Servitization as an alternative business model and its implications on product durability, profitability & environmental impact


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Kanatlı M. A. , KARAER Ö.

European Journal of Operational Research, vol.301, no.2, pp.546-560, 2022 (SCI-Expanded) identifier identifier

  • Publication Type: Article / Article
  • Volume: 301 Issue: 2
  • Publication Date: 2022
  • Doi Number: 10.1016/j.ejor.2021.10.052
  • Journal Name: European Journal of Operational Research
  • Journal Indexes: Science Citation Index Expanded (SCI-EXPANDED), Social Sciences Citation Index (SSCI), Scopus, International Bibliography of Social Sciences, ABI/INFORM, Applied Science & Technology Source, Business Source Elite, Business Source Premier, Computer & Applied Sciences, EconLit, INSPEC, Public Affairs Index, zbMATH, Civil Engineering Abstracts
  • Page Numbers: pp.546-560
  • Keywords: OR in environment and climate change, Servitization, Durability, Sustainability, Profitability, DURABLE-GOODS, RATIONAL-EXPECTATIONS, SHARING ECONOMY, MANAGEMENT, SALES, CAR
  • Middle East Technical University Affiliated: Yes

Abstract

© 2021 Elsevier B.V.Servitization is the activity of selling the services provided by the product rather than the product itself. It is a business model that might be environmentally superior to conventional selling. Servitization promises accessibility to the product's functionality, pooling of consumer use, and potentially products of better design. However, it can also inflate consumption and result in a bigger environmental impact overall. In this paper, we compare servitization with traditional selling for a monopolist durable goods manufacturer from both an economic and environmental perspective. In this comparison, we define the durability of a product as the use capacity; that is, how many usages it can endure before reaching end of life. We study the firm's durability decision, followed by the price/fee decision, and the consequent usage in the market under each model. We find that servitization produces durability levels that are robust to customer heterogeneity, and higher than selling. Overall, environmental superiority of servitization hinges on product related costs, customer heterogeneity, and market composition. It is, however, robust to varying environmental factors in the use and manufacturing phases. When we compare environmental preferability with the economic incentives of the firm, we observe that they are not always aligned.