What is Pay-Per-Use (PPU) and how can it benefit your business?

The pay-per-use model is a rising business model trend that consumers are flocking to. Find out what it's all about.

We’ve officially entered a new digital world. The digitalisation of products and services has gone into hyperdrive causing huge shifts in customer behaviour. As a result, a growing number of companies are exploring new consumer-focused business models, like ‘pay-per-use’.   

The subscription model, popularised by D2C brands, has been a favourite among corporations during the last year with companies like Disney, L’Oréal and Comcast all making their way into the arena. Now, a rising trend amongst the D2C offerings is the Product-as-a-Service (PaaS) model, combined with a pay-per-use system. So, what’s behind the trend?

To help answer that question, let’s take a closer look at how the pay-per-use model works, its benefits and how it can help your business.

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What is pay-per-use?

Pay-per-use is a payment model in which the customer pays for using the product rather than having to buy it. In other words, the more a customer uses the product the more they pay, and vice versa.

How does pay-per-use work?

Under the pay-per-use model, the ownership and responsibility of the product/service lie with the company itself, and the customer pays a fee for usage on demand. Many customers prefer this model because they like the idea of paying only for the services they require and use. In many cases, they also end up receiving better service because the manufacturer has a greater interest in providing a product that lasts.

Pay-per-use is not a new thing. Utility companies have been using it for years because it enabled them to track usage. Now, with the rise of IoT, tracking the usage of products has become easier, more accessible and more accurate than ever. This new data flow has made pay-per-use a more viable option for industries that previously didn’t have the tech capabilities to gain value from it.

An example of pay-per-use in practice.

Image Credit: Homie pay per use

A good example of a company that is successfully implementing pay-per-use is Homie in the Netherlands:

Homie enables users to order a washer, dryer or dishwasher online, get it installed for free and only pay for the usage of each appliance (with a low monthly minimum). 

Customers can choose between “light” or “heavy” contracts based on their washing habits and switch between the two twice a year. The minimum monthly fee covers any additional costs like maintenance and repair.

“Homie wants to be your friend around the house and guarantees worry-free washing and drying.” 

Homie’s goal is to provide an affordable pay-per-use solution for washing machines and dryers. By providing their customers with insight into their usage, they want to stimulate more energy-efficient washing.

The benefits of the pay-per-use model.

The pay-per-use business model has a lot to offer for both companies and consumers. 

Image Credit: Share now

Company benefits:

Product evolution 

The pay-per-use model makes it a lot easier for companies to track usage, giving them a better idea of how customers interact with their product or service. Knowing what customers like and dislike makes it easier for companies to improve, build personalised options and even create new offerings.

Increased market share

Pay-per-use lowers the entry barrier for a lot of customer segments by minimising the entry costs. Having to pay a higher price to buy/rent a machine that you’ll hardly use can discourage customers. In contrast, the “pay as you go” pay-per-use model can convince customers to start using a given product or service.  

Customer loyalty

The user connection with the company becomes more service-focused instead of a one-time-purchase interaction. This makes it less likely for users to switch to competitors. On top of that, the value of the product increases with added perks like installation, maintenance, and support which create more value for the customer.

Customer benefits:

Fewer responsibilities

PPU transfers the risks of ownership and the responsibility of maintaining the product to the company as part of the offering.

Lower costs and more transparency

The cost of products and services becomes more accessible and transparent to customers because there is no large initial payment required for simple access. Instead, it’s a flexible, easy to monitor monthly cost, based on actual usage.

Constantly improved products and services

To fully make this model viable, companies are relying on customer loyalty. This means that they’re constantly improving their products and services based on customer data. 

Is the pay-per-use model right for you?

Image Credit: Bikebiz.com

In order to successfully leverage the benefits of the pay-per-use business model, you need to have access to three critical service pillars: 

  1. Hardware & software - You should have access to a pool of hardware and software that is able to generate all the necessary data. This is crucial.

  2. Services - There should be a network in place to deliver, install, and maintain the product on demand for the customer.

  3. Protection - In case of an emergency, the company should be able to help the customer whenever it’s required.

In addition to having your three pillars in place, you should also consider the following questions: 

  • What is the cost per use to our business?
  • What volume of use is required to break even?
  • What is the minimal offering that would be compelling enough to have the customer buy-in?
  • Is there a value proposition that can be easily tested and implemented?
  • Are you solving a customer problem more effectively through your pay-per-use offering?

Once you have the answers, you’ll have a much better idea of how the pay-per-use model can benefit your business.

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