The role of performance reward discrepancies in driving dealers’ servitization

Abstract

Although servitization is increasingly popular in manufacturing industries, little is known about how manufacturers can compel their dealers to cooperate with the servitization process to the same degree. Drawing on social comparison theory, we propose that a dealer will adjust its servitization level according to the reward discrepancy, or the difference between its annual reward, allocated by the manufacturer depending on the dealer’s performance in the past year, and the reference level in the distribution network. We empirically test this hypothesis with a unique archival dataset of the dealer network of a major automobile manufacturer and supplement it with a scenario-based experiment as a robustness check. We find a significant association between a dealer’s reward discrepancy and servitization, such that the more the dealer’s reward exceeds (falls below) the average, the more the dealer tends to increase (decrease) its engagement in service relative to sales. The findings are robust, with the average being defined in either the national or local scope. This research offers important implications for managers of both manufacturers and dealers.