Sell

Leasing

Product leasing is a service compensation model in which the customer pays for continuous access to a product over an agreed period. Product manufacturers typically maintain ownership of the product and are responsible for delivery, maintenance and take-back.

Product manufacturers may consider reevaluating their revenue model from a single-transaction sale to a relationship-based service contract. Leasing differs from the pay-per-service unit model in that the customer pays for continuous access to a service over a defined period instead of the number of uses.

Examples of industry leasing in practice include:

  • Automobiles and industrial vehicles
  • Office or warehouse space
  • Chemicals
  • Carpet tiles
  • Mobile phones

Example

Philips Healthcare: Partnership Business Model

Situation

  • Global resource constraints on health systems are driving a shift to value-based healthcare to reduce cost, increase access to care and improve patient outcomes. 

Challenge

  • The rapid pace of technology development triggers the replacement of equipment with significant residual value at a high disposal cost for hospitals.

Solution

  • Philips is transforming to provide value-based healthcare by moving from selling equipment alone to more of a long-term solutions model and sharing risk for results with its customers through a partnership business model.
  • The partnership business model is based on an assessment of a customer’s current state versus its ideal state in terms of quality, cost and throughput.
  • Philips is rewarded for continuous improvement in clinical, operational and financial outcomes.
  • Upgradable equipment, system refurbishment and parts re-use reduces the total lifecycle costs of equipment and extends equipment lifetimes.

Key benefits

  • The partnership model enables care providers to reduce costs, share risks, and access state-of-the-art solutions and services at a predictable cost.
  • Better customer value and more focus much on customers.
  • Philips has achieved 50-90% material reuse (depending on the product) through its refurbishing activities, including its reuse of 940 tons of refurbished medical imaging equipment in 2016.
  • Currently, 9% of their total revenues are categorized as circular (for 2016), and the company aims is to double that and reach 15% in 2020.
  • Reclaimed and recycled 1700 metric tons of spare parts in 2016.