Wake up! We are a service-based economy.

@theservdesgroup
 

Abstract

In this article, The Service Design Group, the premier customer experience and service design consultancy in the US, places the role and importance of service design within the context of broader economic trends and shows why firms must utilize service innovation to avoid commoditization.

 
 

Background

[Dollar Shave Club's] success came from... brand building prowess.

We recently read a Bloomberg Technology article about Unilever's acquistion of Dollar Shave Club (DSC) for $1B.

The article, and associated video interview(s), present a case for "Why Unilever Really Bought Dollar Shave Club."

The premise = success came from DSC's brand building prowess.

Really?

Sadly, yes, that's the expert point of view.

Which brings us to...

Wake up! We're a service-based economy

(Also known as the real, real reason Unilever acquired Dollar Shave Club for $1B)

It's all about the service

The Service Design Group, the premier customer experience, service design, innovation and management consultancy in the US, believes there's another explanation for why DSC was successful and why it was an attractive buy for Unilever. Our premise? You may have guessed... it's all about the service!

Today's mature economies

Growth comes from services, not products.

(Warning! This is an extremely condensed version of economic theory!)

In the world's developed economies, the industrial revolution and resulting economic growth bonanza that followed is a distant memory. Yes, growth was once driven by a capacity to mass produce things at scale; but, over time, the things that once drove growth became commoditized, downward pricing pressures kicked in, and growth slowed.

That's reality. As an economy matures, GDP often contracts.

The other reality is that, as part of the maturing process, an economy's GDP shifts from being product-based to service-based (as a % of GDP). Put differently, growth comes from services, not products.

Back to DSC

Dollar Shave Club is a bonified service provider.

DSC, in our opinion, isn't in the "make a better razor" business. If they were, they would have spent R&D dollars adding 6, 7, or 8 blades to a razor, tweaking the handle shape, or adjusting blade angles. That's product-based thinking, also known as incremental innovation.

No, instead, The Service Design Group classifies Dollar Shave Club as a service-based business or service-based innovation. DSC is, in our opinion, a bonified service provider. In fact, we believe DSC is about as far from a product-base as a firm could be.

Product-base vs. service-base

The firm focuses on renewal rates and customer utilization, not product marketing

The big differences, according to The Service Design Group, between a product-based business and a service-based innovation are:

  • 1. The firm invests in customer experience, not product development, to grow share of wallet. Consider DSC's "newsletter" and "one-click-ordering from email" as examples - these experience items drove expanded basket size and share of wallet, not the development of a slightly better shaving cream.
  • 2. The firm focuses on renewal rates and customer utilization, not product marketing (e.g. commercials, aisles and end caps). Consider DSC's well-timed emails to refill certain products, or offers to optimize the rate and pace of razor delivery (driven by historical ordering). These features drove loyalty and repeat purchase, not a mass blitz advertising campaign (such as the one Gillette is currently running for its latest and greatest, incrementally improved razor).
  • 3. The firm enjoys a subscription-based revenue stream (cash flow), not transaction-driven revenue that is highly dependent on trends, seasons, and consumer preferences. Consider DSC's subscription model, which locked in a predictable cash flow for each and every DSC member, typically on an annual basis.

Are you getting the picture?

The service provider was innovating, disrupting and taking share.

In the highly commoditized CPG (Consumer Packaged Goods) market, Dollar Shave Club — the service provider — was innovating, disrupting and taking share from product manufacturers and established consumer brands.

DSC wasn't about building a better brand or making better connections with consumers. No, they were doing much more. DSC was running a better business. A service-based business!

The Real Reason

Unilever purchased Dollar Shave Club to diversify its product base... with a service.

The Service Design Group asserts that Unilever purchased Dollar Shave Club to diversify its product base (the market segment that is contracting) with a service-based offering (the market segment that is expanding).

The Service Design Group firmly believes this juxtaposition of a diminishing returns, product-based segment vs. a growth-oriented service-based segment applies to all markets. Consider traditional grocers vs. food-tech firms like Blue Apron. Or, consider sharing economy and marketplace service providers like Uber or Airbnb vs. traditional travel and transportation providers.

Back to you

What do you think? Is there opportunity for service innovation in your market or industry? Do you have plans to apply service innovation and management to help your firm capture share, take revenue and increase share of wallet? If not, you should start today!

Read next: Models for service-based innovation
 

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