Servicizing

"People don't want heating fuel or coolant; people want cold beer and hot showers."

- Amory Lovins, CEO, Rocky Mountain Institute

What is servicizing?

Servicizing is typically defined as selling the function of a product or the service it provides, rather than the physical product. For example, consumers buy server capacity instead of computers, voicemail service instead of answering machines, or automobile painting services instead of paint. Ownership of the product remains with the manufacturer/supplier to whom the customer pays a fee based on use. The customer can obtain the functionality of the product by directly using it, e.g., leasing office equipment, or can have it delivered by the manufacturer/supplier, e.g., onsite chemical management. The manufacturer/supplier, who knows the product including the associated liabilities and waste reduction opportunities, is responsible for maintaining it, and at the end its useful life, for recovering and recycling or disposing of it. In some cases, such as chemical service management, the manufacturer/supplier may also provide a variety of services such as tracking chemical inventories for its customers, restocking them as needed, handling regulatory paperwork, and removing the empty containers.

What are the potential business benefits of servicizing?

The trend towards servicizing is based on the notion that customers don't really want the product, but rather the functionality that it offers; and further, if economic relationships can be structured to encourage this shift in focus, many opportunities for meeting human needs with fewer physical goods will emerge. The theory is that this dematerialization should, in turn, not only lead to fewer environmental impacts, but the opportunity for manufacturers and suppliers to save money on materials and energy, to build and maintain strong customer relationships, and to potentially make more money than they could by selling their products outright.

What types of products are good candidates for servicizing?

Typical candidates for servicizing are products that have a limited lifespan or can be supplied as a service rather than a product. Examples include electronics, photocopiers, chemicals, cleaning supplies, and equipment - especially expensive, specialized equipment that would be costly for customers to acquire, repair and maintain themselves.

Examples of business that are servicizing products include car sharing companies, such as Flexcar and Zip Car; and music distribution, including Apple iTunes and Napster.

Is servicizing appropriate for your product?

To determine whether servicizing may work for your product, begin by considering what your consumers really want from it. Then ask yourself whether they want to own it outright for a good reason such as the ability to depreciate it for tax purposes. Can you persuade them otherwise? For example, assuming you can prove your product meets certain codes or policy, can it help your customer meet their environmental goals? Or, given the environmental risk and potential liability associated with the product, would the customer benefit from leaving responsibility for handling the product with the manufacturer/supplier so that it can concentrate on its primary line of business? Finally, make sure to fully investigate whether servicizing will really lower your costs.

Tools

• Tips for Starting a Servicizing Program
• Checklist for Implementing a Servicizing Program

Further Reading

• Moving from Products to Services
• Environmental Markets : Opportunities and Risks for Business
• The Demanufacturing Difference
• Servicizing : The Quiet Transition to Extended Product Responsibility
• Leasing : A Step Toward Producer Responsibility
• Contracting For Servicizing (Harvard Business School Working Paper)