Highlights

Abstract

Keywords

۱٫ Introduction

۲٫ Literature review

۳٫ Model setup

۴٫ Equilibrium analysis

۵٫ Comparative analysis

۶٫ Managerial implications

۷٫ Concluding remarks

۸٫ Highlights

CRediT authorship contribution statement

Acknowledgements

Appendix A.

References

Abstract

Servicization is an emerging business paradigm that entails selling services along with physical goods. Money is paid for the utility value derived from using the product. To ensure the product runs well, the servicizing manufacturer bears the cost for operating it. We establish a Stackelberg game to investigate the interaction between a manufacturer and an operator using the product provided by the manufacturer. As a servicizing firm, the manufacturer is more likely to be capital-constrained. When the manufacturer has to raise funds for the production, it has two channels: external financing, which means raising funds from a bank, and internal financing, which means raising funds from the operator. Both the manufacturer and the operator may act as the leader under external financing, while under internal financing, the operator always moves first. We find that under external financing, moving first is not always beneficial. Also, high operating efficiency benefits both chain members when the manufacturer is the leader, but both are hurt when the operator leads. We find that it can be optimal to provide a subsidy not only when the operating efficiency is low but also when it is very high. Furthermore, when the per-unit price is high, the manufacturer should accept a high interest rate to facilitate earning more profit.

۱٫ Introduction

Currently, the world is witnessing a big change for the manufacturing industry, a shift from producing for selling to producing for servicing. The underlying reason is a change in the buyers, viz., more and more buyers are focusing on the functionality of a product rather than simply owning it. Unlike traditional service, servicization depends on physical goods since manufacturers need products to deliver their services. The value of these services, therefore, relies on the performance of both the products and the services themselves.

Many manufacturers sell services along with products, but if they only sell services, we call their business strategy servicization. The biggest difference between these two systems is who retains ownership of the product. Servicization is also different from leasing because of who pays for the operating cost. Under servicization, the buyers pay for the service time while the manufacturers bear all costs for production and operation. Rolls Royce and its contractual partners share the power-by-hour contracts where Rolls Royce owns engines and maintains them regularly, but the customers pay for the number of hours they use the vehicle. Many high-end hotels are also charged for using carpets produced by Desso, and Desso is responsible for daily cleaning and maintenance (Agrawal et al., 2019). A company called Bundles from the Netherlands purchases categories of appliances from other companies and then, rather than selling them, charges its customers based on their usage time.