Recently popularized in logistics and manufacturing methodology, Product Service Systems (PSSs) are business models that integrate products and services to extend the value chain of a product. PSSs increase recurring revenue and build more sustaining relationships with customers. PSSs are designed to fulfill complex and evolving customer needs. They are a commercialized set of capabilities and products key for manufacturers who hope to bring their business to the digital age.
The origin of PSS
With the dawn of the Fourth Industrial Revolution, manufacturers have been challenged to differentiate in ways that involve servicing customers across digital, experiential, and personalized domains. Manufacturers that refuse to kick their addiction to products and assembly lines are quickly falling behind. Low customer switching costs, high consumer demands, and global markets have created the most competitive manufacturing marketplace the world has ever seen.
Adjusting business models to add more servicing capabilities to the offering mix and creating a PSS structure can be intimidating. It requires investment, thoughtful strategy, and relentless iteration to create the right mix. Perhaps the phase that makes manufacturers most apprehensive is beginning their journey to a PSS offering structure.
Beginning with carpet
A 2007 article gave an interesting foundational framework with which manufacturers can begin to visualize their own PSS offering. Using the carpet industry as an example, let’s imagine a hypothetical carpet company switched to a PSS model to become a full-service floor covering shop. This repositioning sounds silly, but it’s an important shift for the business. Beyond the product (carpet, carpet glue), the carpet company rips out and replaces carpeting - their only service offering. However, between flooring changes, the customer is responsible for their flooring needs. It’s not enough for the carpet company to have the latest carpet types in their catalog — they need to find new ways to provide value to customers before, between, and after installations.
To build a PSS, the carpet company may contract for yearly carpet steaming and regular flooring inspections. The company could keep a database of common carpet lifetimes, adjusting for factors like pets and number of family members that could help predict when a customer may need a cleaning or replacement. The company might even have a few flooring experts who could consult with customers to prescribe the right flooring based on style, function, durability, environment, and family stage of life. These new competencies and service lines allow for top line growth by adding an extra revenue stream, as well as allowing for more up and cross selling of their central product - the carpet itself. The effect of a PSS is not additive, it’s multiplying.
Innovation, with structure
The flooring store example may seem humorous, but it’s strongly paralleled to the current state of manufacturing. Innovations, like connected devices, automated assembly lines, and artificial intelligence, lack merit in isolation. However, when aligned to customer needs and extension of the customer relationship, they provide significant value. Whether the customer is a business or an individual consumer, the modern buyer expects expertise, support, and personalization from their sellers. These expectations require manufacturers to extend competencies beyond production and into servitization in order to build PSS models that can help them stay ahead of the competition.
Ready to get started?
If you’re curious about how to get started on building business models around PSS, Appirio can help you strategize for that future and better understand the technology tools needed to support a PSS offering. It’s likely you have products and services that already utilize a PSS model, but we can help you bring some rigor to those models and better track ROI and progress over time.
To get started on strategizing for your future, contact Appirio Manufacturing to learn more about the modernization of manufacturing. We hope to hear from you!