“Intellect Inside!” Or how to do more than simply sell your products

Written on 21 January 2014.

Authors :
Philippe Véry, Professor of Strategy at EDHEC Business School
Eric Hanoune, Head of Services Offer Marketing at VIRBAC


Executive summary :
Over the last few decades, there has been a real shift towards the intangible economy in developed countries to the detriment of the industrial sector. In parallel, consumers are opting for new forms of consumption, preferring to adopt a right of use rather than outright ownership. Given this context, many industrial firms have had to rethink their offer and their business model. This paper presents various strategies which physical goods producers can adopt in order to exploit their resources and their knowledge capital accumulated over the course of time as profitably as possible. We focus on the extension strategies built around products already manufactured by the firm, illustrating our analysis with some successful business case studies.

The repositioning of an industrial firm’s offer may take different forms, depending on two criteria:
• can the firm’s customer base evolve towards the purchase of a right of use rather than a right of ownership?
• does the company wish to opt for a strategy that focuses on the goods produced or a strategy that creates added value for its intellectual production?
Depending on the answer to these two questions, 3 strategies may be envisaged that go beyond simple product marketing:

1. sugar-coating strategies that aim to increase the product offer’s value by combining it with peripheral services liable to interest a customer base that remains interested in the right of ownership (Nespresso).

2. chartering strategies that retain the product as the key source of added value, while giving customers the option to switch from a right of ownership and instead purchase a right of use (Hilti).

3. soft skill strategies that involve a strong shift from the ‘tangible’ to the ‘intangible’, based on value creation from a pure service activity (IBM) and/or an activity based on the sale of intellectual resources (Air Liquide).

These 3 strategies present very different business models. In a sugar-coating strategy, the business model continues to develop around the manufacturing and sale of a product. The chartering strategy is often built around a so-called ‘lock-in’ or rental model. Lastly, the soft skills strategy is based either on promoting the intangible assets linked to the product, or the income from product-related service activities.

Finally, while each of these strategies has its own logic, they involve significantly altering the firm’s perimeters and, as such, should be considered as diversifications in their own right, subject to numerous strategic, operational and people-related pitfalls.
They nonetheless remain valuable sources of development and value creation.

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