Miele Dialog oven with connected recipe settings


‘Servitisation’ — the expansion of manufacturing industries into service provision — has been heralded as the key strategic move towards sustainable growth since the term was first coined in 1988 by authors Sandra Vandermerwe and Juan Rada. It promises product-centric businesses a new road to growth, enabled by stronger customer relationships, opportunities to differentiate products and recurring, higher-margin revenue streams. Rolls Royce is often portrayed as a pioneer of successful servitisation. It launched ‘Power-by-the-Hour’ way back in 1962, offering aerospace customers engine maintenance costs for a fixed fee per flying hour. Today, Rolls Royce’s digital services minimise flight disruptions with predictive maintenance and generated over 57 per cent of its aerospace revenue in 2018.

While B2B organisations such as IBM and HP have successfully expanded into services, big brands in B2C and especially the hyper-competitive world of home appliances have often struggled to servitise. Whirlpool, an appliances powerhouse since 1911, launched its first significant move into smart home services in 2013. The WashSquad app promised to ease consumers’ lives with a host of Whirlpool-provided digital services. These included wash notifications, remote starting and even a ‘Wash Board’ to track and gamify family members running a load. A year after launch, Chris Quatrochi, Whirlpool’s global director of user experience and connectivity, admitted adoption of their solutions was ‘not at all widespread’, as WashSquad slid to app store obscurity. According to Quatrochi, ‘Trying to understand exactly the value proposition that you provide to the consumer… has been a little bit of a challenge.’

This example illustrates four reasons why appliance businesses often struggle to establish successful service offers:

1. Product-centric organisations

Workforces are typically hired and organised to build hardware, and lack digital and service capabilities, as well as more agile ways of working. ‘Traditionally in the technology manufacturing industry, each product and service development is run as separate teams, with nobody overseeing or owning the customer experience, which leads to disjointed results,’ says Alex Brown, a product innovation manager at Samsung.

‘Teams are tied to the product launch, but there is little chance to develop constantly post-launch like a software company, as the development teams have other priorities.’

2. Tech-driven value propositions

The tech-driven services these teams build can then fail to resonate with customers. ‘Too many smart home and service propositions began life in the R&D laboratory, pushed to market only to discover irrelevance due to consumer life not matching the technology benefit,’ says Nick Stene, an appliances, FMCG and smart home strategy consultant.

3. A DIY habit

In their efforts to control proposition costs and maximise profits, businesses aim to own most of the value chain. This often results in longer lead times and compromised functionality, as they get involved in unfamiliar non-core activities such as managing service servers and staffing.

4. Short-term sales focus

Persuading consumers to use your service is only half the battle; the next hurdle is monetisation. ‘Even when people love a service, it is often a real struggle to get users to pay extra for it,’ says Brown. Familiar with launching products that instantly generate transactional sales, manufacturers often close programmes if they fail to make money quickly enough, rather than evolving the service and its business model.

Despite these four significant barriers to services transformation, success stories are emerging in this unlikely industry. One legacy manufacturer is already demonstrating the results.

Haier lead the way in smart home-enabled services


Haier service

In the space of two decades, the Chinese home appliances brand Haier has moved from a low-cost fast follower to an industry leader, acquiring brands such as GE Appliances and Candy. It held the top spot in global sales volume in 2018 with group turnover at over £20bn. Haier is now showing how product companies can overcome the barriers to make servitisation a success. In 2018, it generated an astonishing £328m of its revenue from smart home-enabled services. These services include appliances that connect consumers with local food producers and high-end clothing care.

Much of this success was driven by the Chinese market, which Brown highlights as ‘a very different market with digitally mature consumers’. Whether Haier can replicate this growth globally, especially in the fragmented European market, will become clearer in 2020 as it rolls out services based on its Chinese systems, says Stene.

So how is Haier overcoming the daunting challenges facing traditional home appliance manufacturers when establishing services? There are broadly four factors behind its success. It has transformed into an agile organisation. It has built its business around customer-driven propositions. It has used the power of platform partnerships, and it has focused on the value of its ecosystem network rather than short-term profits alone.

1. Ultra-agile organisations

Underpinning Haier’s success is a unique model it calls ‘rendanheyi’, which means value alignment between customers and employees. Championed by Haier’s visionary CEO Zhang Ruimin, it blows away bureaucratic norms in favour of extremely agile innovation efforts led by customer demands. Structured into over 4,000 microenterprises (MEs), each comprising around 10 to 15 employees, Haier, according to Hamel and Zanini in the Harvard Business Review, ‘has turned its entire organisation into a start-up factory’. Thanks to their autonomy, highly-coordinated teams can develop product/service offers and are able to bring in the right capabilities, either from specialist internal MEs or external providers. After launch, the teams continuously refine service offers, informed by Haier’s digital platform which provides real-world usage and performance data.

2. Customer-driven propositions

Haier considers the entire customer experience or ‘whole scene experience’. For example, the Xinchu smart refrigerator platform offers services far beyond traditional food and beverage chilling. It can suggest recipes based on stored items, connect with third parties to deliver the necessary ingredients and then show videos to help make dinner while turning the oven on. The company’s experiential approach expands its scope beyond discrete product-centred systems.

According to Stene: ‘Brands have traditionally sat within their silos, the horizon was near and the size of the universe was limited. Most recently we experience brands like Haier who can clearly see and build propositions for the entire picture; these brands are seeking to facilitate and thereby monetise the entirety of each micro-economy, building strategy at the level of entire consumer systems, not just their older and traditionally limited appliance role within such a system. Relevant examples, in this case, are the Fabric Care and Healthy Eating systems, which we see being approached by Haier’s “Internet of Clothes” and “Internet of Food” platforms.’


Healthy eating system framework: Euromonitor International / Illustration: Plan


3. Platform partnering

Unlike manufacturers who try to create everything internally, Haier builds platforms through partnerships. For instance, the Wine Expert cooler offers in-house services such as wine identification and pairing suggestions, but it also enables third-party services through the cooler’s screen, giving customers personalised offers directly from partner wine producers based on appliance usage data. The model is a win for all parties: Haier receives a proportion of partner revenue generated by the device, winemakers build personalised relationships with consumers who, in turn, pay less for their wine as direct sales cut out the middleman.

4. User growth metrics

Haier is moving from traditional value metrics such as profits generated by transactional hardware sales to building networks of active users as an indicator of growth. ‘Access to earned and unforced user attention inside its smart home ecosystem is more valuable to them as an indicator of business revenue growth prospects than any other metric,’ says Stene of Haier. The company’s Win-Win Value Added (WWVA) statements emphasise the number of active ‘lifetime users’ and the ecosystem income they are generating, rather than one-time product sales. This decision to favour increasing user base size and sales potential is a familiar strategy among internet giants such as Facebook and Uber, but is unprecedented from consumer electronics brands.

Miele’s own-label, automatically dosed UltraPhase detergent


The race is on

Leading appliance brands are rapidly launching competing services, applying the principles demonstrated by the Haier example. While it’s too early to tell if the results will match the investment, the battleground is taking shape. Samsung is leveraging outside help to bring new unified services to market. In 2019 it acquired Whisk, a ‘smart food platform’ that will allow consumers to find inspiring recipes and shop for the necessary ingredients directly on their fridge, through grocery partners such as Ocado, Walmart and Amazon Fresh. ‘Whisk is an example of Samsung becoming an experience-led business, turning our deep understanding of customers into a seamless cooking journey,’ says Brown.

Likewise in laundry care, appliance brands are establishing a regular customer dialogue by developing and supplying own-label detergents that are automatically dosed and replenished through their washing machines. A trend identified by Stene: ‘Miele was the first brand team to learn the benefits of adding FMCG margins on top of its hardware sales. Now seven of the top 10 washing machine brands have a laundry detergent on the market (Euromonitor International). Combined with services such as Amazon’s Dash Replenishment Service, this is turning into a direct-to-consumer sales model, which is very hard for FMCG brands to disrupt once established.’

The once-sleepy home appliance sector has become a trailblazer for the wider consumer products industry. The battlelines are being drawn, and the next few years will see to what extent appliance innovators expanding beyond products will disrupt the FMCG, retail, smart home and domestic service sectors.