Used-based pricing and strategy

The customers don’t want to buy. They want to use

The customers don’t want to buy. They want to use

Some years ago, a German company, an air compressors manufacturer, stopped selling air compressors to customers. From then on, they could get them for free. But it didn’t mean that company’s C-suite leaders were doing this for charity. They charged their customers, but not for devices themselves. The clients paid only for what they really needed.

You don’t need a computer or a smartphone. You buy these devices to work, play, exchange messages with your friends, watch videos, etc. Or, if we dig deeper, you possess them out of the needs to stay in touch, to have fun, or to win a social contest.

You don’t need a car — you, probably, buy one to move yourself from point A to point B. Or to show off. Or both. Clayton Christensen called this approach JTBD, Jobs To Be Done. Customers “hire” a product to do some “job” for them. But paradoxically, even some years ago, they didn’t pay for the job; they paid for devices.

Even if you use your car every day, it waits for you on a street or in a parking lot most of the time. So, you paid for 100% of a car’s capacity (which equals using the car 24/7), but you use barely 15–20% of this resourse. What if a car manufacturer would charge you only for the hours and minutes of driving? Such a solution exists called “carsharing,” and it is trendy in some countries. It is cheaper than possessing a car, but you need to share it with unknown people and, therefore, put up with dirty seats and broken buttons.

But some companies offer their customers products that they shouldn’t share with other customers. It looks like a client owns a product but pays only when (and while) they use it. The air compressor case at the beginning of the article is not the only one. One can get tires for a lorry being charged for mileage, not for the tires themselves. A company can get a heavy mining truck by paying only for the hours of use. This approach is called used-based pricing, and this is the future.

Look around you — how many things do you have but not use or use very rarely? Wouldn’t it be great not to pay for all these things when you don’t need them? It would save you tons of money, and this future will come soon. It will be a challenging time for manufacturers and suppliers because, as of today, customers pay in advance, whereas embracing the used-based pricing approach means they would struggle for their cash flow. But, on the flip side, it will motivate manufacturers to increase the quality and usability of their products — to make us, customers, use them more often.

Moreover, it may inspire them to find innovative solutions to familiar tasks. For instance, a person buys air conditioning to maintain a room’s comfortable temperature. A manufacturer can charge them for the volume of cool air (and these solutions already exist). But, on the other hand, is air conditioning the only solution for the issue? Used-based pricing implies that a customer will pay more during the time of use than they would have paid upfront for the device. But it may take years, so the manufacturer needs to find a smarter solution not to run out of cash.

Customers are kings these days. And if they don’t want to own and do want to use — businesses must react respectively. For example, in the air compressor case, customers are charged for cubic meters of compressed air because it is what they truly need.

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