Beyond the Product: How Servitization is Shaping the Future of Consumer Appliances

October 2024

Servitization as a strategic shift in the appliance industry enhances customer experience by offering integrated services alongside products. This shift drives revenue diversification through recurring service income and strengthens brand loyalty by fostering ongoing customer relationships. Overall, servitization helps companies build long-term value and differentiate in a competitive market.

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Key Findings

Servitization as a Strategic Shift

Companies in the hardware sector, particularly in appliances, are increasingly adopting servitizationto counter shrinking profit margins and enhance customer relationships. Servitizationprovides continuous engagement, offering value-added services and generating recurring revenue streams. Margins in services can range from 20-50%.

Customer Experience Enhancement

Servitizationfocuses on improving customer experience through personalized, convenient, and continuous services. Ongoing interactions foster loyalty and long-term customer relationships.

Revenue Diversification, Premiumization, and Expanding Market Appeal

Shifting to a recurring revenue model allows companies to stabilize income and open opportunities for upselling. Unique service packages help companies stand out in a competitive market. Broadening a company’s appeal to a wider consumer segment helps capture an expanded market.

Improved Product Lifecycle Management and R&D Efficiency

Servitizationaids in extending product lifecycles and improving sustainability. Reduces downtime through IoT and data analytics. It encourages longer product lifespans and waste reduction through services like refurbishment and predictive maintenance.

Strengthened Brand Loyalty and Competitive Moat

Ongoing services help build trust, retain customers, and promote brand advocacy. High-quality services make it harder for customers to switch to competitors. Satisfied customers are more likely to recommend the brand, driving organic growth.

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Why read this report?
An immense opportunity for product focused companies struggling with narrowing margins
The opportunities to enhance a company’s competitive moat are numerous through servitization
Servitization is the key to enhancing customer relationships and standing out in the market
The market opportunity for servitization is immense
What is servitization?
Numerous companies in other industries have benefited from implementing servitization
Case study: How Rolls-Royce aligned its vendor-customer incentive structure
Apple Inc has shown how services can help keep profit margins high
It will enable companies to enhance customer experiences and diversify revenue streams
Services enhances a customer’s experience, increasing brand loyalty
This shift will enable companies to upsell their services and predict future revenues
Improved l ifecycle management aids appliance firms with climate regulations
A strong competitive moat will be needed as replacement cycles continue to shrink
Servitization enables brands to broaden their appeal to a wider consumer segment
The biggest obstacle to success is a consumer’s perception of appliance services
Subscription fatigue will likely be another significant obstacle
Companies have introduced numerous service models, with varying levels of success
LG, unveiled its plan to transform into a service oriented “smart life solution” company
LG’s take on servitization with ThinQ UP 2.0 has already seen a significant uptake in Korea
LG provides subscription services in Korea that offers access to a host of O2O services
The “Three-Winged Bird” brand was developed to exemplify Haier vision of the smart home
Levande , Electrolux Group’s subscription program aims to reduce e-waste
Panasonic’s foodable helps create value and overcoming a “Why Panasonic” question
A smart kitchen platform that offers personalized recipes and meal planning
Transitioning from one-off sales to recurring revenues can help maximize shareholder value
Opportunities for growth through servitization are numerous
Evolution of servitization in the appliances industry
Questions we are asking

Consumer Appliances

Consumer Appliances is the aggregation of major appliances and small appliances. Major appliances are an aggregate of the following categories: refrigeration appliances, home laundry appliances, dishwashers, large cooking appliances and microwaves. Small appliances are an aggregation of the following categories: food preparation appliances, small cooking appliances, vacuum cleaners, irons, personal care appliances, heating appliances and air treatment appliances.

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