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PAAS – investing in service

PAAS-Product As A Service

Within recent months I have several times encountered very poor quality service, in different situations and in different countries. The services involved parcels, taxis, online flight check-in, internet shopping, and more. It made me think about the importance of service in a world in which commodities are gradually becoming more and more indistinguishable from each other. It is high time to think about PAAS – product as a service.

According to recent surveys, more and more people all over the globe, even in highly developed countries, are ready to buy almost any product in a supermarket, irrespective of the label or brand-name, if the price for it is the lowest on the shelf. This is especially true if the reason for the low price is a marketing campaign, where the ordinary price for the good is higher but it is being offered with a special discount. People are then happy to ‘betray’ their once-favorite products for the cheaper ones.


It happens not because people in developed countries have become poorer, but because they just don’t want to pay more if they have the ability to pay less. And this, in turn, is because they don’t see much difference between branded goods and no-name ones. They don’t buy products (with different names, packages, labels), they just buy categories – ‘butter’, ‘milk’, ‘a T-shirt’, ‘a pair of shoes’ – and they’re doing it more and more. It is especially true for younger generations.

For some product categories, such as smartphones and cars, people still pay attention to the labels. For instance, an iPhone-user is unlikely to change to Samsung without serious reasons. But it is well known that younger generations, by and large, pay much less attention to brands when it comes to things like clothes, wines, wristwatches or bags. They prefer to stay independent and to feel comfortable rather than to be dressed up or to carry a fancy bag. Recently a couple of articles were published concerning the difficulties that Victoria’s Secret is facing now. Modern young women prefer comfortable, practical underwear for various purposes, so Victoria’s Secret’s managers are having to search for new ways to attract their attention.

That said, when a woman chooses underwear, she at least looks at the label. But when it comes to things like some kinds of food, simple machinery (i.e. home appliances) and necessities such as shower gel, toothpaste and washing powder, it will happen more and more rarely in the future. What does a housekeeper really want from a washing powder? It should clean clothes and be safe and environmentally friendly. This can be achieved by the majority of washing powders, even the cheapest ones. Many people know (or, at least, believe) that many differently packaged goods are produced by the same factories (in China, for instance), and that logo differences are much more significant than differences in quality.

Competition between producers nowadays is much higher than it used to be. For instance, whatever the good, there are (or soon will be) multiple competitors producing approximately the same thing. Add the rising number of competitors from abroad and the ease of ordering things on Amazon or Aliexpress, often for much lower prices (it pays to wait several weeks for delivery), not to mention customers’ attitudes to ‘big brands’, and it starts to look as though producing physical goods in the contemporary world is losing all attractiveness and profitability. It’s a gloomy picture of the future, with deserted factories, or those operated by robots producing absolutely identical no-name goods.

But so far this future hasn’t happened – and it’s still possible to beat the competition in the world of physical goods by thinking about products as a service.

Example #1

A company producing building materials (aerocrete blocks) discovered that its competitors were offering approximately the same products (of the same quality) for a lower price. All the companies fighting for the customers had more or less the same equipment and the customers weren’t able to tell one product from another. The ‘price war’ lasted several years, but there were no winners – all the businesses involved lost profit. The company tried to find a solution through technology, but there was little to optimise – almost all the processes at the factory had already been improved and there were no visible sources to save a significant amount of money.

So, the company, with our help, decided to look into the customer’s experience more deeply than it had before. It interviewed not only the CEOs of the organisations that bought its aerocrete blocks but also the people who were responsible for conducting operations at the construction sites. And it discovered that those people didn’t just need aerocrete blocks; they needed them just in time and in the exact amounts that met their demand every day. These guys didn’t like to wait for materials, and they didn’t need more blocks than they required. The second problem it discovered related to the way customers used the blocks – the technology was relatively new for the market, so not all workers knew exactly how to assemble the blocks properly. In light of this, the blocks producer organised a new service – its representatives on site helped workers assemble the blocks correctly and also ordered the appropriate amount of blocks from the factory, using tablets. This meant that the customers got just-in-time service and technical support in one, which allowed the company to overtake its competitors without dumping.

Example #2

A new drugs chain entered the market of a neighbouring country only to face severe competition. Local players didn’t want a newcomer stealing their clients. They fought back, organising new promotional campaigns and suggesting incredible discounts. The company was about to close its foreign office and pull back. When we were invited to work together with the local team, the mood in the office was dismal. People were ready to surrender, but we suggested trying one more time and looking at the stores as a service. Initially, the idea was met with suspicion – retail businesses aren’t typically associated with service, they’re places where people come to buy things – but we were persistent.

Why exactly should people come to your stores? What makes them different? You don’t sell any exclusive products; the things you sell may be bought in a number of chains and local stores. So what makes the customer’s experience in your stores more attractive? We continued to ask these inconvenient questions time and again, until the top managers of the chain admitted that physical goods on the shelves are just the reason to first enter the store – not the reason to return, or to return regularly. It is the experience consumers get inside the store that turns them into regular customers.

What does this experience comprise?

– Navigation inside the store: People don’t like spending minutes searching for goods they need, but some of them hate to ask shop assistants.

– The range of products: Sometimes this range should be very wide – for customers who like to choose exactly what they need, where at other times it should be narrow – for customers who prefer to save their time or look for the best price.

– The store’s interior: This influences customers’ impressions.

– The store’s website: This allows clients to order special things that are not normally presented on the shelves and to pick them up from the store, which is close to their home or office.

– The subscription service: This lets customers get certain items on a regular basis.

Looking at shopping as a process that influences customers’ impressions more than the goods themselves allowed the chain to keep and, lately, to strengthen its position in the neighbouring country.

Examples #3 and #4

A company producing compressors stopped selling compressors and started selling compressed air, because that is what its customers actually needed. They didn’t need the device itself; that was just something they had to buy to obtain compressed air. So the company decided to change its business model. It offered customers a free compressor, then charged them according to the amount of compressed air they obtained, using a meter specially installed in the device.

The same thing happened with a company selling large printers for big offices: it started charging clients depending on the number of lists they printed or copied.

Work

Articles often mention the word ‘work’ in this context. What ‘work’ does your product do for your customers? What do your clients buy your product for? The idea behind this is rather simple: don’t try to improve your product; improve the whole customer experience, enhancing the ‘work’ that your good produces.

Last summer we worked with a chain of free-flow cafés. Its top managers, surprisingly to us, were very proud of the fact that there was a separate kitchen in every café. Typically, chains like that have large centralised kitchens producing food for the café outlets, which saves lots of money and allows chains to offer better prices. It also means the whole floor space of every café can be used for tables and there are fewer people on the payroll. But the top managers of this chain were absolutely convinced that people loved their chain because of the fresh food that was guaranteed to be made on the spot. As surveys discovered, however, customers paid very little attention to where their meals were cooked. What they were really worried about was the time they spent having lunch – and they preferred to spend as little time as possible. That was ‘the work’ that the chain actually did for them, or at least it was what they expected.

We could have tried to improve the food (as the top managers had done before). But instead we suggested reorganising the processes in the cafés so that customers could waste less time choosing dishes, picking them from the shelves, queuing and paying. And it helped very much – the chain was able to serve many more customers during the rush hour, which led to a significant increase in revenue.

You may often see the ‘SAAS’ abbreviation in IT articles; it means ‘software as a service’. You can buy software or get it as a service, through cloud or fast internet channel services, which may be cheaper and/or more comfortable. In some industries, the commoditisation of products makes players in the market think about PAAS – product as a service. Just remember the story of the Dollar Shave Club – a service that gives subscribers a new shaving razor every month. There are a number ways of buying razors, but the founder of the company decided to offer a unique service – stop having to remember to buy a new razor on time, just subscribe and automatically get one every month. This company was founded in 2012, and in 2016 was sold to Unilever for 1 billion (!!) dollars. It is a very good example of PAAS. Could you create a similar PAAS story for your product?

Svyatoslav Biryulin

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