Adapting to new customer demands in a disrupted world

The magnitude of the Coronavirus pandemic sent shockwaves that disrupted supply chains and businesses across the globe. In some industries, demand dried up overnight, while in others it shot through the roof. Living and working in lockdown radically changed the needs and buying behaviors of consumers and companies alike. These stresses have revealed the strengths and weaknesses of supply chains and business models across industries.

We are seeing a major shift in attitudes from manufacturers and vendors coming out of this crisis.

The need to meet new buyer demands, reduce risk and increase flexibility are all top of mind for buyers who are considering acquiring new equipment and the manufacturers and vendors who are selling it. Pay-per-use financing models address key needs here and there’s huge interest in them from our customers and partners as the way forward.

The idea of pay-per-use has been around for several decades. You use it every time you stream a TV show, movie or song. At the most basic level, it simply means paying to use something, like a service, software, vending machine, tractor or even an ambulance, without having to buy it outright and take it on long-term.

Pay-per-use was born and has grown rapidly in the consumer space. Spotify, Uber and Airbnb are great examples. It is now gaining traction in the business space, as companies see the value of paying to use services, software and equipment, rather than buying them outright.

All of these examples have a common focus. People want to pay for an outcome rather than the burden of owning a physical object.

Why would you buy a car, where you have to pay for maintenance, car insurance, fuel, etc., when it is going to sit idle for 20 hours a day?

The usage economy is becoming the new economic reality because it is either more convenient or more flexible for the user.

It does mean changing how we look at assets themselves, our relationship with them and how we pay for them. That requires an understanding of how people use assets and the outcome they want to achieve on the one hand. On the other hand, you have to find a way to match revenue with expense – whether that is paying per download, user, cup of coffee, acreage plowed or patient transported.

At DLL, our experience in both areas is enabling us to help our customers and partners leverage pay-per-use models to address new demands and become more resilient to disruption.

Here are a few recent examples that illustrate this.

Example 1: How do I sell more coffee without over leveraging my company?

A DLL client that is a market leader in unattended coffee and convenience food was seeking a financing model that would allow them to set more vending machines in the market to grow quickly, without putting too much pressure on their balance sheet. The traditional approach would be to buy the machines and make a fixed payment for each one, but the revenues are highly variable. DLL proposed a shared risk pay-per-consumption model, where DLL funds the vending machines, and the client pays based on the turnover of machine.

DLL and the client share the revenue from the machines. Having DLL fund the equipment allows the client to accelerate their sales and take advantage of new opportunities as they arise.

Lee Thompson, DLL head of pay-per-use solutions, Europe and Australasia, said: “This example is incredibly relevant as a result of the Coronavirus crisis. Companies across the scale have experienced a lot of volatility in their revenue streams.

“We are talking to a lot of customers who are wanting to reduce their level of risk and better match their revenue streams with their expenses. Pay-per-use gives them a viable way to do that.”

Example 2: How do I get my crops harvested in the fall without paying for a tractor during the winter?

Farming is highly unpredictable and very seasonal. Owning machinery brings the huge risk of unknown expenses if a season is shorter or longer than expected, or yields are impacted by weather. And after the growing season, equipment can sit idle for long periods of time, while the monthly payments continue. DLL has strong roots in agriculture and has developed a number of unique financing models for this sector over the past decades.

One example is shared usage structures that allow a group of related farms to acquire and share equipment, such as tractors and other production equipment.

Matthew Jennings, DLL head of pay-per-use solutions, Americas, said: “We are working on a product concept that takes agriculture asset optimization to the next level. It allows a farmer to sign up to use a full-feature, professionally maintained machine for a block of hours or number of acres.

“This aligns payments with what their needs are at different points in the year. Not only could it remove the risk of owning and maintaining equipment for farmers, it can actually result in lower operating costs.

“We’ve been offering this kind of product in the construction, materials handling, and industrial segment for a while based on our knowledge of equipment like forklift assets. That experience is very valid now. For example, some industries are using forklifts much less this year which is beneficial, and others are using them much more than last year.

“With our Lease-by-Hour product, the equipment that is being used much more this year will probably need to be swapped out earlier than planned and our product allows customers to do that. It addresses the increasingly unknown factors of ‘what am I going to do today and what are the risks of buying a new piece of equipment’ that many companies can relate to.”

Example 3: How do I care for more patients when I can’t predict how many will come through my doors?

Lee Thompson, DLL head of pay-per-use solutions, Europe and Australasia, said: “We provide funding to public hospitals for medical equipment that uses consumables, for example, surgical tools that use consumable attachments.

“In some countries, public hospitals have difficulty receiving approval to purchase medical equipment unless they can accurately forecast how many procedures they will perform with the equipment. To address this, we developed a new pay-per-use model that bundles consumables and equipment together.

“Rather than pay fixed monthly rentals for the equipment, the hospital instead pays as and when it buys the consumables for use in its surgical procedures. It better fits the realities of today’s public hospitals by aligning the hospital’s payments more closely with the actual usage of the equipment.”

We believe these sorts of schemes will become increasingly relevant to help public and private healthcare systems in various countries relieve the strain they face under difficult funding models.

This is particularly acute for those public organizations that are coming under ever increasing pressure to justify their budget requests based on forecasted patient throughput. In effect, having to reconcile today’s cost with tomorrow’s need.

From flexible solutions for asset sharing to revenue matched service models for clinical outcomes, DLL is working with care providers and vendors to drive successful, sustainable outcomes.

Rather than pay fixed monthly rentals for the equipment, the hospital instead pays as and when it buys the consumables for use in its surgical procedures. It better fits the realities of today’s public hospitals by aligning the hospital’s payments more closely with the actual usage of the equipment. “

DLL’s vision for pay-per-use

Pay-per-use aligns perfectly with our core value of sustainability through optimizing the lifetime value of assets.

DLL started this journey in 1971 by offering different leasing and loan options. Then in the 1980s, we invented cost-per-copy funding solutions for customers desiring greater flexibility around how they pay for productivity. Now we are providing comprehensive solutions for customers wanting greater flexibility and convenience.

We believe this is the ultimate way to make business more sustainable.

However, many great sustainability ideas of the past failed to gain traction because they were not economically feasible. We aim to create pay-per-use models that bring both economic and ecological benefits.

There is another key aspect. Pay-per-use models allow manufacturers to provide their customers with experiences. It’s not just supplying an asset on day one, but rather a tailored service solution that is supplied and adjusted to fit to the customer’s needs over time.

That strengthens customer relationships and increases the lifetime value of a business.

This is a continuing journey for DLL and we are looking for customers and partners to explore new options with us.

Whichever path we take in a particular opportunity, everything we do will always start and end with the customer – that could be a manufacturer, dealer selling equipment or an end user – to achieve the goal.

* Matt Frankel (pictured) is global head of pay-per-use solutions at DLL. DLL is a global finance partner for equipment and technology assets covering commercial finance, retail finance and used equipment finance. It is headquartered in Eindhoven, the Netherlands, and is a wholly-owned subsidiary of Rabobank Group.