End-Users: here’s how to get OEMs onboard with Outcome-Based Pricing
Running a business with expensive industrial equipment can be hard to maintain from a budgeting standpoint.
As old equipment begins to wear out and new equipment presents faster, safer, and easier production opportunities, the desire to acquire new equipment grows.
However, this is easier said than done as new equipment is expensive and often hard to justify the cost of such an investment.
To better justify investments in new equipment and create more buying opportunities for new equipment, outcome-based pricing strategies were developed so end-users would pay for the output of their new equipment instead of purchasing the machine outright, regardless of how much output the machine produced throughout ownership.
Quick Insight: at SteamChain we refer to this as Machine-as-a-Service, or MaaS, as we feel this better describes the functionality that such an approach brings to both OEMs and end-users.
Outcome-based pricing / MaaS invites new ways to develop pricing models that align the incentives between OEMs and their clients, i.e. end-users. This fosters a more equitable relationship and makes decisions about new purchases more clear.
One of the key benefits to a MaaS strategy for end-users is the confidence that they will not pay for a piece of equipment that goes unused, and as such their investment in new equipment can be more easily justified.
This, in turn, creates more opportunities for new equipment sales for OEMs.
Benefits of MaaS for OEMs
- Reduce the cyclicality in OEM sales cycles to even out their revenue streams:Since revenue is generated incrementally instead of in giant lump sums when equipment is sold, it becomes easier to forecast and plan from an operations standpoint.
- Gain a competitive advantage with a strong post-sale service package: The more productive the machine, the greater the impact for OEMs and end-users. When equipment is in peak conditions it will produce more. Therefore its in both parties’ best interest to invest in maintaining the equipment.
- Monetize your industry 4.0 investments: Just because OEMs have devoted resources into creating cutting edge equipment doesn’t mean that end-users easily recognize the value or be willing to invest in it themselves. With a MaaS strategy, though, these innovations become more attractive to end-users because the investment & rewards are shared amongst OEMs and their clients.
Many of these benefits will not come as a surprise to some OEMs. The primary barrier to implementing a MaaS solution in their company has been the upfront complexity and ongoing operational challenges that come with such a strategy.
However, advances in technology have dramatically improved ease-of-implementation and ongoing management of a MaaS program. This makes outcome-based pricing more scalable and practical for all involved parties.
How The Latest Technology Makes Outcome-based Pricing More Accessible Than Ever
MaaS programs do bring a new set of operational and administrative tasks to ensure they function properly. This added operational burden, uncertainty of information accuracy, and exposure of sensitive information is precisely what has held many back from even considering a possible MaaS program.
However, the use of Blockchain technology has enabled new levels of automation and security to bring an incredible ease-of-use experience to MaaS that has not been historically available.
- The foundation of MaaS centers on a pay-for-performance (throughput, uptime, service, etc), instead of buying the machine and paying a fixed price regardless of the productivity of that machine. This requires a fair system in which all produced goods are accounted for so all involved parties contribute to the agreement as intended. Before the latest technology was available, you might rely on a manual system that requires you to trust that the excel spreadsheet that the end user is giving the OEM is correct. Today, data shared using blockchain technology ensures that both sides have one version of the truth.
- A main function of MaaS is transparency of information, at times sensitive information around productivity and bank accounts. However, new technology ensures this information is protected and seen by specific personnel, preventing it from being freely passed back and forth via email driving up your risk.
- While there is a higher volume of invoicing and bookkeeping responsibilities to handle, new technology allows for this process to be entirely automated, presenting no new operational hurdles for your team.
If you’d like to learn more about how you are more ready than you think for a MaaS program thanks to new technology, read this article we wrote.
How to Transition to a Machine as a Service Model
With Blockchain and other advancements, outcome-based pricing is easier than ever to implement with your organization. It aligns OEM with end-user goals to ensure that the original equipment manufacturer is paid for the value their products offer.
But it’s not lost on us that this is a big decision for your organization that needs to be heavily vetted. This is why we created a pilot program to demonstrate the value of MaaS pricing strategy.
To see a demo of our product and understand how to get started, read this overview of our program and watch the demo video.