How IoT enables new customer-centric business models

It’s been nearly 10 years since Forrester ushered in “The Age of the Customer”. In this era, customers have been armed with more information than ever, and companies have responded by offering more customer-centric products and services. The biggest business advantage in this era is knowledge of, and engagement with, customers.

A similar dynamic is now at play in the industrial and manufacturing sectors. Equipment makers, facing declining margins on hardware sales, realize a great physical product is no longer enough—they need to build closer relationships with customers.

As a result, we are seeing the rise of servitized business models in a range of industrial and manufacturing sectors. The increasing ubiquity of IoT sensors and IoT platforms is enabling equipment makers to build smart connected products that help them stay engaged long after products arrive at the customer’s door. New business models are focused on aligning product performance with customer needs while generating recurring revenue streams based on data and services.

In Forrester’s report, Use Data From The Industrial Internet Of Things To Deliver Customer-Centric Business Models manufacturers can learn how product-as-a-service business models drive change within product manufacturers, their customers and the broader partner ecosystem. Equipment makers are using IoT to build bridges with their customers through recurring services, and the most forward-looking are building Equipment-as-a-Service (EaaS) models that package products and services in an integrated offering.

Why customers are eager for service-based business models

Customer expectations are rising and as customers transition to service-based models, they expect to:

1. Only pay for what they use. Unlike subscription models that charge for the period of asset rental, consumption-based models charge for the amount of equipment use, often tracked by IoT sensors. This offers more clarity and flexibility to match costs with production needs.

2. Shift maintenance to equipment makers.  Connected machines gather data about their condition, which unlocks support for service-based additions to contracts. With enough insights into machine performance and triggers for predictive maintenance, equipment makers can gain the confidence to offer customer-friendly performance guarantees.

3. Eliminate unnecessary repairs. Many vendors have traditionally nudged their customers to replace consumables more often than necessary. But when parts and maintenance are included in a service-based contract, vendors’ and customers’ motivations align: the vendor needs to maximize equipment performance and uptime to fulfill its contract. 

4. Focus on value and outcomes, not costs and assets. Manufacturers see machinery as a cost of doing business, not the point of doing business. Equipment makers who want to stand out will deliver the desired outcomes flexibly, reliably, and cost-effectively.

Easing the transition to new business models

Equipment makers making the shift to new business models find that transitioning to service-based relationships can be a challenge. Selling and supporting services is a very different business that requires a new mindset among everyone in the organization, and new incentives to promote customer-centric decisions. It’s also critical for businesses to close the business case for shifting from products to services: small, recurring revenue is generally more profitable, more predictable, and stickier but lacks the up-front payments of traditional sales.

Fortunately, industrial IoT devices and platforms provide the data businesses need to transition with confidence. IoT data helps equipment makers improve design, understand user needs and support customers. Operational data also helps build evidence-backed business cases to secure new financing.

In the Age of the Customer, equipment makers must use data collected by smart connected products to power a trusted service relationship. Become more customer-centric with IoT solutions and service-based business models and build your future on the Industrial IoT.