The concept of aligning the price of a product with how much it’s used has been around for ages. Just look at how most of us pay for utilities; it’s a metered service where you get billed only for what you consume. That’s the pay-per-use model in a nutshell.
Tech advances in A.I., IoT and robotics have made it easier than ever to accurately track the usage of both products and services - making PPU accessible to almost any industry. And it’s spreading like wildfire, particularly in healthcare, agriculture, manufacturing and transport, driving real value for both companies and consumers.
Let’s take a closer look at some of the benefits of the PPU model, as well as five real-world examples of how it can help businesses thrive.
The benefits of pay-per-use.
Adopting a pay-per-use business model can deliver all sorts of advantages for a business (and for its customers). Here are just a few of the factors that make it so interesting:
- Access to new customers - By lowering your entry cost and charging customers only for what they use, you’re gaining access to new segments that a) can’t afford to buy it at full price, and b) don’t want to pay a full subscription because they’re irregular users.
- Stronger customer relationships - A long-term and service-centred approach enables you to connect with your customer, making it harder for competitors to poach them.
- Higher profit margins - Services delivered over the lifecycle of equipment can yield higher profit margins than a one-off payment.
- Improved offerings - Insights gained from usage tracking can help companies evolve their products to better suit customer pain points.
- A competitive-edge - PPU enables companies to compete not only based on an offering but on additional perks and services (e.g. software, maintenance, support etc.).
5 examples of pay-per-use in different industries.
Headquarters: Eindhoven, The Netherlands
Signify (formerly Philips lighting) offers high-quality and energy-efficient lighting products, systems and services. Their pay-per-use offering, “pay-per-lux”, provides customers with an intelligent lighting system designed to fit the requirements of their space at a manageable price.
How it works
Pay per Lux is designed to provide the exact amount of light for workspaces based on the customer’s specific needs. The offering includes a full lighting service - design, equipment, installation, maintenance and upgrades, and clients only pay for the light they consume.
If the customer’s lighting requirements change, Signify either adapts the lighting system to suit the client’s new needs or simply recycles it via its partner LightRec.
“I told Philips, ‘Listen, I need so many hours of light in my premises every year. If you think you need a lamp, or electricity, or whatever – that’s fine. But I want nothing to do with it. I’m not interested in the product, just the performance. I want to buy light and nothing else.”
- Thomas Rau, one of the first Pay-per-Lux users.
Amazon Web Services
Headquarters: Seattle, USA
Amazon Web Services offers a broad set of global cloud-based products, including storage, databases, analytics, developer tools, management tools, IoT, security and enterprise applications. These services help organisations move faster, lower IT costs, and scale.
How it works
Amazon Web Services (AWS) revolutionised startup costs for internet firms by granting access to server infrastructure on a pay-per-use model. They took what was once a significant upfront capital expense and shifted it to an operating expense.
Today, AWS offers a pay-as-you-go approach for over 160 of its cloud services. Customers pay only for the services they use, free of long-term contracts, termination fees or complex licensing agreements.
Headquarters: Berlin, Germany
ShareNow (previously Car2go) is leveraging the pay-per-use model to tap into a target audience that is on the rise: Urban populations that believe car ownership is not a necessity. Its car-sharing service enables customers to drive around the city without having to buy or lease a car, paying only for car usage.
How it works
With ShareNow, customers go through the usually lengthy process of renting a car in minutes through an easy-to-use app. Rates are all-inclusive, so customers don’t have to pay for fuel, parking or insurance. They’re also quite flexible, with hourly or “by the minute” options available.
The cars themselves are parked all over the city and can be easily found via the ShareNow app. No rental offices or return stations needed.
Industry: Industrial Engineering
Headquarters: Limburg, Belgium
I.Revitalise is an online machine sharing platform that links people that need machinery to manufacturers that have the machinery but aren’t using it. It taps into the sharing economy in a B2B setting and focuses on allowing young companies to try machinery without paying a large capital cost upfront. At the same time, it enables large manufacturers to get the most out of their depreciating assets.
How it works
I.Revitalise offers three service models: Gold, Silver and Free for Life. The “Free for Life” formula offers companies a pay-per-use approach, with an added 15% commission for every transaction.
Headquarters: Ludwigshafen, Germany
BASF is the largest chemical producer in the world, with six integrated production sites in Europe, Asia, Australia, the Americas and Africa. One of their many offerings is car paint, which was sold per gallon to car dealerships and original equipment manufacturers (OEMs).
Many customers kept their paint consumption at a minimum to reduce costs, which hurt the quality of their paint jobs. To solve this problem, BASF decided to go from their traditional supply model to a pay-per-use solution.
How it works
The new strategy involved going from a price-per-gallon model to a price per painted car formula. This enabled BASF to go from being a simple provider to becoming a partner that helped customers deliver a stellar final product.
The result? BASF reduced its paint consumption per car, increased its profit margin, and gained a 40% increase in market share.
Digitised and consumer-focused models like PPU enable companies in almost every industry to tap into new markets, retain existing customers more effectively and deliver value beyond a simple product. Customers tend to favour the approach because of its transparent pricing, reduced entry barriers and convenience.
Companies that use the model have been able to reimagine their offerings, differentiate themselves from the competition with added services and create a loyal customer base.
In today’s rapidly changing business landscape, making the switch from traditional models to a more tech and data-driven approach is crucial - and the time to start is now.