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How to charge in servicizing: Per period or per use?

Author

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  • Arani, Hamed Vafa
  • Pourakbar, Morteza
  • Laan, Erwin van der
  • de Koster, René

Abstract

In a servicizing business model, the service provider sells a product’s functionality, not the product per se. This study aims to find the best profit-maximizing pricing strategies for this business model that can also yield the highest consumer welfare with minimal environmental impact. This approach identifies win-win-win strategies satisfying profit, planet, and people objectives. As providers charge consumers based on usage (pay-per-use) versus a regular flat fee (pay-per-period), the economic, environmental, and welfare implications of such strategies remain unclear. We tackle this problem using a stylized game-theoretic model where the service provider first designs the pricing schemes, and consumers react by adjusting use. When offering a single product, we observe that pay-per-use policies outperform pay-per-period when the service provider is cost-inefficient or small-scale. Also, where per-use consumers are not very sensitive to payment frequency, service providers tend to exclude low usage-valuation users. Outperformance also prevails when the proportion of low-use consumers is sufficiently low. Our results show that a win-win strategy can be achieved by offering a pay-per-use policy to high usage-valuation consumers, however, a win-win-win strategy is never possible. We also analyze the problem for a situation where the service provider offers a product line including green and regular products. Then, we characterize possible win-win-win strategies that hinge on environmental impact from different phases of a product’s lifecycle. We extend the models to allow SP i) influence the size of market segments and ii) decide on product greenness levels in different phases of its lifecycle.

Suggested Citation

  • Arani, Hamed Vafa & Pourakbar, Morteza & Laan, Erwin van der & de Koster, René, 2023. "How to charge in servicizing: Per period or per use?," European Journal of Operational Research, Elsevier, vol. 304(3), pages 981-996.
    • Handle: RePEc:eee:ejores:v:304:y:2023:i:3:p:981-996
    DOI: 10.1016/j.ejor.2022.05.002
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    References listed on IDEAS

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