Do customized service packages impede value capture in industrial markets?

Abstract

Capturing the value of industrial services is an issue of growing concern as services increasingly define manufacturing companies’ competitive market positions. In business markets, suppliers often create customized service packages (CSPs) to avoid difficult pricing decisions or tedious negotiations. However, using a unique dataset of responses from more than 450 managers collected through telephone-assisted online questionnaires, this study shows that the managerial practice is suboptimal. Customers’ willingness to pay for CSPs is almost 5% lower than it would be with separate assessments of the same service elements, which represents substantially lower value capture potential. Buying firms with strong purchasing power demand greater price discounts for CSPs, though the presentation format has less influence among large and experienced buyers, as long as services support customer processes. Switching from CSPs to separate service offerings can enhance supplier profitability, but it requires advanced marketing capabilities to understand, document, and communicate customer value in business markets.