Episode 77: Subscriptions in the Industrial and Manufacturing Industry with Stephan M. Liozu, Ph.D., Founder & Disruptor at Value Innoruption Advisors
In the latest episode of Subscriptions Scaled, we speak with Stephan M. Liozu, Ph.D., Founder & Disruptor at Value Innoruption Advisors.
In the episode, we discover everything from Stephan’s experience in the industry to how to work out the value of your product.
Keep reading to learn more about the episode.
Value Innoruption Advisors
Value Innoruption Advisors is a boutique consulting firm focusing on disruptive approaches in value management, industrial pricing, and digital pricing strategies.
Stephan Liozu
Stephan has around 30 years of experience in the manufacturing and industrial space. He fell into pricing and decided to do his Ph.D. in value-based pricing and how to transition companies from cost to value.
When the subscription boom happened around five years ago, Stephan thought that new pricing models should be considered by traditional industrial companies as it's a good way to diversify. Stephan uses his knowledge in value-based pricing to bring richness to subscriptions.
The growth of subscriptions in the industrial and manufacturing space
Subscriptions are still relatively new to the industrial and manufacturing space. In 2019, Stephan published a paper showing that out of the top 500 industrial companies in the US, only around 15 to 18 percent have dedicated pricing teams.
A lot of companies still do pricing somehow without a team, or they do it more informally. However, many companies invest millions into digital transformation and software. Yet many are missing out on a pricing team or at least pricing expertise to help them move towards recurring pricing models.
If companies don’t already have a pricing team for their products, how can they assume they’ll get subscription pricing right?
Many subscription billing platforms and companies are trying to move into manufacturing because of its vast potential. However, it’s different than selling to B2B SaaS companies. Companies need to think more about their market.
Defining value
There are a few definitions when it comes to value in the subscription industry. When it comes to industrial companies, they also have various definitions. There’s a difference between financial, shareholder, business, and customer value, for example.
Customer value is all about the set of benefits brought to customers through products, solutions, and subscription software. Are the benefits emotional or economic? Customers will pay according to the perceived benefits.
Big in the definition of value is the exchange between utility and benefit. But companies must do their homework to truly understand the economic and emotional value their solutions bring to their customers. What problems is the product solving?
For example, a product could save a business potentially 250k a year with a subscription.
Businesses can then give customers a price and the value associated with it. That turns into a potential ROI.
Moving to subscriptions
Most companies in the world are involved with some form of digital transformation. Because of that, they’re likely to have a digital platform they’re working on, a subscription, connected services, predictive maintenance, an app, or something similar.
In explorative discussions, Stephan may have to put in some groundwork to convince companies to move to subscriptions. However, in this digital transformation boom, most companies know they need to make a change, whether in usage outcome or subscription.
In many cases, Stephan ends up helping companies who start off needing to buy billing software for a subscription. He asks more questions and often discovers that a staff member in business, marketing, or general management was told to make a specific purchase. However, they may not have experience in pricing.
Stephan notes it’s frequently easier to work with people from technical backgrounds than those in marketing or finance because it’s more straightforward.
Books
Stephan has authored or edited 12 books including, in 2018, Monetizing Data.
After Stephan began working with industrial companies, he wanted to write a book on how to do this, as many people don’t know where to start.
Stephan’s book, The Industrial Subscription Economy: A Practical Guide to Designing, Pricing, and Scaling Your Industrial Subscription focuses on industrial manufacturing companies that want to transition into subscriptions. It details what to do at every step of the process.
Whilst researching the book, Stephan studied 100 companies, including Siemens, Honeywell, and other companies that have launched subscriptions. Many of them have already been successful, others are just beginning.
Stephan brings all the richness of B2C adapted for industrial, and the book is very practical.
Direct-to-consumer to industrial
DTC subscriptions can be very different from industrial subscriptions. One of the issues Stephan dealt with was people talking to him about subscriptions, but purely in terms of B2C.
But the language is different. The horizon is different, and the lifetime value of customers is different. So companies need to rethink their strategy.
The future of subscriptions in the industrial space
About half the software in industrial companies isn’t in a subscription format. Where typically 75 percent of software in the cloud and SaaS is in a subscription format, it’s more like 40 to 50 percent in the industrial space. So there’s still a lot of work to be done.
But this means there will be huge potential for subscriptions.
When it comes to equipment as a service product, we’re just at the beginning. Once the financial and insurance instruments are ready to support this, it could be a significant opportunity for the industrial space to move onto subscriptions. It will depend on the economic situation; right now we’re potentially entering a recession.
As everybody will be protecting their cash, subscriptions may be more successful in the next three to five years, depending on how bad the interest rates get. However, the potential is enormous.
This is why many billing and subscription platforms and companies are trying to move into manufacturing.
Whether subscriptions in the industrial and manufacturing space boom soon or over the next few years, it seems the future is bright.
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