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Servitization in Agriculture: Enhancing Farming Value

 

Agriculture industry, the backbone of human civilization, has undergone numerous changes over the centuries. From the introduction of machinery to advances in biotechnologies, each wave of innovation has reshaped the contours of farming. The emergence of servitization in agriculture puts us now on the verge of yet another paradigm shift.

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Servitization in the agriculture industry involves offering farmers comprehensive solutions that go beyond selling equipment, including services like data analytics, crop monitoring, and agronomic advice to enhance productivity and sustainability.

The goal is to furnish farmers with holistic solutions that elevate their productivity, efficiency, and sustainability.

Servitization Opportunities for the Agriculture Industry

 

Agriculture, while grounded in tradition, constantly seeks evolutionary avenues. Now, with servitization weaving its way into the industry, a plethora of opportunities beckon. These opportunities not only redefine the economic landscape but also reshape customer relationships and operational efficiency:

 

  1. Stable Revenue & Loyalty: Through value-added services and long-term contracts, businesses can establish recurring revenue streams, ensuring financial predictability. This also bolsters customer loyalty, as businesses cater to unique needs and offer consistent support.
     

  2. Distinctive Competitive Edge: Embracing servitization differentiates companies from their peers, transforming them from mere product vendors to holistic solution providers.
     

  3. Informed Decision-making & Customization: Offering services equips businesses with invaluable customer insights. This data-driven knowledge enables better product tailoring and meets dynamic demands more aptly.
     

  4. Profit Maximization & Growth: The allure of higher profit margins from services propels overall profitability. Coupled with the potential to tap new markets and diversify, businesses can chart a trajectory of sustainable growth.
     

  5. Agility & Brand Positioning: Servitization fosters adaptability, allowing swift response to market fluctuations. Plus, it enhances brand perception, positioning businesses as progressive and customer-centric.
     

  6. Partnerships & Sustainability: The model fosters long-term collaborations, weaving a fabric of trust and mutual growth. Also, by championing eco-friendly services, businesses can earn the badge of sustainability and attract a green-conscious clientele.
     

  7. Revolutionized Access & Shared Benefits: Moving away from traditional purchases, farms can now leverage equipment based on assured outcomes. This shared responsibility model implies mutual risk and rewards, culminating in a beneficial alliance.
     

  8. Technological Integration & Predictive Care: Real-time feedback, powered by IoT and sensors, empowers farmers with on-the-spot decision-making. Additionally, predictive maintenance replaces reactive approaches, ensuring machinery longevity and peak performance.
     

  9. Streamlined Supply Chain: The servitization lens could render middlemen obsolete by crafting direct farmer-market linkages, simplifying trade routes, and potentially amplifying profit margins.

 

Harnessing these opportunities, agriculture businesses can craft a future that's not only financially robust but also resilient and in sync with evolving market dynamics.

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Spectrum of Services in Agriculture’s Servitization

 

In the context of agriculture, servitization can include various elements, such as:

 

  1. Agriculture-as-a-Service (AaaS): Borrowing from the software world, AaaS offers modular farming solutions. Farmers can access cutting-edge solutions without heavy capital investments.
     

  2. Equipment-as-a-Service (EaaS): A shift from capital expenditure to operational expenditure, where farmers lease state-of-the-art machinery with maintenance and upgrade provisions.
     

  3. Precision Farming Services: Harnessing drones, AI, and IoT, this service provides granular data about crop health, moisture levels, and potential threats, enabling precise interventions.
     

  4. Remote Monitoring and IoT: With connected devices, farmers can get insights without being physically present on the field. This remote oversight ensures timely interventions and reduces costs.
     

  5. Crop Protection Services: From predicting potential pest threats to recommending suitable pesticides, these services ensure crops remain healthy and yields are maximized.
     

  6. Sustainable Agriculture Solutions: Addressing the increasing global concern of sustainability, these services provide insights and methods to farm in an environmentally conscious manner.
     

  7. Market Access and Supply Chain Support: Bridging the gap between producers and consumers, this service ensures that products reach the market in the most efficient way, reducing wastage and increasing profitability.
     

  8. Agricultural Consultancy: Expert advice on crop rotation, soil health, sustainable practices, and market trends, ensuring farmers are always a step ahead.

 

The goal of servitization in agriculture is to enhance the overall value proposition for farmers by addressing their specific needs, challenges, and opportunities. By combining products with relevant and tailored services, servitization can lead to increased productivity, reduced waste, better resource management, and more sustainable agricultural practices.

Digitalization in Agriculture Industry

 

The agriculture industry is fundamentally changing due to digitalization, and servitization is at the core of this change. IoT devices collect and transmit real-time data, while cloud computing, which is supported by digital technology, ensures seamless data storage and analysis. In addition, sophisticated AI algorithms slowly navigate through these enormous datasets to offer useful insights. In essence, digitalization in agriculture refers to the blending of traditional farming practices and data-driven solutions. The combination of these technologies enables farmers to base their strategies on reliable data, resulting in more informed and effective decisions. These technologies include data analytics, remote sensing, and IoT.

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Examples of Digitalization in Agriculture:

 

  1. Embracing precision agriculture methodologies, such as drones and GPS-enabled tractors, to refine field activities and curtail resource wastage.

  2. Leveraging remote sensing and satellite imagery for robust crop health surveillance, early identification of potential challenges, and insightful field condition assessments.

  3. Gathering and processing data via IoT-driven instruments like soil sensors and meteorological stations to guide decisions on irrigation and fertilization.

  4. Streamlining operations using farm management software and intuitive mobile apps, granting farmers instant access to real-time data and insights.

 

Integration of Servitization and Digitalization:

 

The integration of servitization and digitalization in agriculture leads to more comprehensive and efficient solutions for farmers. By combining value-added services with digital technologies, farmers can access data-driven insights and personalized recommendations to optimize their operations.

 

For example, a company that offers precision farming services may integrate digital tools like IoT sensors and weather data to provide farmers with real-time information on soil moisture levels and weather patterns. This data can inform irrigation schedules, ensuring optimal water usage and crop health.

 

In summary, servitization and digitalization are driving a transformation in the agriculture industry, enabling farmers to achieve greater productivity, sustainability, and profitability by leveraging both value-added services and cutting-edge digital technologies.

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Servitization Challenges for Agriculture Industry

 

Navigating the journey to servitization presents its own set of hurdles. Some of the challenges that agriculture businesses may encounter on this transformative path are:

 

  1. Upfront Costs: Transitioning to servitization, especially in an industry steeped in tradition, requires significant capital.

  2. Cultural Resistance: Traditionalists may view servitization with skepticism, valuing tried-and-tested methods over newfangled services.

  3. Data Privacy Concerns: In an age of data breaches, the collection and storage of extensive farm data can raise eyebrows.

  4. Change Management: Shifting from a product-centric to a service-centric model requires a complete overhaul in strategy, operations, and mindset.

  5. Technological Investment: Staying updated with the rapid pace of technological advancements can be daunting and expensive.

  6. Regulatory Compliance: Introducing new services often means navigating a maze of regulatory requirements, which can be challenging and time-consuming.

  7. Lack of Skills and Expertise: The integration of tech in farming requires a skilled workforce, which might be lacking in traditional farming communities.

  8. Customer Education and Adoption: Farmers need to be educated about the benefits of these new services, and this process can be lengthy

  9. Market Acceptance: Convincing the market to accept a new way of doing things, especially in a sector as old as agriculture, can be a hurdle.

  10. Resource Constraints: Small-scale farmers might find it difficult to access or afford the services offered through servitization.

  11. Uncertain ROI: The returns on servitization, especially in the initial phases, can be uncertain, making stakeholders apprehensive.

  12. Interoperability: Ensuring that different digital systems and tools work seamlessly together is crucial but challenging.

  13. Balancing Services and Product Offerings: Finding the right balance so that neither the product nor the service overshadows the other is essential for the model’s success.

 

Despite these challenges, the adoption of servitization in the agriculture industry presents significant opportunities for businesses to enhance customer relationships, improve operational efficiency, and drive long-term growth. Addressing these challenges strategically and proactively can lead to successful implementation and the realization of the benefits of servitization.

 

Success Stories in Agricultural Servitization

 

 

Charting the course of agricultural servitization, some trailblazers stand out, illuminating the way with their success stories. Below are some inspiring stories that showcase the potential of this transformative shift:
 

  1. John Deere - Farming as a Service (FaaS): John Deere, a well-known agricultural equipment manufacturer, has embraced a servitization model by offering "Farming as a Service." Instead of selling tractors and machinery outright, John Deere provides farmers with access to their equipment on a subscription basis. This allows farmers to use advanced machinery without the need for large upfront investments and provides John Deere with recurring revenue through ongoing service and maintenance contracts.
     

  2. Trimble - Precision Agriculture Solutions: Trimble, a technology company, offers precision agriculture solutions to farmers worldwide. Their services include GPS-guided systems, remote sensing, and data analytics, helping farmers optimize planting, irrigation, and fertilization practices. Trimble's services provide farmers with real-time insights and recommendations, leading to improved yields and resource efficiency.
     

  3. BASF - Crop Protection Services: BASF, a leading chemical company, provides crop protection services to farmers. These services include integrated pest management solutions, disease monitoring, and customized recommendations for crop protection. By offering these services, BASF helps farmers optimize pest control and disease management, ensuring healthy crop growth and maximizing yields.
     

  4. Climate Corporation (a subsidiary of Bayer) - Digital Farming Platform: The Climate Corporation offers a digital farming platform that integrates weather data, field analytics, and predictive modeling to assist farmers in making data-driven decisions. Their platform provides personalized insights and field-level recommendations, helping farmers optimize inputs and improve their overall farming practices.
     

  5. AGCO - Fuse Smart Farming Solutions: AGCO, a global agricultural equipment manufacturer, offers the Fuse smart farming solutions platform. Fuse provides farmers with a suite of digital tools and services, including telematics, fleet management, and agronomic insights. These services enable farmers to optimize equipment performance, reduce downtime, and make informed decisions based on data analytics.
     

  6. Corteva Agriscience - Seed and Crop Protection Bundles: Corteva Agriscience, a major agricultural biotechnology company, offers bundled solutions that combine seeds with crop protection products and agronomic advice. By providing integrated packages, Corteva aims to deliver more comprehensive solutions to farmers, addressing multiple aspects of crop production in a single offering.
     

These examples demonstrate how agriculture companies are leveraging servitization to enhance their offerings and provide value-added services to farmers. By integrating technology, data analytics, and agronomic expertise, these companies are transforming the way farmers manage their operations, resulting in improved productivity, sustainability, and profitability.

Conclusion

 

As the agricultural sector stands at the crossroads of change, servitization, and digitalization emerge as pivotal drivers of evolution. While the benefits of intertwining products with services are evident – enhanced productivity, waste reduction, and sustainable practices – the challenges are substantial. The hurdles of upfront costs, cultural resistance, and the integration of rapidly advancing technology cannot be ignored. By examining the success stories of industry giants like John Deere and BASF, we glimpse a future where farming isn't just about soil and crops but also about data, insights, and tailored solutions. The role of digitalization further accentuates this transformation, with IoT, AI, and cloud computing catalyzing precision, efficiency, and informed decision-making.

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Despite these difficulties, we at Avrogan, as a solution provider for advanced services and service contract management, step up to the plate and provide our expertise and our cutting-edge SaaS solution. Avrogan and its advanced solution as Avrogan Service Excellence™play an instrumental role in easing the transition, allowing agricultural businesses to focus on their core services while ensuring contractual complexities are handled efficiently. In essence, the fusion of servitization and digitalization, aided by business partners like Avrogan, charts a promising trajectory for the future of agriculture. Through collaboration, innovation, and a relentless pursuit of value creation, agriculture is poised to not only feed the world but also do so sustainably, efficiently, and profitably.

 
 
  • Does Avrogan support pricing excellence initiatives?
    Yes, any manufacturing company requires to establish processes and methodologies to achieve pricing excellence in Product pricing, Spare Parts pricing, Service pricing (both legacy and digital services), and data monetization. Avrogan’s team can support the operational deployment of such initiatives.
  • What is high-quality pricing?
    High-quality pricing is pricing that is easy to explain and defend to the customer. Such pricing is in proper alignment with the brand positioning within the market and in comparison, with other competitors. Customers can easily relate to the prices and there is a willingness to pay for the prices.
  • What is the main pricing methodology that Avrogan can support our organization with?
    We support the operational transformation to Value-based and market-driven pricing as the main methodology that can properly reflect customers’ perception of value to make sure no business is lost due to over-and underpricing. Over-and underpricing is the common result of cost-based pricing or blind following of competitors.
  • Why should we focus on price improvement rather than cost reduction?
    Pricing is the strongest lever in business to improve profitability. Within the manufacturing industry, 1% price improvement can result in 3 to 7 times margin improvement in compare with improvement in other levers such as Cost, Volume, etc.
  • What is pricing power?
    In simple terms, it is your ability to increase prices without losing a considerable number of customers. If you are scared that many customers will leave you due to your price increase, your pricing power is probably low.
  • Why pricing power is important?
    “Pricing power is the most important factor in evaluating businesses…” Waren Buffet
  • How can we improve our pricing power?
    By improving your pricing quality. High-quality pricing is easy to defend and explain. You don’t need to give away in discounts to persuade the customer to pay the price. In other words, your price should be in harmonization with customers’ value perception in the market.
  • Why cost-based pricing is not the best option?
    Direct reliance on cost for pricing will increases the chance of low-quality pricing. Cost levels are usually defined based on factors that are not in your control and customers cannot relate to them if you pass the cost by adding a constant margin on top to the customers. It is also hard for the sales teams to defend such prices towards the customers and usually being crushed by customers’ urge for discounting.
  • How Avrogan’s way of working can support the transformation toward high-quality pricing?
    While we have a look at market conditions, competitors, and cost as guidance metrics, we try to measure and grasp customers’ value perception and willingness to pay with the help of various quantitative and qualitative studies and analyses. The aim is to put the pricing into the context of different products and offerings of the business and draw a harmonized pricing logic across each category of offerings to create a consensus across the organization about the value that is offered and the value to be captured.
  • Is value-based pricing about increasing the prices?
    No, the goal is to make sure all prices are in harmonization with customer perception of value. In this process, some prices will be increased, and some will be decreased. Therefore, businesses can expect improvement both in margin and volume for the whole business
  • What is the typical gain out of pricing excellence initiatives?
    We have seen companies can easily achieve 5% to 15% gross margin improvement as a result of pricing excellence initiatives for products and spare parts. The ultimate gain depends on the readiness and the effort deployed by the business in realizing the profitability impact.
  • What is a typical project length?
    Depending on the scope, operational pricing projects take between 3 to 9 months. For a more detailed estimation please contact us.
  • We have deployed a pricing excellence initiative couple of years ago, but we lost the knowledge during the years. How Avrogan can support us?
    It is a challenge that some companies lose track of their achievements over couple of years, as the knowledge is not passed on properly within the organization. We always suggest and provide easy-to-maintain documentation, plus we suggest the usage of pricing management solutions. ERP or excel are not proper tools to maintain and manage sophisticated pricing frameworks and logic.
  • Can Avrogan support our pricing solution acquisition process?
    Yes, Avrogan’s team has high knowledge of existing pricing solutions in the market for the manufacturing industry. We can support your required documentation and selection process.
  • What are the steps in value-based pricing for spare parts?
    We start with creating a pricing-focused product structure where we can put together similar spare parts into groups. Then we defined value drivers together with your product specialists and marketing teams. In the next step, the data values of these value drivers are gathered. In the final, step a pricing logic is defined based on the value drivers and with the look at market conditions, any available competitor data, and of course margins. This logic creates a central reference price. This reference price is then transformed into suggested market prices by applying the market price level adjustment factor. When prices are ready, feedback will be gathered from marketing, product management, and sales teams to assure the acceptance of the new prices before market implementation.
  • We have bad data quality; can we still apply value-based pricing for our aftermarket business?
    You are not alone. We have seen such challenges over and over and we have different solutions to still navigate through such challenges. Contact us to discuss a detailed proposal for your business.
  • Why cross-border business happens?
    Cross-border business happens when there is enough price gap (list or net) between two market regions where a trader can sell the product at a lower price in the landing market while they realize an acceptable profit. As a rule of thumb, a trader should have a minimum of 15% of margin after all costs for the trade to start doing the trade.
  • What is the actual damage of cross border business for our company?
    It depends on who performs the trade. If the cross-border trading happens by the company’s sales network, the damage is proportional to lost market value for the landing market’s sales company. If it happens by a third party, the damage is the total loss of market value for the landing market. It will anyway affect the price positioning of the company within a specific market and will put higher pressure on margins.
  • We have a cross-border business issue. How can we improve that?
    Avrogan’s team has experience and tools in assessing the risk and mitigating it by improving pricing harmonization across markets where your business is active. To have an assessment of the potential risk in your business contact our team.
  • How can we increase the success rate of our pricing excellence initiative?
    It is important to share the information about the initiative from the beginning and involve all relevant stakeholders within the project to assure the high-quality results and acceptance of the new prices. In this process receiving proper feedback and involving the sales teams are crucial.
  • Can Avrogan support the change management process and go to market activities?
    Yes, we have the training and a structured sales enablement methodology to support the release of new prices to the market and how sales teams should respond to tough questions from customers.
  • We need support on where to start with pricing. Can Avrogan support that?
    Yes, we have maturity and readiness assessment tools that we can apply to your business. To get more details please contact us.
  • What kind of market research methodology should we use for improving our pricing quality?
    There are different methodologies for different purposes. Some of such market research methods are more qualitative like the VEL study which defines the perceived brand and price positioning of the business in the market, while some others are more quantitative like Conjoint analysis which can support defining price threshold and market share potential through statistical analysis. Please contact us to design the proper market research model for your business.
  • We need to improve and align pricing knowledge across our organization, can Avrogan support that?
    Yes, we have detailed and operational pricing training for products, spare parts, and service pricing. Please contact us to review the syllabus and design the most appropriate educational program for your team.
  • What differentiates a product-centric model from a service-centric model in manufacturing?
    A product-centric model focuses on selling products as a one-time transaction, while a service-centric model, often seen in servitization, focuses on selling the product bundled with value-added services to foster long-term customer relationships and recurring revenue.
  • How does servitization benefit customers?
    Servitization can offer customers greater value by providing a comprehensive solution with lower risk and higher performance that goes beyond the product itself. This can include tailored services, improved customer support, increased reliability, and reduced total cost of ownership.
  • How can servitization impact revenue streams?
    Servitization can diversify and stabilize revenue streams by generating recurring income from service contracts. This is in addition to the traditional one-time income from product sales. Additionally, increasing the service revenue, which normally has higher margins, will increase the profitability and thus improve the bottom line.
  • What role does data analytics play in servitization?
    Data analytics is crucial in servitization as it helps businesses understand customer behavior, predict service requirements, personalize offerings, and make informed decisions. This data-driven approach enables companies to optimize their service delivery and enhance customer satisfaction.
  • What impact does servitization have on sustainability and the circular economy?
    Servitization can contribute to sustainability by encouraging the efficient use of resources and reducing waste. This is because a service-centric approach often includes maintaining and upgrading products over time, rather than replacing them. This can help foster a circular economy, where resources are used as long as possible, extracting their maximum value.
  • How does servitization fit into the Internet of Things (IoT)?
    Servitization and IoT go hand-in-hand. IoT devices can collect and analyze data to provide insights that help companies deliver tailored services, predict maintenance needs, and create new revenue opportunities.
  • How does servitization fit into Industry 4.0?
    Servitization fits perfectly into the concept of Industry 4.0, a term that refers to the fourth industrial revolution characterized by the digitalization and interconnection of industrial processes. In Industry 4.0, technologies such as the Internet of Things (IoT), Big Data, Artificial Intelligence (AI), and cloud computing have a transformative impact on the way businesses operate. These technologies enable businesses to collect and analyze vast amounts of data in real-time, leading to a better understanding of customers' needs, improved operational efficiency, and the creation of new business opportunities.
  • How does servitization impact competitive differentiation?
    With servitization, companies can differentiate themselves by offering unique value-added services that competitors may not or cannot offer, because normally service offerings are connected to expertise and know-how knowledge than a physical product that in many cases can be replicated or have alternatives. This enhances customer loyalty and provides a competitive edge in the market.
  • What is the relationship between servitization and customer loyalty?
    Through servitization, businesses aim to nurture long-term relationships with customers. By delivering a combination of products and high-quality services tailored to customers' needs, they can enhance customer satisfaction and loyalty, and transform them to “clients”!
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Dr. Arsham Mazaheri

Chief Operating Officer

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Arsham is a data scientist by background, with 17+ years of industrial and managerial experience in various disciplines. Throughout his career, Arsham has helped many of Fortune 500 companies with their data and requirement challenges and has been involved in many IT solution implementation projects. Arsham has both mechanical and industrial engineering backgrounds and has a D.Sc. in Risk Management from Aalto University in Helsinki, Finland. He is a certified change and problem manager (CCM & CPCM) and holds an MBA in shipping and logistics.

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