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A pricing model for Internet of Things-based fleet services to support equipment sales

Author

Listed:
  • Salla Marttonen-Arola
  • Timo Kärri
  • Tiina Sinkkonen
  • Miia Pirttilä

Abstract

Servitisation and rapid technological development have made data-based services a feasible way for many manufacturing companies to increase their cash flow and support their core products. In this article, an analytical model is presented for studying the development costs and pricing of new Internet of Things-based services for especially populations, or fleets, of industrial production equipment and machines. The model suggests the optimal price of a fleet service as a function of the life cycle of the service, the required rate of return, the size of the fleet, and the extent of economies of scale in fleet research and development. This article contributes to the research on servitisation of manufacturing, and sheds light on the different natures of service and equipment sales. Also a numerical study is presented to bring forward the managerial implications of the model.

Suggested Citation

  • Salla Marttonen-Arola & Timo Kärri & Tiina Sinkkonen & Miia Pirttilä, 2019. "A pricing model for Internet of Things-based fleet services to support equipment sales," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 70(6), pages 1027-1037, June.
    • Handle: RePEc:taf:tjorxx:v:70:y:2019:i:6:p:1027-1037
    DOI: 10.1080/01605682.2018.1487815
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