Professor Tim Baines from Aston Business School discusses the development of new customer propositions for advanced manufacturing services.
Over the past year I’ve spent a lot of time at industry conferences and roundtables, spreading the word about servitization and advanced services, and talking to business leaders about their challenges in trying to get traction for these initiatives in their companies.
I often hear they are struggling with the idea of a business model for advanced services; they ask things like:
My research team and I have dedicated a lot of time to these questions in the past three months. The first thing we found was that the concept of a business model is not a single agreed concept at all.
Everyone seems to have their own ideas of what it is and what elements it includes. This can lead to a lot of confusion, before we even start to think about how to design one.
All of our examination of the leading work led us to form a comprehensive description of what goes into a business model.
The fundamental thing that the new business model has to be built on is the customer value proposition; what is it you are going to deliver that will really bring new value to your customer and help them in their own operations?
To create that proposition, we examine the difficulties customers have with the use of the product (customer ‘pains’) and offerings that could help create extra value for the customer (or even the customer’s customer) which we call ‘gains’.
Once you have a potential new offering on paper, with a pricing structure and contract length to go with it, you have a value proposition.
Typically, these services contracts tend to have pay-monthly or pay-per-use pricing models, and contracts can range from two to 25 years depending on the asset’s value.
Next, test your proposition; will it be appropriate to your customer’s needs; will they be willing to pay you for; will they pay the price you wish to charge?
All of these things have to be tested, and our research has shown that the most effective way to do this is through real-life, carefully designed mini-experiments with customers.
Only then can you gauge whether the assumptions you have made in designing your offer were correct. This takes time, thought and a fair amount of imagination – and it can be a lonely process for the people I meet who are trying to spearhead this alone in their businesses.
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visit the website.
On April 26, my team at Aston Business School is running the Advanced Services Global Forum, for senior executives and business leaders who are designing or informing an advanced services strategy.
The forum is an opportunity for like-minded professionals to develop an advanced services customer value proposition, under the direct guidance of the leading researchers in advanced services, and industry practitioners (such as Des Evans, former CEO of MAN Truck & Bus UK) who have innovated their business models to compete through advanced services.
I hope to meet you there, to explore this topic with you further.