In the age of digital transformation, all executives should be asking themselves, “How will our business be disrupted?” Some businesses are taking a wait-and-see approach, often because they aren’t sure how digital technologies like IoT apply to them. This conservative approach is understandable because in the Industrial Revolution era, innovation was often based on product-based business models based on incremental innovation, or adding new features and capabilities to products.
And in the past, value creation (profit) was a function of economies of industrial scale: mass production and the high efficiency of repeatable tasks. This old business model banks on customers’ loyalty and being compelled to buy more products. The problem with the old business models is products are quickly being commoditized. In the new digital era, incremental innovation falls short and price becomes the competitive advantage, leaving unprepared companies to play catch up as they attempt to react to digital transformation emerging in their industry.
Today, the most innovative companies realize to stay competitive they must shift mindsets by looking at entirely new business and revenue models with connected devices and product lines. This means reimagining, reinventing and evolving how their businesses operate to develop new value creation. Leaders must innovate revenue models by integrating exponentially advancing digital technology to drive new revenue streams.
And, to ensure the value creation with connected devices, IoT leaders need to make holistic and integrated customer service a top priority at every point along the customer lifecycle — all the way from pre- to post-purchase. This puts customer service in a prominent position to being a key differentiator to drive enhanced revenue and profitability. In fact, with over 20 billion connected things expected by 2020, connected products can not only provide proactive versus reactive service, but also provide some of the best opportunities to create new revenue streams and business models.
To do this, business leaders must clearly understand the impact of integrating IoT data with connected devices and customer service applications. Value creation, by combining and incorporating new technologies into customer service, allows for the development of new business models and revenue streams.
In a connected world, products can add new revenue streams after the initial product sale, including value-added services, subscriptions, and apps, which can easily exceed the initial purchase price. The result? Shifting profit model paradigms from not just selling more products to the same customer, to enabling a recurring revenue stream with existing customers can be much more lucrative. Businesses can not only vastly increase size of the business, but also stop their competition in their tracks.
Take Samson Rope, for example. This 140-year-old company supplies rope for marine, mining, forestry and rescue. It is implementing a high-tech rope threaded with IoT sensors to monitor its condition to know when it needs replacing. Samson services 8,000 lines of rope throughout the life of the product. And according to the company’s director of IT, Dean Haverstraw, combining IoT and field service capabilities will help the company identify when maintenance is needed, creating entirely new revenue streams for their business.
This type of proactive service enables brands to deliver enhanced trust and loyalty with customers. How might this work? Consider a product which sells 300,000 units per year at $1,000 each. At just 1% per month of service revenue, this product could generate $36 million of high-margin, recurring revenue. Integrating IoT and field service with customer service provides a clear path to move out of the old business model paradigm of being a cost-center to a profit-center.
The takeaway? It’s not a matter of if, but when your industry and business model will be disrupted by new, service-oriented, reoccurring digital technology-based business models. The next question to ask yourself is, “Will you sit back and be disrupted or be the disruptor in your industry?”
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