The origins of servicizing
Inspired by changes in the information technology (IT) world, a few enterprising companies in the digital display industry have begun to ‘servicize’ their offerings, selling their solutions as a service rather than individual hardware units.
The concept of selling product-functions rather than product-ownership has been around for decades, but the term ‘servicizing,’ itself
rose to prominence after a paper submitted to the Environmental Protection Agency (EPA) in 1999 discussed the consequences
and responsibilities of a ‘functional economy,’ wherein the consumption of goods is replaced with the consumption of the services those goods provide.
In the paper, “Servicizing: The Quiet Transition to Extended Product Responsibility,” authors Allen L. White, Mark Stoughton, and Linda Feng discuss how manufacturers have a responsibility toward their products, especially with regard to their environmental impact. In the authors’ opinion, the longer the relationship between manufacturers and their products continues, the greater this corporate responsibility becomes. When a product is bought and sold as an isolated unit, the manufacturer’s connection to the product ends as soon as the customer’s begins. In a functional economy, where product-functions are sold as services rather than units, the relationship between the manufacturer, product, and customer overlaps and endures. This imbues manufacturers with what the authors call an ‘extended product responsibility,’ to account for their product’s externalities over time. This service-based selling approach is better for all parties, though the authors acknowledge, “to date, the servicizing phenomenon has been driven largely by business, not environmental concerns.”
It can be thought the paper was perhaps a bit too optimistic about how heavily manufacturers weighed environmental concerns when crafting their sales strategy, but it was prescient nonetheless in predicting servicizing would grow. The paper can be thought of in many ways as a roadmap for the proliferation of today’s product-function providers. In fact, the introductory summary of the paper foretells an economy where consumers pay for “mobility services rather than cars,” over a decade before the inception of today’s ride-sharing apps.
Consumers want functionality, longevity, and support, where servicizing comes in
Value is created and measured by the function provided, and for the manufacturer, the product becomes a means of delivering this function, rather than an end in itself.
Large-format digital displays have never been things to simply unbox and hang on the wall, but for decades this was how many manufacturers did business. Under that model, sale of the product was all that mattered.
Today, for consumers, this perception is finally being discarded as manufacturers acknowledge the relative value of product-function has overtaken product-ownership in the hierarchy
of consumers’ minds.
In short, servicization is a smart supplier’s answer to the changing demands of consumers, and as a strategy it cedes power to purchasers while transferring risk to the shoulders of sellers.
Consumers get the functionality they need at an affordable price, and manufacturers open their business to a larger pool of customers. This is the reason why servicization exists.
