Earth Overshoot Day, which marks the date when humanity’s demand for ecological resources and services exceeds what the Earth can regenerate within that given year, took place on July 29 this year. It’s just one sign of many that transformation is urgently needed, and as always there will be winners and losers in the bid to transform, in essence, the way the world turns.
The world’s population and prosperity levels are rising. Meanwhile, we are consuming Earth’s resources far beyond natural reproduction levels. One way to balance the give and take is to simply reduce our consumption of resources. Our current habit of producing tons of disposable things must end if we want to pass this planet down to our grandchildren in a way that they can also still benefit from it.
But how can companies keep up profits and societies maintain well-being if product consumption drops and environmental protection laws become ever stricter? An attractive alternative is surely to shift from the manufacturing and selling of new physical products to developing services that keep products up to date and workable. This is exactly where service offerings come into play. They have the potential to greatly fill the emerging gap. Rethinking product development and sales is another option.
A relevant example is Fairphone, which entered the market as a tech startup in 2013 with a brave and clever product approach. They are developing and selling the most sustainable smartphones on the planet. In addition to their responsible raw material sourcing, the whole device is designed with the consumer in mind, with every part being interchangeable. In addition, you can upgrade to a new camera system and install it yourself with the help of a screwdriver and a video. This approach is becoming increasingly popular with consumers, and the organization saw a more than 60% increase in sales from 2019 to 2020. Fairphone’s growth suggests that consumers support a sustainable shift in the electronics industry.
This example stresses the “design to repair” product development approach in which the product itself is created in a serviceable way with interchangeable parts. For smaller and less complex products, this is best achieved by creating a product that the user can easily repair themselves. For more complex repairs, own or third-party repair centers and service technician teams will take over. An attractive option for this strategy will be virtual reality support, which seeks to employ specialized technicians or – an intriguingly futuristic option – virtual reality glasses that can easily be mailed to a customer.
If products can no longer be upgraded or repaired, the manufacturer should take them back and give the client a cash-in should the customer choose to buy a new device. Fairphone is already doing this as they recognize the benefit in customer bonding and reusing valuable resources.
This premise works, as its focus is on avoiding consumer and client frustration by keeping the devices workable. Devices can be kept up-to-date and in operational condition via predictive or preventive maintenance – and with regular updates to benefit from new technological developments. Customers find this highly valuable and almost would certainly find the service fee worth it. From an organization’s perspective, would it not be more attractive to think in terms of generating service fees for up-to-date and workable devices rather than one-time product sales?
This shift can seem overwhelming, and this is why it is critical to hire the right people with experience in these endeavors. One of my current clients is an excellent example of this: The company is building up a for-profit service business on a global scale driven by top management, in addition to its existing OEM and aftermarket. The company pursues a premium product strategy. The desired direct link to end-users improves their service experience and brand perception and generates insights into user needs as well as an additional revenue stream with a high margin. Products will be repaired and maintained through third-party partners and an own field staff in order to have them properly working when needed and reducing the high amount of seasonal inbound client calls. Our role in this context is to find the right person to build up this service business for the EMEA region.
Transformational change is currently also happening in the automotive industry in a shift from car sellers to mobility providers. With demand, especially among younger people, shifting from owning a car to using convenient services that bring them to their destination, companies are well advised to heed those demands.
Examples for nonphysical and profitable end-user service businesses are of course Amazon Prime and Apple Care. Consumers are willing to pay monthly fees, especially when it comes to entertainment, reducing user risks, and delivery convenience.
On the road to more sustainable business models, companies must place user experience at the center of focus rather than product sales. This applies likewise to service offerings: service must be easy, and service must be fun.
There are too many benefits to ignore the opportunity to switch to serviceable and upgradable products as well as immaterial services. Seizing this chance enables companies to generate stable and continuous revenue streams through a bank of loyal customers who are committed to the brand. Because of this tool in building stability and reputation, it also strengthens the company’s position in the market.
Taking a proactive approach means that it is companies themselves who are driving the change to sustainability rather than their competitors or legislation. This reduces their dependence on resource availability, as well as their overall costs. It also saves a huge amount of raw materials and basic substances, which reduces pollution associated with product waste.
Christian Ehl is a Partner at the Düsseldorf office of Stanton Chase and a member of the executive search firm’s Industrial and Technology practice groups. A special focus of his work is supporting companies undergoing a transformation toward sustainable and ESG conformed business models. His insights into topics related to sustainability built up over the past decade substantially help in this endeavor.
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