Products and services integration has reached a new phase of development due to the potential of technological development and consumer evolution in mature markets.
On the one hand, a large manufacturing over-capacity – in practical terms an excess of goods – on the other the increasingly intensely felt loss of a resource which is in huge demand – time – has prompted consumer interest in services which make life more comfortable and pleasant. Business models are changing across the board. One no longer buys a high performance car but accesses a mobility service, one no longer downloads music but uses a Spotify subscription and so on.
The Long Wait
As a result of this hyper-competitivity, product life cycles are now much shorter and thus in several goods categories consumers paradoxically put off buying in expectation of the next version or prefer to opt for services to avoid the risk of product devaluation or emotional cost arising from its inadequacy in a short time frame.
Despite the fact that Italy is the second largest manufacturing nation in Europe (with Germany being the first), 70% of added value is generated by services. India’s economy is based primarily on services and is growing more rapidly than its direct rival, China.
Does this mean that the world has to abandon manufacturing and convert to services? No, it means that products and services have to move hand in hand – products by acquiring “turbo product” characteristics with the help of services and services by finding in products a shopping cart for long-term purchases.
Commercial alliances between manufacturers and large service providers are actually dual branding and are similar to outsourcing relationships in that service providers keep control of consumers thus taking the bulk of the profits and bargaining hard with manufacturers on supply contracts. This is the case, for example, with the large telephone operators in their dealings with smartphone manufacturers.
The Challenging Crossover
It is clear that it is difficult for manufacturers to become service sector companies. The case of Apple with iTunes is, for the moment, an exception but over the decades to come, products and services will continue to work hand in hand in the provision of client satisfaction in exchange for profits and client loyalty.
It is estimated that no fewer than 30 billion products will have weblinks by 2020. The Internet of Things is more and more providing the opportunity to drive services through products. Just imagine the phenomenon of the autopilot cars. You may say you do not want to lose the pleasure of driving your sports car. Well, are you sure it would not be a great experience to opt for a Lewis Hamilton style drive? What about selecting a digital tutoring session with Fernando Alonso? The opportunities are limitless. The internet offers the possibility to realise integrated product-service platforms. The implications are clear.
These changes are a great opportunity for product companies as long as they accept that they will have to learn and implement new business models.