Manufacturers have instituted servitization programs across many industries in an effort to recoup service revenue. Under this philosophy, manufacturers position themselves to be the service provider of choice for their own equipment as well as competitors. This method of revenue generation requires a shifting in earning logic. A shift that requires a fundamental restructuring of the relationship between seller and buyer.

A servitization strategy requires a value recognition of the relationship between the seller and buyer. One that fosters a continuing relationship from quotation to installation to repair. The more extraordinary, strategic, and expensive the purchase, the greater the opportunity for a manufacturer to deliver servitization to the customer, through an outcome-based service model (Ng, et. al., 2013).

An additional factor considered by Vendrell-Herrero, et. al., is the longevity of the equipment. It would seem logical that the greater the equipment lifespan, the greater the opportunity for a manufacturer to generate revenue through service after the sale. The table below shows a sample of categories and equipment with their projected lifespans.

Industrial and commercial industries have the longest lifespan when compared to consumer products. For example, rail cars in comparison to air conditioners , have almost three times the longevity. This means that the opportunity associated with a rail car servitization relationship can yield almost three times the potential gain when compared to an air conditioning unit.

In 2013, Storbacka, et. al, identified an important component of servitization – customer embeddedness. “Customer embeddedness comes when exchange with customers becomes relational and long-term, where ‘the solution is developed, sold, and delivered through long term process “with” the customer rather than “to” the customer.’ Vendrell-Herrero, et. al., went on to include this concept as well as three others as traits required for manufacturers to meet the needs of servitization.

1. Customer Embeddedness
2. Solution Integratedness
3. Organizational Networkedness
4. Operational Adaptiveness

The authors go on to state, “The development of service-based intangibles, or servitization, is an instrumental factor that enables firms not only to maintain but also increase, their competitive advantage in the market” (Vendrell-Herrero, et. al, 2022).

The greater the longevity, the greater the possible gains for manufacturers.

References

Vendrell-Herrero, F., Vaillant, Y., Bustinza, O. F., & Lafuente, E. (2022). Product lifespan: the missing link in servitization. Production Planning & Control, 33(14), 1372–1388. https://doi-org/10.1080/09537287.2020.1867773

Table:  https://www.nies.go.jp/lifespan

Storbacka, K., C. Windahl, S. Nenonen, and A. Salonen. 2013. Solution Business Models: Transformation along Four Continua. Industrial Marketing Management 42 (5): 705-716. http://doi:10.1016/j.indmarman.2013.05.008

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