Thursday, April 21, 2011

Business Model - Servitization of a Product

In a recent business model blog we had discussed about industrialization of a service; we come up to another similar blog today where we convert a product benefit to the customer into a service to the customer.

As consumers, we have a some requirements when we buy some highly sophisticated products right? I have made a brief list of these
  • A felt need of continuous assistance explore its features better
  • Test the product before really buying it
  • A high investment
These are just a few.

If we have a closer look at this product, we would also realize that most of these products would be idle for a very long time; this is where this kind of an innovation in the business model makes the largest sense. Making a huge investment and keeping it idle! Really a heart burn!

This model is generally used in the earth movers’ usage where one company has actually bought the device and the infrastructure firms rent these earth movers and cranes for a specific duration and pay for it. It is also used in the agricultural sector where a farmer or a collection of farmers purchase a tractor, and repay the installment while simultaneously using the services of the tractor for their farmers.

The software companies this model called converting their software into a service (SAAS) for their users and remove the barrier of forcefully purchasing the complete package, and enhancing their customer base by just allowing the user pay for how much of the software they use.

In my own experience I consider this business model the most user friendly since it creates a better deal for every stakeholder in business.

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