How Digital Transformation impacts sales channels and what to do about it
For many years, I have had the honor of working with Toyota on many global programs. A few years back, I realized that while we all know Toyota, in actual terms, customers don’t buy anything directly from Toyota. If you want to purchase a car or service one, you go to the dealer. The primary model for Toyota is B2B2C.
Similarly, on the industrial side, companies like Caterpillar and Paccar primarily operate under a B2B2B model. If you want to buy a truck, you go to the dealer. Dealers are a critical part of the global network; their value is not in question. The dealer network manages customer relationships and most business transactions.
What does this have to do with Digital Transformation? Digital Transformation programs have created a big problem for dealers. This problem is one key reason most Digital Transformation programs are underperforming.
Digital Transformation requires new monetization models that the current business system cannot support. As a result, many sales channels are underperforming.
Without the revenue streams, digital transformation programs will lack the funding required for long-term success. According to a 2021 study of 850 organizations by BCG, only 1 in 3 digital transformations were considered successful. Could the low result be related to the inability to transform the business model?
Many years ago, I spent several years in the Dealer community of many different global companies. I remember being educated on the dealer system’s capabilities to sell equipment, parts, or services. Digital services don’t fit with the existing capabilities.
A host of additional digital services are available, such as apps, service plans, partner apps, and data-as-a-service. These services, for lack of a better way of saying it, should be sold like a SaaS company would sell their software product. The systems for this are very different, and the lack thereof holds back the revenue-generating capability of Digital Transformation programs.
Consider your mobile phone bill to illustrate the problem further. That bill typically includes the phone, subscription, data usage plans, and augmented services. Similarly, global telecommunications companies also have B2C and B2B solutions that are primarily sold through resellers. The cost and complexity of these monetization solutions are prohibitive for global manufacturing. This model lacks customer alignment and is far too expensive.
How do we bypass this complexity?
Creating data-driven product offerings and pricing will remove the complexity of the business system. With an eye on the future, building on variable leases, connected services, service packages, and partner services to a single consumption-based model is the only way OEMs can quickly enable sales channels while driving revenue. OEMs can create the data framework & pricing while allowing the dealers to create orders & collect for the services.
In a previous article, I outlined the opportunity to improve capital returns by using data to drive a variable lease program. This is an ideal first step toward transforming your business alongside your Digital Transformation program. Over time, or as part of this, programs can “price in” added digital services based on the exact consumption metrics used for the variable lease program. This is the future charge model for Digital transformation. It is simpler & removes the need for sales channels to invest in expensive monetization platforms.
While this may sound complicated, there is a good chance that foundational data management solutions are already in place. If not, there are probably no Digital Services anyone would want to procure. In future articles, I will break down the different data requirements and solutions for augmenting those to drive monetization options.
In conclusion, let’s relate this back to the “Value Threading” model:
Strategic Thread – optimizing digital services is a crucial driver of product differentiation and is at the center of buying decisions.
Innovation Thread – the common “thread” of data reuse is key to optimization as we use current and planned future data sources to drive this program. Additionally, the end user value case will be more apparent and help drive product differentiation.
Operational Thread – setting up data-driven billing is much less expensive & quicker to deploy than alternative options.
Monetization Thread: By monetizing digital solutions quickly and with value in mind, Digital Transformation programs will gain some energy.
