The most compelling new smart products are those that align monetization and business models with the value being brought to customers.
The first step to aligning your business model with customer value is to be sure you understand your customer — what drives them and what motivates them, what their challenges are and how your products can help them address those challenges or generally improve their personal or professional lives.
Understanding the use case can make all the difference as well. For example, some medical devices designed to help improve medication adherence might be best suited for a lease type of model, where patients that value their independence (like aging baby boomers) could use their devices to remind themselves to take their prescribed medications on time without requiring prohibitive upfront investments.
For customers (in this case the patients and their caregivers), this helps them focus on the value they’re getting from the device while enabling the device manufacturer to offer their products to a larger segment of the population and not just a privileged few that can easily afford expensive medical devices.
Contrast this example with wireless outdoor trail cameras that hunters use for recreation. Hunting itself can be a fairly expensive sport due to the costs of equipment, and consumers are not fazed if premium equipment comes at a cost — so long as there is clear value in the product.
In cases like this, buyers are used to purchasing wireless products outright through retail channels, in-store or online. The companies that sell these products not only need to think about the costs of manufacturing the physical product, but the ongoing connectivity and cloud infrastructure costs that are included in offering a view on-demand experience. These ongoing costs can be controlled and managed by offering ongoing added-value services to customers, like packs of thumbnail images that can be billed on a periodic or regular basis, or purely based on usage.
Most hunters don’t live right on the land they use for hunting, so avoiding the 45-plus minute drive (and cost of gas) to get to the wilderness is quite valuable. Companies that have a deep understanding of their customers like this can proactively think of technologies and offer this level of value to customers, thus aligning their business models with the value the products bring to buyers.
A broader industry trend
OEMs aren’t the only ones thinking about this topic, either. Cellular carriers like AT&T and Vodafone have recently highlighted their efforts to make their services more compelling to a wider market and even go so far as to think of entirely new models like outcome-based pricing.
These creative carrier pricing models do help to an extent by lowering the connectivity costs that device manufacturers incur when offering IoT systems, but this is only half of the equation and only addresses connectivity-based costs. Infrastructure, like cloud services, and its associated costs will continue to be a core component of many IoT offerings, so OEMs still need to monetize their systems in smart ways and offer cost-effective, valuable services to end customers, thus converting them from one-time or periodic customers into engaged, ongoing subscribers.
Building out a value-based model
As an IoT device manufacturer, the first question to ask yourself is, “What is the clear value I’m providing?” The second question is, “How much would my customers be willing to pay for this value?”
Savvy customers now understand that they are paying for the value they receive, not the product itself. As the seller of your product, you should be thinking this way as well.
The third consideration needs to be the cost of providing that value and how you can make sure that what you are offering to customers covers your basic costs — assuming, of course, that not every customer may decide to become a paying subscriber.
Once you’ve fleshed out these three concepts, you have the basic framework needed to build out an IoT offering centered around a value-based model.
The work doesn’t stop there, though, because you need to consider what happens if your system is a hit and consumers purchase more than one device each.
Growing faster than you expected is a good problem to have, but additional complexities will come into play, like how you manage billing for customers that have multiple devices, especially customers that didn’t purchase all their devices at once. They don’t want to receive dozens of bills on different days; they would rather have one bill that takes all of these staggered transactions into account. Even aspects like this play a role in the overall perceived value of your offering, so these are details you must keep in mind.
Finally, as more and more IoT systems begin to use cellular technologies like LTE-M or NB-IoT, creative OEMs will think of additional value-adds, like including a limited amount of cellular service in the upfront cost of the device to consumers. Bundling the first 30 days, six months or even a year of service is often a game-changer in the eyes of customers, empowering them to start getting value out of technologies almost immediately.
By thinking through these decisions even in the early stages of IoT system development, manufacturers can plan accordingly in order to start offering value and start building brand loyalty from customers on the first day and every day thereafter.
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