Product as a service (PSS) business models challenge the existing and dominant business approach of selling tangible products. These can be clustered into clustered into three main categories: product-oriented, use-oriented, and result-oriented PSS models. It can be implemented via practices of leasing, renting, pay-per-use or performance-based business models.
What is the product as a service business model?
Product service system (PSS) models combine a physical product with a service component, which vary based on their emphasis on the physical product or on the service aspect (OECD, 2019; Lacy and Rutqvist, 2015). Usually, the company retains the ownership of the product and offers the customer access to the product. In this way, environmental benefits can be realized as companies are encouraged to repair and maintain the product in use for a longer period (Rizos et al., 2017).
The typology of PSS follows that developed by Tukker (2004), separating product service system models into eight types (e.g., paying per service unit, renting/sharing, leasing, product pooling) which are clustered into three main categories: product-oriented, use-oriented, and result-oriented PSS models. PSS is closely linked to the process and business model of product life extension.
In which context is a product as a service offering useful?
PSS has expanded into a wider range of science fields (e.g., business management, design, manufacturing) and regions (Tukker, 2015). Additionally, the field has moved towards discussing how to implement PSS and its dependency on certain success factors and issues (e.g., product availability for clients or diversity of services provided). Yang et al. (2018) points out the potential of PSS in enhancing the circularity of supply chains through value creation in inner circles, circling long and cascading use circles. Applying the three categories of Tukker (2004), the result-oriented PSS have tighter and more efficient cycles of supply chain operations. This means that the repair, reuse and remanufacturing system is faster and the rate is higher (Yang et al., 2018).
What is important to keep in mind when designing products as a service for your business?
PSS have been associated to environmental benefits (Baines et al., 2007), but at the same time, concerns about the net environmental benefit of these models has been raised (Tukker, 2015). One of the concerns is addressing the energy consumption impact of PSS business models. Rizos et al. (2017) highlighted that the energy efficiency of PSS depends on the change and development of efficiency improvements between new product generations. Emerging digital technologies provide additional opportunities for PSS business models, but at the same time sustainability and digitalization have been considered jointly to not fall into the trap of rebound effects, which means that there is more consumption because of the efficiency of a product for example.
When developing the PSS business model, companies need to proceed with caution which services they choose as for consumers, having control over things and their life is one of the attributes that are valued highly. However, compared to traditional products, PSS are often less accessible and lack tangibility that customers have been used to (Tukker, 2015). However, through PSS models (especially user-oriented ones) consumers can get access to high quality or technologically advanced products that they could not afford otherwise (OECD, 2019).
Manufacturer can benefit from several advantages, such as mitigating supply chain risk. However, if non-manufacturing firms are involved, the adoption of user-oriented PSS is rather motivated by other opportunities (OECD, 2019). For expensive goods such as vehicles and high-end clothing, for example, it might be advisable to address consumers that are unable or unwilling to buy new products but are interested in paying for temporary access. For digital access to literature and music, this can reduce unit production costs (OECD, 2019).
What are the different levels of such product-service systems and why does it matter for sustainability?
Product-oriented PSS systems are usually embedded towards the end of the product end of the PSS spectrum. Manufacturing firms will continue to produce and sell but enhance the traditional product by offering after-sales services in addition (e.g., repair or maintenance contracts and offers) (OECD, 2019).
User-oriented PSS (or access-oriented) models focus on customers paying for temporary access to a product (e.g., through a short- or long-term lease agreement), while the service provider retains full ownership of the product, e.g., car sharing, office and equipment leases, and garment rental services (OECD, 2019). Consumers only pay for a product when they actually need it but ownership of the good itself remains with the company or provider. Result-oriented PSS are marketing the services or outcomes provided by the manufactured goods (e.g., a firm might sell a heating outcome instead of certain equipment or energy inputs). As these business models are more about the outcome, this creates strong incentives for the efficient use of different inputs (e.g., energy or chemicals) (OECD, 2019). Examples for result-oriented PSS models include energy service companies that offer e.g., energy efficiency services to their customers, chemical management services or chemical leasing, linking compensation of the provider to the quantity / quality of the service, and integrated pest management / performance-based pest management as a special form of chemical leasing in the agricultural sector (OECD, 2019).