Consumer goods: from mass consumption to servitization

Abstract

This chapter draws on price discrimination and historical production models to build price and operations strategy typologies in manufacturing. Historically, manufacturing firms have been unable to find production models that achieve optimal price and operations strategies. For instance, craft production could possibly achieve optimal price discrimination (first-degree discrimination) but lower operational performance. In contrast, mass production dramatically improved operational performance simply by offering volume discounts to attract demand (second-degree discrimination) or segmentation (mass customization), which could only achieve third-degree price discrimination. However, this research presents a relatively new production model that can offer price and operational optimality jointly, i.e., the servitization of manufacturing. In servitization, manufacturing firms add services to foster closer and richer relationships with customers (front-end), and digital technologies to improve logistics and inventory management (back-end). Here it is argued that, by doing so, servitization enables first-degree price discrimination to be established via product customization, and production efficiency via built-in digital production facility and product capabilities.