. They avoid having to purchase the copier upfront. They also side step the hassles of maintenance and disposal when the machine eventually gives up. Meanwhile, the manufacturer and supplier are incentivised to maximise performance and longevity.
It puts the responsibility for end of life solutions with the manufacturer or supplier. They are much better equipped and incentivised to reutilise materials than the customer.
By changing the emphasis from volume of units sold to performance of those units, the ‘product as a service’ model is a key driver for a more circular economy. That’s where the lifecycle of materials is maximised, usage optimised and at the end of life all materials are reused.
NZ businesses providing products as services
- Philips NZ: An early adopter of the ‘product as a service’ business model is Philips. Rather than buying lights for your office outright, you can now pay for the lighting you actually use – a plan Philips calls ‘Pay Per Lux’. The initiative is part of Philips’ vision to be the most sustainable lighting company on the planet.
Philips retains ownership of the lights and equipment so you don’t have to pay the upfront installation costs. It also takes back the lighting for recycling or upgrading at the end of its life.
Gordon Wiffen, Managing Director of Philips NZ, says: “When the lights aren’t on, you don’t pay. So we install lights that don’t use much energy to save businesses on their power bills. It’s better for business and better for the environment.
“Most companies rent their premises, rather than own them, so responsibility for providing lighting often falls with the landlord. So we’ve worked with EECA (the Energy Efficiency Conservation Authority) in the past to progress the Pay Per Lux model with landlords.
“For building owners with long-term leases, we offer a range of attractive lighting options that bring a lot of benefits for the user.”
- Alsco: built its whole business around leasing from the start – more than 100 years ago. The company provides industrial laundry services, serviced first aid kits, washroom services, uniforms and much more. It has around 26,000 customers in New Zealand to which it leases products and services based on a set monthly fee.
Gavin Smith, Business and Product Development Manager at Alsco, says: “Alsco started out as a small family business and has grown to New Zealand’s biggest industrial laundry, processing towels, linen, uniforms and mats. The rental model proved so successful that we have now branched out into many other services.
“All our products are leased, which involves a servicing component. This is based on depreciation of a product, its upkeep and eventual replacement.
“We’re committed to managing waste in a responsible way. That means we re-use and recycle our products wherever possible. That might mean supporting local organisations or sports teams with services and recycled product. Or it might mean providing aid organisations like Medical Aid Abroad with used first aid kits and expired or obsolete stock which they can redistribute in the Pacific Islands and beyond, where they’re gold.”
Overcoming accounting barriers
One of the main attractions for the customer in leasing, rather than purchasing, products is maintaining cash flow. This is because they avoid having to outlay the initial up-front cost of a product.
However, according to Anthony Rohan from Enspiral Accounting, a potential barrier exists. This takes the form of traditional business budgeting cycles. These tend to be based on purchasing and replacement of assets, as opposed to increasing operational overheads (for example, by taking on a leasing contract).
Anthony says: “The best way to counteract this is to put together a comprehensive business case incorporating elements such as the whole of life costs. This would include any savings in maintenance and disposal costs as well as the opportunity to avoid being locked in to old technology via purchasing an asset. A product as a service model could allow access to newer technology as it becomes available.”
What’s happening overseas?
According to the Head of Circular Economy at Veolia UK, Forbes McDougall, retailers should be doing more to enable customers to operate with a renting mind-set. There is a growing middle-class population hungry for technology. There is also a natural acceptance of renting among millennials. This provides the perfect backdrop to ‘servitisation’.
Forbes believes businesses could be missing out on increased revenue streams by failing to offer renting options.
“Why wouldn’t you be renting TVs at this point when there’s so much choice? Why wouldn’t the retailers enable that so they could capture the economic value? These models will eventually come in and they will extend across most goods,” he says.
Overseas, the world’s largest electronics manufacturer Samsung is already utilising leasing models in a bid to cut back on electronic waste. DIY retailer Kingfisher and IKEA have both indicated a strong desire to move towards the sharing economy and servitisation as a ‘natural progression’ in their business models.
- Philips NZ is looking for an organisation to take part in its Pay Per Lux plan. So if you’re a building owner interested in benefiting from leasing your lighting, contact Gordon Wiffen: email@example.com
- Alsco NZ seeks opportunities to engage with organisations interested in profiting from efficient, timely and cost-effective rental linen, uniform, floor care, first aid, first response and hygiene services. Contact Gavin at firstname.lastname@example.org
- The Sustainable Business Network is helping accelerate the transition to a resource-efficient future through a project on the circular economy. This involves supporting organisations with new business models such as Product as a Service, the sharing economy and more. Contact James Griffin if you’d like to be a part of this work or to be kept up to date with project news: email@example.com.