Don’t Sell Products, Sell Systems – The Product Lifecycle Revenue Model
The concept of “system selling” is applicable to all products and services. System selling extends the lifecycle revenue of products and services. The wisdom of offering products and services that don’t stand alone, but which intimately fit into a greater system for the end user or client, continues to be sound and exploitable by marketers. It is a necessary element in OMNI channel strategies, product management and the Product Lifecycle Revenue Model. Why? Because systems become enmeshed in how users operate, act and sometimes even think—as they change and reinforce behavior, they tend to endure.
Standalone products, on the other hand, can often be easily replaced. Good marketers should never allow their products to be called or considered “commodities” and should do all things necessary to ensure that their products never become commodities. And, once a marketer considers their own product a commodity and/or permits others to describe it like this, the product either is a commodity and is in decline, or will become one. One way to avoid commoditization of a product or category is to ensure that it is a critical part of a greater, sustainable system that has a unique value proposition and continues to offer unique selling features during its entire product lifecycle. One of the most famous and compelling examples of a marketing company applying a system selling strategy is Gillette’s “give away razors to sell blades” strategy. Razor and blades companies continue to use this strategy to this day, applying the principle of a useful tool that can use only that company’s consumable components to make the system work. But even Gillette’s model, successful for many years, was pressured by the Dollar Shave Club, forcing Gillette to make changes to its products, services and systems.
The following companies have done a great job in maximizing the Product Lifecycle Revenue Model of their products and services.
- Jet Engines: GE and Rolls Royce sell their jet engines near cost, and perhaps below cost when trying to get into a new airframe. They know that once an engine is on a plane that there will be 30+ years of spare parts sales for that engine which significantly extends its product lifecycle revenue model.
- PC printer companies, including Hewlett Packard, Cannon, Lexmark, and others, have applied this model effectively to their businesses. HP ink jet cartridges don’t fit in Cannon printers and visa versa, ensuring a steady stream of aftermarket cartridge sales once a printer is placed with an end user. They protect their systems by aggressively patenting their designs (and defending their intellectual property against any competitive attempts to “knock off” their designs). By the way, it is notable that these printer companies’ make all of their profits (and then some) by selling ink.
- Avery Dennison applied this strategy to its printable office supplies product lines in the late 1980’s, creating Avery-branded formatting and printing software and providing their formatting templates to software partners such as Microsoft and others. Their logic was pretty simple and compelling: make it easier for people to format and print labels, business cards and other printables and people will use more. Software, whether Avery’s own-branded or embedded into the programs of partners, served as the “razors” to drive Avery’s “blades.” (And Avery strengthened the power of this system by trademarking all of its laser and ink jet printables product codes, making competitors’ alternatives “less compatible” than otherwise.)
- Intel developed its own version of system selling when it launched its wildly successful “Intel Inside®” campaign in 1991. Intel took what was otherwise a hidden, out-of-sight-out-of-mind component in a PC or other smart device and effectively positioned it as a centerpiece of the greater system. The system already existed, but Intel elevated their key component to the level of defining the system, with a resonant theme that prevails to this day.
- Rain Bird has used system selling strategies in design of irrigation systems and related spray heads. Like other irrigation products companies, Rain Bird created spray heads that worked in concert with one another (throw distance, amount of water thrown, etc.) and offered compatible valves, electronic system controllers, etc. But Rain Bird took this concept to another level in its development of spray heads and greater systems with matched precipitation rates, i.e., heads and components that throw water at matched rates. This enabled installers to, created systems using fewer irrigation zones, reducing the number of valves, wiring and pipes needed for a system, while also simplifying installation and making the resulting system more reliable (via fewer “moving parts”). This improved installer margins dramatically, reinforcing the strategy.
- Market-leading industrial battery manufacturer Trojan Battery Company also applied a system selling strategy to its categories: Trojan developed battery charger algorithms (the software routines that tell the charger how to best charge batteries). The company contemplated offering its own Trojan-branded chargers as sorts of “razors” to sell its “blades” (deep cycle batteries). Instead, however, the company wisely opted for a variant on the “Intel Inside” strategy, making their patented algorithm available to battery charger partners with accompanying “Trojan Inside” positioning.
- Finally, and perhaps most powerfully, Blizzard Entertainment has applied the “razor-blades” strategy to its wildly successful “World of Warcraft” multi-player online role-player game business. In Blizzard’s case, the “razors” are the “blades”: in the original platform launches in the early 90’s, the game could be purchased for a modest up-front cost. Subsequently, however, a player had to subscribe monthly to continue to play online. The product itself, coupled with the community of other players who participate, are what move the game player into an ongoing use of the product. Other software companies had used earlier variations on this model in the 1980’s, offering a relatively low cost, “stripped-down” version of their software at outset, with charges thereafter for upgrades and new releases. Blizzard took the software version of this model to the next level with their online community subscription strategy.
These illustrations, representing product categories that are very different from one another, reinforce the power of systems selling and the “offer razors to drive blades sales” strategy that remains a powerful way to sell systems and optimize the Product Lifecycle Revenue model. Every consumable products marketer should challenge her/himself to consider what their Product Lifecycle Revenue model is. They need to know if “razors” can be offered in their business or, if their products are “razors” (a durable and/or device), what “blades” they could offer to make their solution more of a system. Systems become indispensable, which is how every marketer wants customers and users to view their solutions.
Developing systems that consist of products, services and software which significantly extend a products lifecycle revenue curve is doable for every product, whether B2C or B2B, and for many companies, they add OMNI Channel services as part of their system.
Group50 consultants have worked in several of the companies listed in this article and are intimate with the use of Group50’s Product Lifecycle Revenue model. It is part of world class Market Effectiveness. that starts with an effective business strategy.
If you want to assess the opportunities your company may have to sell systems and significantly extend the revenue lifecycle of your products and services, you can reach us at (909) 949-9083 or send a note to firstname.lastname@example.org or request more information here.
About the author: Jim Gitney is the CEO of Group50® Consulting and specializes in the development and implementation of manufacturing and supply chain strategies. Jim and the Group50 team are all former executives with well-known manufacturing and distribution companies who understand what it takes to put together and manage successful system based portfolios of products and the design and implementation of a successful strategic plan.
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