Creating customer value with revenue model innovation in product-service system : A qualitative case study

Abstract

As the competition in global markets is continuously growing, companies are seeking new ways to create competitive advantage. In current competitive environment, value does not lie in the provision of products anymore, but in the combination of products and services which create joint value. These entities are called product-service systems (PSS). However, the business model of PSS needs to be continuously adjusted to compete effectively in the markets. Current literature shows that revenue model innovation is an effective way to create competitive advantage, but the research still lacks understanding how value is particularly created for the customer with revenue model innovation. The objective of this study was to examine the potential revenue models for PSS and investigate how they can create more value for the customer. The case company of the research has started developing new services around their main products, enabling product usage already during the construction phase of the project. Even though the services have been launched to the markets and sold globally, the sales have not been scaling at the desired rate. The goal of this study is to examine potential revenue models for the services and how these could increase customer value. To meet the set objectives, a qualitative case study was conducted to a large industrial company functioning in elevator business. The study focuses on examining a PSS of the case company, which has been developed to enable the usage of the elevators already in the construction phase of a building. Research showed that the potential revenue models for the PSS were product-related service, as-a-service, pay-per-use and functional result. The findings reveal that each revenue model can create more value for the customer, but the suitability of a specific revenue model is highly context-dependent. When choosing a suitable revenue model for business, it is essential to consider the labour cost in the region, project profile level and the stage of the project, when the services are sold. In each context there are differences in how value is perceived, highlighting the importance of context effect to the optimal revenue model selection. When implementing a new revenue model to the business, there are several aspects to be considered to create more value for the customer and maximize the potential of the services. Firstly, companies need to create even stronger relationships with their customers, to gather high-quality data from the service usage and justify the service price with the actualized results. Secondly, company frontlines need to be trained to sell the services and they need to have incentives for selling the services with a new revenue model. Additionally, the case company should consider bundling the services, offering several payment methods for the customer, outsourcing the payment traffic to a third-party provider and billing the subcontractors directly instead of the builder to increase the customer value even more. This research extends the existing research on revenue models in PSS by providing additional insights on how revenue model innovation can create additional customer value in various contexts. From a practical viewpoint, it enables managers to examine the suitability of specific revenue models in different contexts, understand the importance of data and distinguish how altering the revenue model affects to the business model. Considering future research, it is recommended to expand the research scope to new contexts by examining different revenue models and services and increase sample size to gain more trustworthy results. Additionally, for the future research it is recommended to examine the long-term effects of the new revenue model on the business ecosystem in order to understand its impact to the business in longer time period.