Functional Service Economy : The New Business Model
Functional service economy is still new to entrepreneurs, however this new business model seems to be the perfect alternative to traditional business strategies and here is why.
In a difficult economy situation, many ecological and economical matters have emerged : overconsumption, lowered salaries, lowered purchasing power, company relocation… there are many consequences to those issues and some of them are disastrous.
As they directly impact business profitability, most of them decided to increase sales volume in order to reduce their production costs. However, this strategy leads to a vicious circle as cost control and obsolescence are the main aims.
What is functional service economy?
Functional service economy is based on selling the product consumption. There are no property transfer between buyer and supplier as the good stays the company’s property. Only the product use is being paid by the consumer.
Let’s have a look at Michelin for example. Despite added value on their tyres regarding fuel saving, the company did not succeed in selling their products at a highest price. But thanks to functional service economy, they overcome this matter by billing their customer based on kilometers driven.
TotalBoox also succeeded in overcoming e-books lowered sales, when clients refused to buy electronic books because they couldn’t leaf through pages before buying, as they would in a book shop. The company responded and decided to bill based on how many pages were read.
Another good example is the company Nordaq who decided to address mineral packing and transport matter. To fight against overconsumption and pollution, they developed a machine for restaurateurs to filter tap water. This treatment gives a very pure taste to water, just like mineral water in a bottle. Their business model is based on billing only filtered water liters.
Finally, another example is Km127. This company is going to open a subscription hotel in 2019. Their strategy is to put exceptional lodging first, over owning a secondary place of residence.
Economical and ecological advantages
This business model offers real economical advantages for companies. Indeed, once they acquired the equipment they need, expenses are generated from machine maintenance and salaries. This cost is far less significant than machine mass production. Companies can lower their prices and raise their profit margin. Furthermore, this business model is the perfect answer to matters raised by the current economic crisis.
While cheap labor and planned obsolescence are fundamentals to traditional business models, functional service economy calls for quality and durability. Equipments must be built with great quality materials and well maintained in order to last in time. Labor must be qualified, so salaries are usually higher, which is not a problem since the business model is more profitable. This strategy completely contrasts with traditional business models in which cost control is key to maintain profitability.
At last, increasing equipement lifetime directly diminishes the need of material consumption required to their production. Functional service economy seems to be the ideal alternative to economical and ecological current matters.
This business model also meets Corporate Social Responsibility (CSR) expectations as well as circular economy.
Functional service economy : what are the disadvantages
Equipment manufacturing investment is really important and may require banking funding or investors contribution.
Moreover, this economy may not always apply depending on the product.
For example, one-time use goods are impossible to adapt to this business model, just like food.
However, some company succeeded in adjusting. Sachefem for example, is a german company who offers chlorinated solvent rental that is used to remove grease from pieces of metal. Once used, the company takes the solvent back to recycle it and solve the pollution matter that comes with the product use.
Therefore, if you are looking for a innovative way to make your current business profitable, or if you are about to launch a company, you might want to consider functional service economy. It really offers the perfect ecological and economical solution while still being very profitable, a business model that will explode in the future.
Payfacile application takes place in this movement by making easy any usage transaction system based on this new business model. Any company, small or large, or even entrepreneurs have access to a unique technology to avoid any necessary IT development cost to bill clients based on consumption.