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Disentangling the effect of services on B2B firm value: Trade-offs of sales, profits, and earnings volatility

Author

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  • Nezami, Mehdi
  • Worm, Stefan
  • Palmatier, Robert W.

Abstract

In the face of declining business and growing pressures from low-cost competitors, many business-to-business (B2B) manufacturers have moved from their previously successful product-centric strategies to more service-oriented business models. Yet despite their substantial investments in services, firms fail to understand the performance ramifications of these offerings. With a longitudinal data set (2001–2016) of 227 B2B manufacturers listed in the S&P 1500 index, this study disentangles the simultaneous effects of financial-based mechanisms that link the service ratio (i.e., share of a firm's revenue generated from selling services) to firm value. The findings reveal significant trade-offs across these mechanisms. Although the service ratio monotonously boosts sales growth, it has U-shaped curvilinear relationships with profitability and earnings volatility. These effects also depend on industry- and firm-level factors. Industry maturity positively moderates the effects of the service ratio on sales growth and profitability. However, business scope has an adverse effect on the service ratio–profitability relationship. Finally, industry turbulence negatively moderates the effect of services on earnings volatility.

Suggested Citation

  • Nezami, Mehdi & Worm, Stefan & Palmatier, Robert W., 2018. "Disentangling the effect of services on B2B firm value: Trade-offs of sales, profits, and earnings volatility," International Journal of Research in Marketing, Elsevier, vol. 35(2), pages 205-223.
    • Handle: RePEc:eee:ijrema:v:35:y:2018:i:2:p:205-223
    DOI: 10.1016/j.ijresmar.2017.12.002
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    Citations

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    Cited by:

    1. Dannenbaum, Judith & Edinger-Schons, Laura Marie & Rese, Mario & Plötner, Olaf & Wieseke, Jan, 2020. "What Does it Take to Successfully Implement a Hybrid Offering Strategy? A Contingency Perspective," SMR - Journal of Service Management Research, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 4(2-3), pages 100-120.
    2. Ashkan Faramarzi & Stefan Worm & Wolfgang Ulaga, 2024. "Service strategy’s effect on firm performance: A meta-analysis of the servitization literature," Journal of the Academy of Marketing Science, Springer, vol. 52(4), pages 1018-1044, July.
    3. Dabboussi Moez, 2024. "Does Managerial Power Explain the Association between Agency Costs and Firm Value? The French Case," IJFS, MDPI, vol. 12(3), pages 1-14, September.
    4. Healey, John & Mintz, Ofer, 2021. "What if your owners also own other firms in your industry? The relationship between institutional common ownership, marketing, and firm performance," International Journal of Research in Marketing, Elsevier, vol. 38(4), pages 838-856.
    5. Krämer, Martin & Desernot, Christina & Alavi, Sascha & Schmitz, Christian & Brüggemann, Felix & Wieseke, Jan, 2022. "The role of salespeople in industrial servitization: How to manage diminishing profit returns from salespeople’s increasing industrial service shares," International Journal of Research in Marketing, Elsevier, vol. 39(4), pages 1235-1252.
    6. Feng Zhang & Haina Zhang & David H. Brown & Xile Yin, 2023. "Innovation and Performance of Manufacturing Firms in Aspirant Markets: An Institutional Environment Approach," Asia Pacific Journal of Management, Springer, vol. 40(2), pages 435-482, June.

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