Subscription for mechanical engineering -

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Subscription yields disruptive changes

Multiple examples make subscription a success story:

  • Spotify: 96m people subscribed to have access to music at all times on any device  ($5 billion revenues in 2018).
  • Amazon Prime: More than 100m subscribers pay for quicker deliveries and access to video on demand ($13 billion  revenues in 2018).
  • Gillette on Demand: Procter & Gamble’s reaction to the subscription model of „Dollar Shave Club“, a business with 3 million customers and $200 million in revenues, eventually acquired by Unilever for $1 billion in 2016.
  • Microsoft Office 365: 120 million business and 30 million private customers pay monthly fees. Microsoft was temporarily the most valuable company in the S&P 500.

Companies profit from the introduction of subscription:

  • Following the Zuora Subscription Economy Index 2018, US companies with subscription-based business models had five times higher revenue growth than the S&P 500 from 2012 until mid-2018 (Europe: six times higher compared to FTSE and DAX).

Subscription enters the mechanical engineering sector (machines-as-a-service)

Mutiple examples with different levels of maturity:

  • Rolls-Royce classic: „Power by the hour“ – customers pay for the usage of turbines.
  • Caterpillar high level of maturity: Subscription data services enable cost reductions and increased productivity, security and sustainability.
  • Heidelberger Druckmaschinen pioneer: Customers pay a monthly fee for the printing machine, consumables, workflow, consulting and service. Both parties profit from reaching agreed productivity targets.
  • Kaeser Compressors pioneer: Offer includes availablity and optimization. Customer pays fixed price per m³ compressed air.

Subscription is far more than leasing:

  • The machine is not sold to the customer, but offered as a service for a recurring fee.
  • Subscription fees are usually output related (Number of flight hours, number of printing sheets, m³ compressed air).
  • The fee often includes additional deliverables (maintenance, consumables, upgrades).
  • Often the supplier also takes responsiblity for the constant optimisation of the machine or enters a participation model for increasing productivity. 

Subscription increases customer satisfaction by addressing their specific needs

Subscription models are customer-centric and build longlasting customer relationships. Customers profit in various ways:

  • Customers have a lower capital commitment as they transform Capex into Opex.
  • They have a higher planning security.
  • The output-related fee reduces the risk in times of weak utilization.
  • Customers have access to the latest features and machine generations.
  • If performance data is shared with the supplier of the machine, customers may receive tailored service, performance optimisation and higher productivity.

Subscription, Digitalisation, Internet of Things and Industry 4.0 belong together

Subscription models have many advantages, but don't come without risks. Switching to subscription hence requires a careful analysis and preparation.

Contrium Consulting supports you on your way to subscription!