Servicizing as an Alternative to Selling for a Durable Goods Manufacturer

M. Ali Kanatlı, Department of Industrial Engineering, METU


Servicizing is the activity of selling the services provided by the product rather than the product itself. It is an alternative business model that might be environmentally superior to conventional selling. Servicizing promises pooling of consumer use and products with higher durability. However, it can also inflate consumption and result in a bigger environmental impact overall. In this paper, we compare servicizing with 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 consumption in the market under each model. We find that servicizing produces durability levels that are robust to customer heterogeneity, and higher than selling. Overall, environmental superiority of servicizing hinges on product related costs, customer heterogeneity, and market composition. It is, however, robust to varying environmental factors in the use and the production phases. When we compare environmental preferability with the economic incentives of the firm, we observe that they are not always aligned.
Joint work with Özgen Karaer. 

Short Bio

M.Ali Kanatlı is a production planning specialist in Roketsan A.Ş. He recieved his BS degree in Indusrial Engineering from METU in 2014. After working as a system development engineer in ETI Gıda for about a year, he started his current job in Roketsan. While working in this position he recieved his MS degree in Industrial Engineering from METU in 2019. He has been working in Roketsan since 2015.


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