Digital products and services can be turned into money

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Even medium-sized companies can successfully commercialize new business models - VDMA guide shows strategies for commercializing digital services in mechanical engineering - Manufacturers must act more frequently like software houses

The establishment of a digital business has become one of the key topics in mechanical and plant engineering. Medium-sized companies also have to consider which new digital products and services will be offered to customers in the future and how they can earn money with them. "Due to the diversity in mechanical and plant engineering, there is no patent recipe for this. But there are various strategies that make a successful commercialization of business models created by digitization possible," says Bianca Illner, Head of Business Advisory at VDMA.

Together with the strategy consultancy Boston Consulting Group (BCG), the VDMA has now presented the guideline "Successful marketing of digital services". It shows ways in which a company can find the optimal commercialization strategy for digital change. "So far, this question has often been considered very technically in mechanical engineering," admits Illner. "But those who think in terms of customer benefit will find great opportunities here, because new digital offerings can be directly linked to the use of the existing core product. The connection between machine manufacturer and customer is therefore becoming even closer. A pure software developer does not have this strategic advantage," explains the VDMA department head.

The guide, which is based on extensive case studies, makes it clear that awareness has already been raised in mechanical engineering. In the coming years, 30 percent of companies want to generate more than 5 percent of their total revenues with digital offers - twice as many as in 2018. In the long term, this will result in significantly higher revenue shares. In addition, digital products and services address attractive markets that are growing much faster than the core business with machines and components.

"There are several strategies that make possible the successful commercialization of business models created by digitization."

Four types of digital services
"The basic prerequisite for building a profitable digital business, however, are digital products and services that have a well thought-out performance promise for the customer in all dimensions," explains Ralph Lässig, Associate Director and industry expert at BCG. The guide identifies four fundamentally different types of digital services:

  • Integral product improvement: Further development of primary performance using digital technologies
  • Complementary service: supplementary service or extended scope of services based on digital technologies
  • Digital Intermediary: stand-alone digital service to promote business with the primary service
  • Digital innovation: completely new digital performance independent of primary business

"For each of these four digital service types, there is a success pattern for the right combination of pricing and market approach to achieve maximum commercial success," says Lässig. "In general, the more software-heavy the service, the more the machine builder must act like a software house and market the digital products independently of the established machine business.

Another decisive factor in this process is that the commercialization concepts must be further optimized step by step after the market launch. The digital service itself, but also the pricing and the customer approach must be permanently adapted to new customer needs or technical developments. "Those companies that have the staying power and are able to bear high start-up costs have great opportunities for sustainable, profitable growth in the digital business," sums up VDMA department head Illner.