Product Service System Models are one of Circular Business Models (CBMs).
Circular Business Models (CBMs) are designed to turn all that waste that businesses and consumers generate into useful and valuable resources that can be used again in a sustainable way.
There are five commonly Circular Business Models (CBMs) as defined by Organization for Economic Cooperation and Development (OECD) including:
- Circular Supply
- Resource Recovery
- Product Life Extension
- Sharing
- Product Service System
Let’s take a look at how businesses operate under these five categories.
What are Product Service System Models?
Product Service System Models offer a function of a product rather than the physical product itself. Such models focus on the underlying needs of consumers who do not necessarily want to own the product, but who want to benefit from using it. These models allow customers to lease (or rent) products rather than buy them outright.
They integrate products and services to deliver a value proposition to customers. Product Service System Models are based on the idea that customers are not always interested in owning products outright, but rather in the benefits that those products can provide. By combining products with services, businesses can offer customers a more comprehensive and tailored solution that can meet their specific needs.
The business has legal ownership rights and rents out the assets to customers, thereby keeping in use for longer. In other words, it is not about selling a physical good, but the service from the product that customers seek. These models use a pay-for-use arrangement with the service rather than buy-to-own approach.
Examples of Service System Models
There are three main types of Product Service System Models:
- Product-oriented. This type of focuses on providing additional services to support the sale of products. For example, a company that sells computers might offer installation, repair, and maintenance services.
- Use-oriented. This type focuses on providing access to products without requiring customers to own them. For example, a company might offer a car-sharing service that allows customers to rent cars by the hour or day.
- Result-oriented. This type focuses on providing customers with a specific outcome or result, rather than a specific product or service. For example, a company might offer a home security service that guarantees a certain level of security for its customers.
Example 1: Online music streaming services such as iTunes and Spotify rather than consumers owning CDs and vinyl records.
Example 2: Multimedia streaming services such as Netflix, Disney+ and Amazon Prime instead of customers purchasing DVDs with movies and DVD players.
Example 3: Cloud file hosting and storage service providers such as iCloud, Google Drive and Dropbox have reduced the need for physical computers and laptops with large storage devices, including external hard drives and hardware accessories.
Example 4: Michelin, one of the world’s largest tyre manufacturers, sells tyres as a service rather than a physical product to business customers, who pay for the miles driven. Customers do not own the tyres, and they are not responsible for any maintenance either. This model gives Michelin an incentive to design and develop longer lasting tyres as well as tyres that can be repaired and recycled more easily.
Example 5: Air conditioning manufacturers lease out their equipment saving businesses installation, repair and replacement costs. When the time comes, the service provider takes the equipment back for appropriate reuse, recycling or environmentally friendly waste disposal.
Example 6: Rolls-Royce offers a TotalCare for its aircraft engines that provides customers with a comprehensive package of services, including maintenance, repair, and overhaul.
Example 7: Xerox offers a Managed Print Services (MPS) that provides customers with a complete outsourced printing solution, including hardware, software, and services.
Example 8: General Electric (GE) offers a Power by the Hour (PBH) for its power generation equipment that provides customers with a guaranteed level of power and availability.
Benefits of Product Service System Models
Businesses can generate more revenue by providing services in addition to products. Customers appreciate products and services that are tailored to their specific needs.
Product Service System Models create incentives for businesses to use environmentally friendly product designs and more efficient product use.
Hence, they help to promote greener and more sparing approach to resource use, especially with non-renewable natural resources.
Businesses that are prepared for the transition to a service-based economy will be better positioned to succeed in the future.
Challenges of Product Service System Models
Product Service System Models can be more complex to design and implement than traditional product-only models.
Customers may not be willing to pay for services that they are used to getting for free.
Some Product Service System Models require new technologies that may not be readily available.
In summary, Circular Business Models (CBMs) focus on multiple-use resources and products which are reused and remain in the economy for as long as possible. They are decision-making tools that focus on the environmental impacts of business activities through circularity – reducing, reusing, repairing and recycling raw materials, products and waste.
