Optimizing smart product-service system business models through usage data analysis

Abstract

Product-service systems (PSS) integrate physical products and services into a unified offering, presenting an alternative to traditional one-time product transactions. This thesis investigates how a company with existing PSS offerings can enhance their business models by refining value creation and capture mechanisms, exploring the potential for financial and strategic benefits. As part of the broader servitization phenomenon, where manufacturers shift from selling standalone products to offering capabilities through product-service combinations, PSS leverages innovative pricing strategies. The ongoing digital transformation of servitization drives opportunities for manufacturers of physical goods through smart products and digitalization, but also presents strategic challenges such as value creation, data management, and the readiness of traditional partners to handle advanced service sales.

The case company, a Finnish manufacturer of movable phone booths and meeting pods for office use. Its products enhance workplace flexibility and reduce noise distractions. Recently, the company launched a smart pod product line featuring internet of things (IoT) sensors, alongside an online platform offering pod management. While traditionally relying on one-time product sales through its dealer network, the company also has a subscription-based model where customers pay monthly fees while ownership remains with the supplier. The subscription model’s limited innovation allowed competitors to create similar offerings, eroding the initial competitive advantage. Leveraging IoT-enabled smart pods, the company could develop advanced PSS business models, such as result-oriented PSS, which is currently absent in its market. The objective of this thesis is to explore how digital solutions can optimize case company’s PSS business models and evaluates the financial and strategic value of adopting result-oriented PSS offerings.

The findings made show that a result-oriented PSS business model with a usage-based pricing strategy can improve case company’s PSS business model offering and create competitive edge. Case company’s global accounts were identified as the most prominent customer segment for the proposed business model. The result-oriented PSS business model could create significant opportunities for profit improvement as the case company is able to deliver and capture more value. However, the proposed usage-pricing strategy includes significant financial risks related to decreased utilization of the smart pods. To mitigate the financial risks, a critical mass of customers should be reached to pool the risk of utilization fluctuations caused by individual accounts.

The findings contribute to the academic understanding of PSS by examining how a medium-sized manufacturing firm in the office furniture industry can enhance its PSS offering to gain a competitive advantage. The literature review, combined with empirical findings, provides new insights into PSS business model development in the office furniture sector, an area that has been underexplored. Additionally, the thesis introduces the innovative idea of incorporating software- as-a-service (SaaS) pricing strategies into PSS development, a concept not yet studied in the academic literature. It also challenges the common belief that advanced services are always critical to customers' core business processes.