Servicizing for the Environment? The Impact of Data-Centric Product-Service Models

Abstract

New servicization model involves firms using data-centric technologies to improve their services by extracting consumer insights derived from product usage data. We refer to this ability as the service improvement capability. In this study, we build an analytical model to scrutinize the economic and environmental performance of two business models: 1) the product model under which products are sold at a fixed price and 2) the servicization model under which consumers are charged a pay-per-use price for the product. Contrary to prior beliefs, we find the use of service model does not always benefit the firm or the environment. In particular, when the service improvement capability is high and marginal production cost is low, the service model is more profitable for the firm; otherwise, the product model is more profitable. Moreover, the ability to create a higher service improvement capability, counterintuitively, may exacerbate the environmental impact. This result illustrates the tension arising between the benefits of servicization for firms and the negative environmental impact. We propose further extensions, including product pooling, product model with add-on service, hybrid model, consumer privacy concerns. Finally, our analysis details the win-win outcome under both product and service models, where a host of factors, including the degree of pooling, the product type, the level of service improvement, degree of privacy concerns, play an interactive effect. We discuss the relevant managerial implications.