In the changing environment in which we live today, companies need to innovate with all the resources available to them. One of these resources is the Business Model (the system by which a company creates value, offers that value to a specific target audience and collects the value in the form of income). Innovating in the Business Model is a capacity of companies called Business Model Innovation (BMI). The objective of the BMI is to disrupt the market by creating a model that gives the company a competitive advantage.
When what the company wants is not to disrupt, but to survive a disruption from a competitor, that process is called Business Model Adaptation (BMA) and consists of changing the current model to adapt to the new environment.
One of these changes in the business model that many companies are carrying out in order to survive in the current environment is to move from selling products to selling solutions. This type of Business Models in English are called Outcome-Based Business Models... in Spanish it is difficult to give it a name that conveys what it really is ... so we call it Business Models Based on Selling Solutions instead of products. The ultimate goal is to increase turnover and maintain a closer relationship with your current customers (get captive customers).
Examples of "How to sell products to sell solutions"
B2B example (business to business): the example of a book is that of Xerox and how it goes from selling photocopiers to selling the service of charging for photocopies, from the machines that companies rent for a small price and install in their offices. But it is also the change that Amazon made in the early 2000s… it went from being a book store to a comprehensive solution for writers, and then for all kinds of companies.
Example B2C (from business to consumer): we are a veterinary clinic and we have gone from selling single consultations to a flat monthly fee for animals that require special treatments. Another example related to animals… we sell cat food and we know that every two months our customers will buy a 5 kg bag of feed. We offer them an annual flat rate and automatically send them every two months the feed for their cat so they don't have to worry about shopping. We can do it at a slight discount to motivate customers. In the tourism sector, the change has already taken place years ago… products are not sold, experiences are sold.
What exactly is the change from “selling products to selling solutions”:
Stopping selling products to sell solutions is not easy to do, so when a company succeeds, usually someone writes a case. Well, today I was reading one of these cases, and I found it interesting to share how they did it, in case it can serve as an inspiration to any of the readers of this blog. Here is a little summary:
From the supplier's point of view: This goes from a model based on making money selling a product, carrying out its maintenance and selling spare parts, to earning money depending on whether or not your product achieves the results that the client wants. The product, maintenance and spare parts become expenses. Revenue will depend on the feasibility of the solution.
From the customer's point of view: This one becomes dependent on a provider with whom you are going to have an almost dependent relationship, it will be very difficult to change providers. Your business model and that of the supplier must be aligned.
How the change is made
The change requires three phases:
Phase 1 of: "How to go from selling products to selling solutions"
Definition of the new value proposition: in this phase we must identify the opportunities in the creation of value with our clients. We must look for opportunities that are win-win (win-win) and evaluate the potential benefits that it could bring for our company. We also have to determine which products are going to become services and how this fits into our client's strategy. Being a good listener to customers and clearly understanding what they need to fix is a key success factor. The feedback from our commercial department will be decisive in this phase. You have to listen carefully to the customer and to our commercials.
Phase 2 of: "How to go from selling products to selling solutions"
Description of how customer service will be provided. This phase has two well differentiated key processes:
- The design of the service: design of the value architecture, design of all the processes and the adaptation of the products that are going to be converted into services.
- Customer relationship design: risk analysis, design of performance measurement indicators (KPIs, by Key Performance Indicators) and the creation of the contracts that will govern the relationship with the client.
Phase 3 of: "How to go from selling products to selling solutions"
Execution of the service and control of the final result: This is the phase in which the solution is installed for the client and all processes are refined to explore opportunities for improvement. Also in this phase it is necessary to train our sales team to effectively sell solutions. Likewise, during this phase the control mechanisms are implemented and it is analyzed if the distribution of value between us and the client is fair (if the relationship with the client is really win-win).
I hope this summary was interesting and inspiring to you.
If you want more information about "How to move from selling products to selling solutionsHere are some links that may interest you:
- Academic article (in English) of which I have summarized the three phases: “Value Creation and Value Capture Alignment in Business Model Innovation: A Process View on Outcome-Based Business Models” by David Sjödin, Vinit Parida, Marin Jovanovic, and Ivanka Visnjic https://onlinelibrary.wiley.com/doi/full/10.1111/jpim.12516
- On the capacities that companies must develop to adapt to the new environment: https://www.montsepenarroya.com/que-son-las-capacidades-dinamicas-y-para-que-sirven/
- On the difference between business model and strategy (which are linked, but are not the same) https://www.montsepenarroya.com/cual-es-la-diferencia-entre-modelo-de-negocio-y-estrategia/
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