Today we are facing a certain reality. Commoditisation in leasing is here to stay.
 
 
Today we are facing a certain reality. Commoditisation in leasing is here to stay.

The commoditisation of leasing

Without providing versatile offerings to the customer we don’t have a future to look forward to.


Philip White

Philip White

Philip White is CEO of Syscap, having led a management buy-out in 2006. Syscap is a leading provider of financing solutions across a number of markets. Syscap offer a diverse mix of products such as specific business loans based on short term cash flow, as well as the more traditional asset backed investment with a high degree of focus in the software and technology space. Philip isVice Chair of the FLA Technology Group and has played a leading role in lobbying on behalf of the industry with DfE and other Government Departments to address the issues surrounding funding into Schools.
Philip White

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Introduction from Executive Producer JO DAVIS
The fallout from the economic crisis has created a need to differentiate customer acquisition and engagement strategies for different kinds of customers, argues Philip White, CEO of Syscap. Those companies that don't innovate in response to evolving to our customer needs will have an uncertain future.

Who should be interested in this?
All professionals involved in leasing and asset finance, industry commentators, and marketing and communications professionals.

 

The commoditisation of leasing

We have witnessed a gradual creep over the years in the leasing industry, but more recently there has been a greater pace in the transition from a high touch, high value customer offering to a decentralised and low touch service model that allows customers to access the same product suite, but via low cost routes to purchase.

What we see now is a growing value proposition in leasing where customers can access products and services over a quick phone call or through online application systems where they can purchase products through e – commerce platforms.

What journey has leasing taken to get to where we are today?

The shift in the industry’s offering to make products and services easily accessible with limited human intervention has led to its subsequent unintentional devaluing. The industry has created, and now operates in, an environment where customers pay premiums for perceived value in product and service offerings. The repercussion is that customers who don’t perceive or no longer want value, make purchasing decisions based on price and price alone.

Those in the industry that have chased growth and volume in the years prior to the recession are not blameless in changing customer motivations. Before the economic crisis, it was this growth-chasing that irrevocably drove prices down until it became the only differentiator in product and service offerings. Lessors were beholden to their shareholders’ drive for growth and profitability ultimately devaluing their product offering by removing customer facing expertise and skill in an attempt to reduce their cost to serve.

Today, we are facing a certain reality. Commoditisation in leasing is here to stay.

So, where do we go from here? 

The rise of commoditisation in leasing is resulting in potentially lower returns and in some scenarios, unsustainable returns. This presents two choices; either to vacate the market completely or to find an alternative method of operating in this new landscape.

This dynamic has defined customers into two distinct groups; the niche customers who require deep domain knowledge and expertise and are willing to pay for it, and those whose predominant motivation is in fact, price.

It’s hardly surprising; the economic climate has sluggishly recovered to some extent in the last few years. However, access to liquidity remains challenging and lack of confidence still remains, therefore sentiment to invest is impaired. For smaller companies, this wariness, and risk, is only heightened.

The reverse is that the economic meltdown and the onset of global recession was more than 5 years ago, and some businesses can no longer ignore the fact that they require investment into their key operating areas, whether this is upgrading software, new hardware installations to fuel growth. So it’s no wonder that some customers are seeing ‘price’ as one of the main drivers in the procurement process as they seek to make investments that are increasingly becoming seen as ‘essential’ for companies to remain competitive in their markets.

Those operating in the leasing industry therefore need to consider their customer acquisition and engagement strategies with clear differentiators and focus on areas where they can extract value.

On one hand, a strategy can be focussed on customers who will deliver greater lifetime value, return and commitment. These customers subsequently warrant the greatest investment. This market requires a high value service offering, where they seek a more informed and consultative approach that focuses on subject matter expertise (for example technical, legislative, vertical market or equipment knowhow).

On the other hand, strategies can be focussed on the customer base that regard price as a main driver in a purchase and are not prepared to pay for value. This market requires an entirely different method of engagement. It needs to be low touch with an efficient execution. The cost to serve this market (that stem low returns) is prohibitive. This is where the concept of online processing through e-commerce comes into its own.

E-commerce is providing a window of opportunity in all markets (including leasing) to better communicate with those customers who are at price comparison stage with similar products without sales costs. The beauty of an e-commerce site is that it will allow that customer to create a bespoke quote based on the information that they input and then purchase online, with limited cost. The customer gets what they need and the business reduces the cost of converting that customer.

Despite the redevelopment of acquisition and engagement strategies to meet the needs of the changing target market, organisations can also consider the diversification of their product mix to meet an identified target market’s needs.

Taking the existing product and service offering and redeveloping it to serve a different target market can be hugely successful if deployed correctly. Creating a basic product, with its own brand, identity and more importantly, a matching price tag means you are attracting a new market without diluting the perceived value of your existing brand, product or service.

Take for example, British Airways. Before the aggressive rise of low-cost airlines British Airways spotted a gap in the market. This resulted in the development of a new product concept, a no-frills, value proposition which they named ‘Go’. It was positioned as entirely separate to British Airways and therefore did not detract from the values already associated with British Airways as a service/product concept. However, it meant that BA was able to penetrate not only those customers who had come to expect a certain quality from them, at a cost, but a new group of potential customers  who were only interested in getting from A to B and therefore would go with the airline that could meet this need at the cheapest price. The brand ‘Go’ was subsequently purchased by EasyJet and the rise of the low-cost airline was well and truly born.

Syscap have been proactive within the market in a similar way, meeting consumer needs by offering a range of products to suit their requirements. For example, we have expanded our leasing product suite originally focussed on IT, to diversify into providing short and long term loans into the Professions sector. This includes the provision of funding solutions from Vat and Tax funding over a 12 month period to longer term software acquisition funding, office healthcare and insurance premiums, even refurbishment of a practice down to new light fittings and the paint on the walls. Obviously, finance can be used for a whole host of purposes. What we have tried to do, with success, is identify the main aspects that finance is used for within the sectors we operate within and provide a finance solution that meets that need, similar to British Airways and the ‘Go’ airline example.

In conclusion, the commoditisation of the leasing sector is not something to shy away from. If anything, it provides ample opportunity for businesses to penetrate markets in new and exciting ways. By either adapting the way we sell, via e-commerce that reduce the cost of converting a lead into a sale or by actively adapting our product portfolio to attract those looking for the ‘best deal’ businesses are giving themselves the best opportunity to thrive in this new landscape. Innovation and diversification are key survival factors in business and those companies that stagnate in the coming months and years will be those that ignore these new developments in industry and refuse to change or alter their proposition.

The reason that our industry exists is to respond to our customers’ needs and meet them. Without evolving offerings, diversifying products, upskilling and refocusing staff, we are not able to meet the customer need, want or demand. Without providing versatile offerings to the customer, we don’t have a future to look forward to.

 

About Syscap

Syscap provides tailored finance solutions and advice to a whole host of commercial, professional and public sector organisations, helping them to acquire the business assets and resources they need, without traditional budgetary constraints, allowing them to grow and prosper. syscap.com

 

 

CC BY 4.0 The commoditisation of leasing by Philip White is licensed under a Creative Commons Attribution 4.0 International License.