The PaaS industry and the circular economy are being driven by millennials. They have been restructuring and disrupting long established industries to mold them into their unique lifestyle. The effect of their existence is seen in various sectors. In retail, Gen Y spending habits are defining the market’s future – in comes Product as a Service offerings.
Servitization Gaining Momentum
Not only does this generation demand the convenience of making on-the-spot purchases, they now rent almost everything they need. Millennials are fueling servitization by paying for the outcome of using a product versus buying the product itself. Aside from renting things, they also want supplementary services such as maintenance, repairs and replacements of broken products.
Despite the slow pace of rentals in its current phase, the sheer momentum that the PaaS industry has gained in recent times is enough to threaten even the biggest players in the retail industry. This is forcing manufacturers and retail stores to reconsider the Product as a Service business model – offering services so millennials can avail of outcomes without bothering to buy products.
PaaS Categories that Cater to Millennials
Millennials dictate which industries should switch to the Product as a Service business model. The top categories in which Gen Ys prefer to rent rather than buy include: furniture (45%), gaming systems (37%), apparel (35%), tools (35%), technology (33%), fashion accessories (29%), and home appliances (29%).
The most popular brands that millennials rent include: Play it Again Sports, Rent the Runway, The Black Tux, Adorn, and Feather. The largest group of people who rent things are in the 18 to 38 age range. This group accounts for 64% of consumers who rent. The smallest age group of renters are in their 50s, making up only 16% of all servitization fans. About 65% of renters are unmarried people.
Why Millennials Prefer Servitization
The cost of things have changed. Houses and vehicles are pricier. Home appliances are cheaper but not as durable and can’t be repaired. These factors affect millennial buying habits. Most Gen Y consumers prefer PaaS services because they want to test things before they make a purchase. This reason accounts for more than half of why millennials prefer to rent.
Rented things can serve as temporary solutions. Renting has also been proven to be less expensive than making outright purchases, especially for short-term and immediate needs. A Product as a Service involves less maintenance. If a PaaS provider follows the circular economy model, the service becomes environment-friendly – something millennials feel strongly about.
When Product as a Service is Used Most
Many millennials rent clothes for formal events. It makes sense to rent a formal tux for the few times it’s needed. Young professionals also rent work clothes for special office functions or job interviews. Others lease seasonal apparel that go out of fashion quickly. Another good time to rent clothes is during vacations. Would you spend on posh winter clothes for a week-long winter vacation?
Millennials also move around a lot. Buying furniture each time you move can be costly. Young adults rent furniture when living in temporary housing or when furnishing a new home. Homeowners may want to give their residence a facelift with new furniture or rent some chic accent pieces when entertaining guests at home.
PaaS Companies and the Sharing Economy
A survey in the United States found that 94% of Americans participated in the sharing economy. Uber and Airbnb are forms of servitization wherein cars and accommodations are rented out, In Europe, companies offer bicycles as a service which enable people to rent bikes in most places in the Netherlands or France.
Airbnb, Uber, Snapgoods fall under collaborative consumption, the sharing economy or the peer economy wherein owners rent out something they are not using, such as a vehicle, vacation home or bicycle to a stranger using a mobile app or peer-to-peer service. Offering a Product as a Service does not have to involve large companies and providers – anyone can be a PaaS provider.
Things You Should Consider Renting
Entertainment systems are upgraded frequently. Renting consoles or games makes more sense than blowing money on a system that will soon become obsolete. Pricey kitesurfing equipment, snowboards, and scuba gear are not used frequently, consider renting. Tools are also good things to rent especially when making home renovations that will only last a month or two.
It’s nice to own a boat but paying docking fees, maintenance and repairs will be enough to make you consider renting a boat only when you need it. Other things that are better leased than purchased include camera lenses, textbooks for college, parking spaces, Christmas trees, and even caskets and friends. Yes – in Japan, millennials rent a friend for a day.
Will PaaS End Ownership?
People rent things to test out a product, for convenience, or when money is not enough to make a purchase. Only 6% of millennials say that they use a PaaS service because they do not like owning things. This indicates that servitization will not end ownership, but rather, offers the opportunity for people to try a product before they buy or decide on a particular brand.
Consumers also like that some PaaS providers practice the circular economy which ensures that raw materials and parts are recycled and then upcycled into new products, therefore reducing waste and pollution. A study revealed that 73% of millennials are willing to pay more money for sustainable products and services. This impacts how companies make their offerings today.