X-as-a-Service and Subscription Pricing Strategies for Manufacturers in B2B

‍Introduction

In recent years, a broad spectrum of industries has embraced Subscription, Pay-per-Use, and As-a-Service business models, revolutionizing how value is delivered to customers. Rather than selling products outright, companies are increasingly offering access to their solutions—be it hardware, software, or services—on a recurring basis. For equipment manufacturers, selecting the optimal XaaS / Subscription pricing strategy is crucial. It can significantly impact customer acquisition, retention, and overall business growth. With the XaaS/Subscription economy gaining traction, providing attractive and long-term engaging pricing strategies is essential. This article explores the various XaaS/Subscription pricing models suitable for physical products in the B2B sector, outlining their benefits and assisting manufacturers in choosing the most effective approach.

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The Importance of Pricing Models

Adopting a XaaS/Subscription pricing model is a pivotal decision for equipment manufacturers, influencing not just revenue but the entire customer experience. The chosen pricing strategy determines market positioning, customer perception, and product engagement. Given its importance, finding the right model is critical for aligning business goals with the changing needs of B2B customers.

In 1962, Rolls-Royce developed the Power-by-the-Hour model, otherwise known as Engine-as-a-Service (EaaS). This XaaS/Subscription model allowed airlines to pay a flat hourly rate per engine, while Rolls-Royce managed the installation, check-ups, maintenance, and decommissioning.

In 2013, Michelin launched a Tires-as-a-Service offering called EFFITIRES. This system provides a combination of outsourced tire procurement and a payment model based on usage (pay-per-driven-km).

Let’s review the most common Subscription/As-a-Service pricing models and strategies.

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Exploring XaaS/Subscription Pricing Models

Flat Rate -"All You Can Eat"

The flat-rate model offers simplicity and predictability, allowing unlimited access to a product or service suite for a fixed fee. This model is ideal for manufacturers aiming to become indispensable to their customers' operations by encouraging full utilization of their offerings without incremental costs.

Examples

• Industrial Cleaning Equipment: A manufacturer offers unlimited access to a range of cleaning devices, maintenance, and service calls for a fixed monthly fee, encouraging facilities to maintain cleanliness without worrying about additional charges.
• Office Automation Equipment: Companies providing office printers, copiers, and related services adopt a flat-rate model that includes equipment leasing, maintenance, and a specified amount of supplies each month, simplifying budgeting for businesses.

This model is straightforward, making it easy for customers to understand and commit to, thus promoting customer loyalty and frequent use. It's suited for manufacturers aiming to become integral to their customers' operations.

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Tiered Pricing Using One or More Metrics

Tiered pricing introduces multiple XaaS/Subscription levels, effectively catering to diverse customer needs and facilitating upselling. By offering basic, enhanced, and premium tiers, manufacturers can match their offerings to the specific requirements of different customer segments.

Examples

• Construction Equipment Rental: Different tiers could offer access to basic, advanced, or premium machinery and support services, allowing construction firms to select a plan that matches their project scale and complexity.
• Manufacturing Machinery-as-a-Service: Manufacturers might provide basic, enhanced, and premium tiers, each including different levels of machinery, maintenance, and digital services, tailored to the production demands of different manufacturing clients.

Tiered pricing accommodates diverse customer preferences and facilitates upselling, as customers' needs evolve or as they recognize the value in higher tiers.

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XaaS/Subscription + Pay-per-Additional Use

This model combines a base XaaS/Subscription fee with additional charges for extra usage, providing abalance of predictability and flexibility. It's ideal for customers with fluctuating demands, offering a core level of service with the ability to adapt to changing needs.

Examples

• Agricultural Equipment: A base XaaS/Subscription might include access to essential farming machinery and periodic maintenance, with additional fees for additional use, e.g. additional hectares treated, beyond the base package of hectares.
• Air Compressors: The core bundle could cover standard machinery and maintenance including 100m³ of compressed air per month. However, if customers use more than 100m³, they pay x€ for each additional m³ of compressed air consumed.

This model provides a foundational level of service with the flexibility to adapt to changing needs, encouraging both initial adoption and continued engagement based on project demands. The advantage for providers is that regardless of how much customers use the service, the provider gets a guaranteed fixed recurring payment.

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Pay Per Credit Bundle

Credits purchased in advance offer a flexible commitment, allowing customers to access equipment, services, or support according to their current projects and needs. This model fosters a partnership approach, tailoring usage and investment to specific requirements.

Examples

• Modular Manufacturing Systems: Credits allow access to different modules or machinery for a specified period, enabling manufacturers to adapt their production lines to changing product demands without significant capital investment.
• Industrial IoT Solutions: Credits could be used for deploying additional IoT sensors, analytics services, or expert consultations, providing manufacturers with the flexibility to scale their smart manufacturing capabilities as needed.

This model offers manufacturers and their customers the flexibility to tailor their usage and investment according to current projects and needs, fostering a partnership approach.

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Pay-per-Use or Per-Outcome

Charging based on actual usage or specific outcomes ensures pricing transparency and fairness, aligning costs directly with the value received. This model appeals to customers focused on operational efficiency and cost management.

Examples

• Energy-Efficient Equipment Leasing: Payments based on the energy saved by using more efficient equipment, incentivizing adoption and aligning costs with savings.
• Performance-Based Maintenance Services: Charges based on the uptime or efficiency improvements delivered by maintenance services, ensuring customers pay for the value received.

This model ensures transparency and fairness in pricing, appealing to customers focused on operational efficiency and cost management.

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Choosing the Right Pricing Model

For equipment manufacturers, the selection of a pricing strategy requires a deep understanding of their market, customer usage patterns, and the unique value their equipment offers. The ideal model should align with the manufacturer's strategic goals, including customer engagement, market penetration, and revenue predictability, while meeting customer needs and fostering long-term partnerships.

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Conclusion

As the manufacturing sector evolves towards more flexible and customer-centric business models, equipment manufacturers have a unique opportunity to leverage XaaS/Subscription pricing strategies to enhance their B2B partnerships. By carefully selecting and implementing a pricing model that aligns with their objectives and their customers' requirements, manufacturers can unlock new growth opportunities, deepen customer relationships, and confidently navigate the XaaS / Subscription economy.

P2S Management Consulting: Helping Companies Make the Shift to XaaS / Subscription Business Models

Since our inception in 2019, P2S Management Consulting has been at the forefront of transforming traditional sales into recurring revenue streams. Specializing in Subscription, Pay-per-Use, and As-a-Service models, we've helped businesses across Europe and North America pivot their product offerings into service-oriented solutions that promise sustainability and recurring added value. Our approach is to accompany businesses on their journey of innovation, aiding them in conceptualizing, developing, and launching successful recurring revenue models.

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Proprietary Tools and Networks

At the core of our methodology are the P2S Subscription Action Plan™ and P2S Subscription Experts Ecosystem™. These proprietary frameworks and networks underscore our dedication to providing comprehensive solutions. From strategy and concept development to scaling your models, we offer an all-encompassing approach, supported by a robust partnership ecosystem. This ensures not just the development but also the successful market scaling of your models.

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Why Partner with P2S

Opting for P2S Management Consulting means choosing a partner with deep insights into XaaS / Subscription models and a track record of facilitating smooth and effective business transitions. Our collaborative, innovative approach is results-driven, positioning our clients for success in an increasingly customer-centric and sustainable business landscape.

As the market continues its shift towards more sustainable and customer-focused models, P2S stands ready to lead your business through its transformative journey.

To learn more about how we can support your transformation, book a call with us here.