OEMs: here’s how to get End-Users onboard with Outcome-Based Pricing
Running an OEM that sells industrial equipment has many challenges and one of those is maintaining a steady stream of revenue while dealing with the cyclical challenges of the market.
Your buyers know that their old equipment needs to be replaced, and that new equipment presents faster, safer, and better production opportunities, but acquiring it is a big capital expenditure.
As many of your buyers often find it hard to justify the cost of such an investment, your business can experience unpredictable revenue streams, making your own growth strategies hard to plan for.
To better justify investments in automation, outcome-based pricing strategies were developed so end-users could pay based on the overall performance of their new equipment instead of purchasing the machine outright without the guarantee of a high quality and performing machine.
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/SIs and their clients, i.e. end-users. This fosters a more equitable relationship and makes decisions about new purchases more clear.
Benefits of MaaS for End-Users
- 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 doesn’t run or produce, and as such their investment in new equipment can be more easily justified.
- This greatly reduces the risk of purchasing new equipment for end-users. As well, limited CAPEX budgets are much less of a barrier since the initial investment for new equipment is spread across the life of the equipment, instead of a big commitment up front.
- Recruiting and retaining top talent can be a challenge, especially in the post-pandemic environment. Newer, safer, more productive equipment is a great tool to attract and hold onto the type of personnel that strengthens customer relationships.
- Additionally, a MaaS contract with an OEM also creates more incentives for this supplier to participate in your success by maintaining the equipment to avoid unplanned downtime, quickly repairing any issues that unexpectedly arise, and monitoring it to ensure peak productivity.
While these benefits sound great to end-users, questions still remain:
1.) Won’t a MaaS agreement increase my administrative load and risk for errors?
The primary barrier to implementing a MaaS solution historically 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 operation, 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.
- Process Automation:
- 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.
2.) Is this just one big security & privacy breach waiting to happen?A main function of MaaS is transparency of information, at times sensitive information around productivity and bank accounts. However, blockchain 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.
3.) Why all the fancy language - is this not just a different form of equipment leasing?Aside from the fact that these two approaches allow the end-user to avoid an initial large capital expense, the similarities end there.
- Leasing programs do not minimize the risk of your new equipment. Regardless of how productive your new equipment is, your monthly payments must be made. With a MaaS agreement, you pay for what you produce, effectively minimizing the risk of faulty, unreliable equipment because downtime means you’re not paying for it.
- A MaaS approach means the OEM that’s providing the piece of equipment becomes your partner, not simply a vendor. They are equally incentivized to ensure the equipment is running as productively as possible and are eager to support your team to increase production since they’re financially incentivized to do so, as well.
- Traditional leasing programs are time-based, meaning you agree to use and pay for the equipment for a certain amount of time. However, with a MaaS agreement, if you no longer need the equipment you can return it.
For more on the differences between a MaaS approach and a traditional equipment leasing program, check this article out.
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.