Abstract

     Privacy concerns are an important aspect of business-to-business customers’ adoption decision of advanced product—service systems and a significant inhibiting factor. However, empirical evidence on its effect is scarce and anecdotal. Based on the observation that customers assess the “privacy vs. service/benefit” trade-off in a calculative way, this study examines how customers’ privacy concerns affect their price sensitivity and in turn, the provider’s profitability. Specifically, we propose value-based selling as an approach for providers to alleviate the potential negative effects of customers’ privacy concerns. The results of a sample of 250 US firms confirm value-based selling’s power to disable the privacy concerns–price sensitivity mechanism and mitigate the negative effect of price sensitivity on product-service system provider profitability. However, value-based selling’s positive impact on performance is dependent on the level of contract specificity. Thus, value-based selling and contract specificity are complementary arrangements.

Introduction

     In many industries, emphasis is shifting from selling products to selling innovative product-service systems (PSS) (Suppatvech, Godsell, & Day, 2019). Enabled by sensor technology and digitalization, these PSS generally rely on remote monitoring, extensive data sharing and analyses, and predictive analytics to improve system performance and drive down cost (Porter & Heppelmann, 2015). However, despite the rapid growth and potential of these advanced services, getting customers to accept them continues to be a challenge (Paluch, 2014).

     There are very good reasons for customers’ reluctance. The adoption of PSS often comes with serious security issues and privacy concerns for the customer firm, as well as with the danger of opportunistic behavior by the PSS provider (Paluch & Wunderlich, 2016; Vendrell-Herrero, Bustinza, Parry, & Georgantzis, 2017; Weinberg, Milne, Andonova, & Hajjat, 2015). Data transmission may not be secure, data leakage may occur, and providers may use sensitive competitive information for other purposes than agreed upon. This can make the customer vulnerable and could seriously hurt its firm’s competitive sustainability. More importantly, Paluch and Wunderlich (2016, p. 2429) argue that “providers are aware of the customers’ security concerns, but they underestimate their urgency.”

Findings

۵٫۱٫ Main findings
Table 1 shows the PROCESS results for the full model. The model fit (see R2 ) shows that our independent variables explain a fair amount of variance in our dependent variables, i.e. 34% of price sensitivity and 66% of provider profitability (Table 1). Thus, the model specification is adequate.

     The detailed results show that VBS significantly moderates the relationship between customer privacy concerns and customer price sensitivity, turning it negative (B = − ۰٫۱۶, p < .01). This lends support to H1; under conditions of high VBS privacy concerns do not affect customer price sensitivity, whereas under low value-based selling a strong positive relationship between privacy concerns and price sensitivity exists. In other words, VBS deactivates the potential privacy calculus mechanism.

     However, VBS does not moderate the customer price sensitivity–PSS provider profitability relationship (B = 0.04, p > .10). So, H2 is not supported.