This is the second article of our five-part series on how to seize the potential of a PaaS business model in your business context. You can find the first part here. Product-as-a-Service (PaaS) requires you to re-think a lot of your business model, including the value proposition. While gaining customer acceptance of your PaaS offering is a key to success, it is also one of the nine business-centered challenges hindering implementation.
First, most customers like ownership. For B2C segments in particular, product ownership is culturally embedded and often associated with a sense of security, control, and comfort. However, emotional attachment to products is also present in B2B segments where owning a certain type of equipment can contribute to a company’s identity.
Second, PaaS risks introducing inconvenience to the user. In cases where products are pooled between users, the customer may suddenly have to undertake several activities to use a product, such as booking, locating, adjusting, and returning it. If the customer journey is not well thought through, these inconveniences may outweigh any financial benefits of PaaS.
Third, customers underestimate the cost of ownership. B2C segments are notoriously bad at taking the full cost of product ownership into account. A study in Germany found that on average, people underestimated the cost of car ownership by ≈52%. This lack of insight tends to position PaaS offerings, which often include maintenance, repair, and even depreciation costs, as expensive.
The good news is that all these challenges can be addressed.
What you need is to really understand your customers’ needs, offer unique added value, and explode the myth that ownership is cheap. We will guide you through how.
Designing a compelling PaaS offering to customers is not only about your product. Shifting from product sales to product-as-a-service, you’re no longer competing solely with your product – you’re competing with the value and benefits that are connected to your services and the function of your product. A deep understanding of your customer’s needs, and requirements will help you prioritise your efforts. This part of the methodology kit includes two tools: customer journey mapping inspired by the Use2Use Design Toolkit and value proposition canvas. Following four steps, you will sketch out your PaaS customer journey and develop your first PaaS value proposition.
To start off, define your customer’s core problem in their own words. What is the task your customer wishes to complete? To make it as tangible as possible, try expressing it as a functional unit (e.g., X m2 grass cut/month).
If you have a B2B customer, it is beneficial to think of both your customer and the end-user of your service as their problems may differ.
The next task is to map out the customer’s baseline scenario and categorise whether the customer’s activities constitute positive (gains) or negative (pains) experiences. The baseline scenario can be your current offer or the dominant way in which customers solve the problem today. You will describe it over three main steps:
Mapping out the baseline scenario will help you to better understand how PaaS may assist in overcoming negative experiences associated with e.g., product ownership. It will also help you understand what benefits the current baseline provides to your customer. These benefits may need to be addressed in a different way when shifting to PaaS.
The third step is to draft a customer journey for your PaaS offering using the same three main phases as above. Think about how your offer relates to the baseline scenario. Are there risks or obstacles that PaaS can remove? Can you deliver any added benefits through PaaS? Does PaaS risk introducing inconveniences that needs to be mitigated? To help you think about how you can deliver added value through PaaS, we’ve developed the added value toolbox which you find below.
At this stage, you will also map out the organisational activities needed to support the customer’s actions. This involves thinking about what support you can provide to your customer and which capabilities your organisation will need to do so. For example, how can you help the customer obtain the product as smoothly as possible? How can you make usage more intuitive? In which ways can you offer your expertise to improve your customer’s performance?
After finishing the first three steps, you will use the value proposition canvas to summarise your findings. The results from step one and two will be used to define the customer profile. Your findings from step three will be used as input to your value map. Once you have described how your PaaS offer creates positive outcomes and benefits (gain creators) and reduces risks or negative experiences (pain relievers), it is time to summarise your offer in one to three sentences.
Once completed, you will have a first overview of how your PaaS offer addresses your customer’s needs.
In this article, we have shown a few simple steps to move from an idea to a first PaaS offering. Although seemingly simple, the quality of the output will depend on how well you actually understand your customer’s needs. It is therefore a good idea to do these exercises multiple times in different constellations – preferably even together with your customer.
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Stena Circular Consulting is an international consulting business, part of the Stena Recycling group.
Our mission is to support companies in their development toward sustainable circular solutions that will provide both environmental and business value.
The report is part of the project "Service-based business models - transition to PaaS in practice" funded by the European Regional Development Fund (ERDF).
The report and methodology have been developed by Stena Circular Consulting and Cradlenet.
Please note that the methodology presented in this article is part of a prototype that will be further developed during the period September 2022 to May 2023. If you find these insights useful or have any other thoughts, we would love to hear from you!
