Interview with Gil Adato, Vice President of Digital Health at Philips.
As one of the largest healthcare technology companies in the world, Philips has been creating and commercializing innovative technologies and customer-focused products in the healthcare space for over 128 years.
But over the past decade, the world has changed—and so have the needs and, just as importantly, the expectations of customers. A global brand like Philips, realizing it can no longer depend on its historic success to stay a leader in healthcare, decided to refocus once again on its customers, this time by pivoting to more customer-centric business models.
In 2014, the company decided to divest its lighting business and focus solely on healthcare. The idea was to leverage their deep clinical and consumer insights to offer more integrated, connected, and customer-focused solutions. These solutions span across two main customer segments: Consumer/Patient Care (oral care, mother and child care, sleep and respiratory care, elderly care, etc.) and Professional Care (remote patient monitoring, imaging, etc.).
One of the key people leading the change to a customer-centric business is Gil Adato, Philips’ Vice President of Digital Health, heading new business development and connected value propositions. After bringing Samsung into the IoT era by conceptualizing an IoT platform and creating a new Samsung IoT business unit around it, Gil Adato joined Philips to drive its digital business innovation. Subscribed talked to Gil Adato about the shifts in the company and how the subscription business model is increasingly becoming a key lever of success.
Philips is such a massive and diverse company. Can you give us a bit more context about what you’re driving there?
I’m leading a lean-and-mean new business development and connected value propositions team in the IoT organization. The scope includes data-driven solutions and services enabled via external partnerships, investments, and acquisitions, spanning new technologies, services, business models, and channels. I see my team as a special- forces unit, and as such, we’re not a typical partnerships team. For us, everything starts with the value proposition and an engaging consumer journey. We also act as a “partner success team,” working really closely with our businesses, markets, and technical organizations to ensure a successful partnership. We’ve got a very customer-focused, end-to-end approach.
Why is the shift to subscriptions so important for Philips?
We have a 128-year history of selling customer-centric products; however, customer expectations have changed, and as a result, the definition of customer centricity has changed. Customers have higher expectations and different preferences.
It’s no longer about the physical products; it’s about the experience and outcomes. Products are just a means to an end, so customers care about access more than ownership. Customers want customized experiences. Customers want flexible payment options. Customers don’t want to deal with the hassle that comes with buying stuff outright. And finally, customers want a constantly improving experience that delights them on a regular basis. With this as the (very high!) bar, we had no choice but to start shifting from a product distribution model to long-term, 1:1 relationships via digitally enhanced products, services, and experiences. And subscriptions are key to achieving that.
What have been some of the challenges of shifting to a subscription model?
The big-picture challenge we faced was: How do we transform from customer-centric physical boxed products into customer-centric digitally enabled solutions and services? And how do we enable this shift at business, market, and company levels? It was clear from the beginning that we needed to leverage the IoT to create and sustain engaging experiences but to do that we needed a new mandate, a new mindset, and new skill sets.
Like most product businesses, we were used to launching a “static” product and waiting X years until the next version was launched. But subscriptions require you to shorten the product lifecycle and treat your product as a living organism, meaning continuous innovation: beta, learn, improve, and iterate. That means the product is not king anymore; it’s the means to an end. That is a really hard shift to make, and it’s one that has to happen across all of your business divisions. The subscription revenue and risk model were ‘non-traditional’ for our finance and accounting teams, so we had to educate and adapt there. And the challenge with our IT team was to realize that our legacy subscription capabilities were just not up to the challenge of this modern age. Luckily, conviction, agility, and growth ultimately won.
What are some of the subscription-driven channels you’re most excited about?
I see opportunities for subscriptions in almost every arena at Philips. Imagine that you could subscribe to a personalized sleep care team, including sleep specialists, dietitians, trainers, support groups for insomniacs, etc, that will advise you based on your real-time sleep data. Or imagine you could subscribe to a service that wakes you up with the latest songs by your favorite artists. Or subscribe to an oral care program bundle that includes bi-annual checkups and cleanings, along with quarterly brush head replacements and remote access to dentists. Or subscribe your beloved elderly parents to a service that seamlessly tracks their physical and mental health and well-being at home—transportation, cooking, cleaning services, monthly trips, weekly activities/lectures/ workshops/movie, etc. The possibilities are endless and exciting.
Can you tell us more about a couple of your subscription services and how they differ from your previous product-based model?
The idea behind our subscription services is to shift from selling a physical product to providing a holistic solution that creates ongoing consumer value and engagement, which are key to having consumers who return to our solutions and brand on a regular basis.
Our first subscription launch was in our hair removal proposition, IPL Lumea. We took a €550 product and started offering it also as a try-and-buy subscription service. Consumers can now pay €39.95 a month, cancel the subscription at any time, buy the product minus the paid subscription fees at any time, and fully own the product after 14 months of subscription. The app currently provides guidance on how the product works, safety measures, and a calendar with reminders. We are working on making it a connected device so we can see usage and behavioral data, which will enable us to optimize our value proposition, as well as offer additional value-adding subscription services.
Our second subscription is also interesting since it is about transforming how we sell. For years, we’ve sold powered toothbrushes and brush head replacements to go with it. We decided to switch that to a subscription model where you have a one-time $19.99 fee and a $4.99 monthly subscription fee and in return you get a powered toothbrush and brush head replacement delivered every three months. We plan to continue adding more value to the oral care service by including a dental insurance component, teledentistry to remotely access dentists, different tiers based on the preferred toothbrush, digital incentives, etc.
With the magnitude of the shifts you’ve had to make at Philips to embrace and drive the new subscription business, what signs are you looking for to determine if it’s a success?
Internally, I look for two main signs: first, leaders and followers, meaning some Philips businesses to be leaders and others to be followers in the subscription experience—and that’s exactly what we’re seeing- ing. Second, applied learnings, meaning we’re using a subscription launch in select business areas and markets to cull insights about how this model could be used more broadly and globally within Philips. We know that once we have the learnings from this, we’ll be able to validate this approach and use it to transform the value we deliver to our customers and partners across the organization.
As we embrace subscriptions, we measure them against the same four key metrics we measure everything against: scale (number of customers discovering our subscription services), engagement (number and behavior of customers subscribing to our services and building an ongoing relationship with us), outcomes (for our customers and partners), and monetization (for our businesses, markets, and partners via new subscription business models).
Externally, we’re looking for signs that our competition is responding to our digital subscription model. That will mean that we’ve hit gold.
Where do you go from here?
We will continue to work towards demonstrating that subscriptions can create value and transform Philips across the four key metrics I mentioned earlier: scale, engagement, outcomes, and monetization. We have plans to launch several new subscription services for different businesses across different markets in 2019-2020.
This is only the beginning of a very long and hopefully successful transformation for the whole company. It’s not going to be easy, but the potential rewards for our customers, partners, and our company are well worth it.
Continue reading other inspiring stories of digital transformation in the latest issue of Subscribed Magazine!