Empowering Business Teams: How Pay-Per-Use Fuels Innovation Adoption

Ensuring end users’ engagement with any technology is crucial to maximize the benefits of its implementation. Therefore, choosing the right pricing model is pivotal in achieving this goal, especially in the fast paced, cost pressured retail industry.

Technology has evolved exponentially over the last two decades, boosting the creation of innovative solutions. This context presents complex challenges for companies, as they strive to adopt tools that best fit their own organizational reality, market, competitive environment, and customer base.

Food retail is no exception to this trend. In fact, despite its apparent simplicity, which involves purchasing items from producers (industrial or agricultural) and making them available to end customers in physical or online stores, it is one of the sectors that can benefit the most from adopting AI and Data Analytics tools due to its nature (i.e. frequent changes in customer needs, intense competitive dynamics, and strong cost pressure).

Across various functional areas within retail companies, we observe a constant pursuit for optimization and continuous improvement, resulting in associated efficiency gains. From Operations to Commercial, HR, Logistics, Supply Chain, and Marketing, there are numerous opportunities to create added value across multiple workflows.

In this context, especially for mature retailers with strong market positions and experienced employees, adopting new methodologies can be even more challenging for business teams. It is critical to choose approaches that minimize adoption barriers, foster innovation, and accelerate the change process.

An interesting discussion arises when considering the choice between a pay-per-use approach versus a subscription-based model, and how it affects new tools’ adoption by business teams.

Subscriptions: The Soaring Trend That Keeps on Giving

In recent years, subscription-based models have gained significant popularity in the market. In a B2C (business-to-consumer) context, they allow customers to access products or services without necessarily purchasing them. By paying a fee, typically on a monthly or annual basis, customers use or access these products/services during the subscription period. We find well-known examples across various areas:

· Fast-Moving Consumer Goods (FMCG): Nespresso, Amazon Fresh

· Streaming Services: Netflix, Disney+, Spotify

· Software as a Service (SaaS): Microsoft 365

· Social Media: Substack

In the B2B (business-to-business) context, examples are equally abundant, ranging from elevator maintenance services to corporate fleet cars (e.g., Michelin) and airplanes (e.g., United Technologies).

Whether in B2C or B2B, subscription-based models offer greater revenue predictability, enhance customer loyalty, and provide increased customization possibilities through algorithms tailored to the data collected from each user’s usage patterns.

The Resurgence of Pay-Per-Use Models

Despite their popularity, subscription models have some disadvantages that make them less appealing in certain organizational contexts. For more conservative cultural sets, with less sophisticated legacy information systems or heavy cost structures, committing to monthly or annual payments without clear examples of the return on that investment becomes a significant obstacle to change by business teams.

Aware of the limitations of subscriber growth as a key performance indicator (KPI), Netflix has taken the lead toward a new approach, shifting to evaluate its success based on consumption patterns. This shift allows for a deeper understanding of how customers engage with their services, beyond mere subscription numbers:

In a shock to Wall Street, Netflix plans to stop reporting quarterly subscriber numbers starting in 2025, believing the metric has lost its relevance in judging the health of a platform.

Netflix’s stock performance has long been linked to subscriber gains or losses. In a letter to shareholders along with first-quarter earnings, the streamer king sought to reorient investors toward time-spent-viewing metrics where it has more potential upside in the years ahead.

Estimates of Amazon Prime’s growth are still often used to measure Amazon’s stock valuation. Costco, Spotify, Chewy, Wayfair, Warby Parker, and Stitch Fix are among other firms that count subscriber or active customer growth among key investor metrics.

Source: Has Netflix’s Value Moved Well Beyond Subscriber Growth? — RetailWire

Indeed, despite pay-per-use models having been used for several decades across various sectors (consider, for instance, utilities such as electricity, gas, and water), they are now emerging as an increasingly viable alternative to accelerate the adoption of new methodologies, technologies, and advanced tools in retail companies.

In a pay-per-use model, customers are billed after the consumption period for a specific product or service, and only for the exact extent of their actual usage. This approach provides them with greater autonomy and flexibility. From the perspective of business-related functional areas (typically Operations and Commercial in Retail), this approach offers two fundamental advantages:

1. Greater Pricing Transparency: Especially in the initial phase, it is crucial to convince business teams (non-IT) of the fairness or necessity of paying a price without yet having tangible business results from that investment. Pay-per-use models provide transparency by billing customers based on their actual usage, promoting a clearer understanding of value.

2. Lower Adoption Barriers: Pay-per-use implementation allows for gradual adoption at a pace that aligns with the organizational reality. Shorter implementation sprints create a virtuous cycle:

This iterative process builds confidence among all organizational stakeholders involved in the ongoing change, ultimately maximizing return on investment.

In summary, both models have merits and should be evaluated based on each company’s organizational and competitive environment, as well as the associated costs of change and estimated potential gains.

While the subscription model ensures stable revenue and strengthens customer relationships, pay-per-use models provide greater autonomy in technology’s adoption pace (especially for business teams), and optimize cost management.