Big H seeks subs model growth in UK
Tuesday, October 15, 2019
In consumer sectors, the flexible subscription model has been popular for many years, with services such as Netflix and Spotify each now boasting more than 100 million paid users globally.
Offering security of income and increased brand loyalty for service providers, and flexibility for customers, there are many advantages to the model. But despite these, the B2B sector has been comparatively slow on the uptake.
However, the tide has been turning in recent years as the world continues to stride quickly towards an increasingly digital future, and many businesses have felt compelled to act.
Heidelberg introduced its pay-per-use subscription model in early 2018. It has quickly proven popular in some regions, particularly eastern Europe, but the UK has been slower on the uptake, with no users signed up to the company’s ‘full-blown’ subscription offering, which includes presses, at the time of writing.
However, Ryan Miles, who succeeded Gerard Heanue as managing director of Heidelberg UK in April, says the business is currently talking to “just over 15” companies about variations of the subs model and expects to convert half of those.
“That is quite high, but I would be surprised if we didn’t achieve that number based on our negotiations with customers,” he says, adding the company expects to conclude its first full model subscription contracts for the UK market “in the short term”.
“We have subscription users in other forms, in terms of workflow, and we have multiple users already in terms of our software subscription model.”
While Heidelberg was initially pushing the full model as standard, it has continued to introduce additional versions of the model.
One new version allows users with a subscription contract to acquire the Prinect software functions that they actually need for a monthly, usage-based fee, with-out having to purchase individual licences.
The same approach also applies to machine maintenance and consumables supplies for both pre-existing machines and new machinery purchased in the conventional way.
“We started with the fully blown model to understand which components are important for which situation,” said Heidelberg chief digital officer Ulrich Hermann, speaking to Printweek at an event held last month at the premises of early subs model customer the Klampfer Group, in St Ruprecht an der Raab, Austria.
“We have a ‘land and expand’ strategy that comes from the software industry – we start with a freemium model and then when the customer understands the relationship and value, you can discuss with them how to expand the value of the contract.”
For customers that take out the full package, Heidelberg supplies all of the necessary equipment, software, and consumables, such as printing plates, inks, coatings, washup solutions and blankets, as well as a range of services geared to availability. Customers then pay for the sheets that they print.
The manufacturer also works with customers to help them to improve their processes, workflow and efficiencies.
“More and more machines are now coming together with contracts. Disregarding whether the customer owns the machine or we do, the average value of the contract is increasing because the customer sees the productivity advantages if they get us more involved in the value chain,” said Hermann.
Miles, who has been pushing all variations of the subs model out to the UK market since he started in post six months ago, says there is around a 50/50 split between prospects interested in the full model and other variations.
“That’s given us a very early learning that the modular approach is exactly the right approach, because otherwise we’d be offering a model that doesn’t suit half of our address-able market.”
He adds: “The initial strategy in the UK was linked to performance and performance improvements only; we’re aware that UK printers are on balance highly productive already but what we have found with the subscription model is that it appeals to customers for different reasons, and they can achieve different efficiencies from the model.
“Even if somebody is highly productive in terms of sheets coming out of the machine, it doesn’t mean that the model can’t add value in many ways.”
He says the subs model suits “like-minded customers” who have “a sound business model to create growth” and stresses how crucial it is, particularly with the full model, that both parties are on the same page.
“When you’re entering into a partnership with capital equipment, workflow and solutions that touch the customer’s customers, you have to have an understanding about working together towards common goals.
“We add value through the model by helping the customer with their digital transformation strategy and by creating efficiencies, but the customer needs to be willing on their side and to have made the decision to go on that journey.
“It’s not the case that we will do it with whoever wants it, we do work with customers and ensure that we have the right profile of customer who shares the same objectives.”
Globally, Heidelberg now has more than 50 users of the subs model and anticipates the number will move into triple figures by the end of its fiscal year.
Contract business is central to the company’s ongoing digital transformation – in the future it says contracts like these will account for around a third of its overall net sales.
Miles says some customers “fully embrace” the pay-per-use philosophy and no longer have any desire to own their equipment, while others like the pay-per-use model for the operational side of their business but still want to own their machinery “because it suits them in terms of their capital structuring or they still have an emotional attachment to owning it themselves”.
He stresses Heidelberg also continues with its traditional sales model, “which suits a portion of the market”.
“That flexibility is there from us in terms of what’s best for the customer. Where we go five to 10 years from here will be really interesting in terms of how things develop. We believe that our strategy is very suited to the future market.”