The Transformation of Business

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Consider an alternative in which the manufacturers do not sell tires but charge for services. They contract with fleet owners to charge per mile of usage. The pricing contract will be based on the type of use, influenced by general factors such as the type of loads (for example, heavy loads), typical route structures (for example, through cities or across long distances), and individual characteristics of fleet owners, such as the training of drivers and therefore the quality of driving, the maintenance of correct tire pressure, and the quality of servicing, such as tire rotation. The tire as a product still exists and is at the core of the business. However, the revenue is based on tire usage, not on a one-time tire sale.

The retail business shifts from a transaction base (selling a tire) to an ongoing relationship (continuous and ongoing measurements of usage and ability to provide feedback on better usage specific to a user) with the consumer. The revenue model now depends on accurate measurements of tire usage on a periodic basis and on parameters of wear and tear that are transparent to the fleet owner and the company, resulting in the ability of the tire company to offer specific advice.

This model has other advantages. The firm gets detailed data on how individual drivers actually drive their vehicles—from the size and weight of their loads, the speeds at which they drive, and the patterns of braking they follow to a host of other characteristics that can help in the product development process.

The company need not focus solely on tire usage. It can focus on driver safety as well. It can help a specific driver improve her skills. Say, for instance, a particular driver has driven only 20,000 miles on a set of tires, but the tires show rough usage. Now assume that we have installed sensors that measure tire performance in real time and relay the data to a central data center. The company can, in real time, alert drivers to be careful, slow down, or check the tire pressure, or in some cases go to the next service station and change the tire. Is this a commodity business with few opportunities for differentiation, or is this a highly differentiated, service-oriented business that cocreates a unique driving experience for a specific driver and improves her skills as well? Will this radically change the meaning of value in this business? Will this approach change the nature of relationships between the firm and its consumers?

Well, Goodyear already has a mileage-based service for its fleet customers. Bridgestone is piloting an early version of this model in Europe where the physical measurements are still taken manually and sent via the Internet to the data center. Moving from this phase to remote measurement via well-placed sensors is just a step away. Note the three distinct transformations taking place:

1. The firm is moving from selling a product to selling a service. The product is an integral part of the service. But the value is based on service.

2. The firm is moving from a transactional relationship with a customer to a service relationship with a customer. When strategy focuses on better fleet management—including lower costs, improved safety and skills of drivers, and improved understanding of truck dynamics—the core value proposition shifts from the physical product (tire) to services and solutions (better overall costs) to superior experiences (for individual drivers).

3. When the manufacturer is selling a tire (just the physical product) to the fleet owners, this type of business would be described as a business-to-business (B2B) organization. However, when that company is providing feedback that improves individual driver safety and skills, it looks more like a business-to-consumer (B2C) organization. In the new competitive arena of one customer at a time and global networks of resources, B2B and B2C definitions converge.