Contracting in Medical Equipment Maintenance Services: An Empirical Investigation

Chan, Tian Heong; deVericourt, Francis; Besbes, Omar

doi:10.2139/ssrn.2494265

Cited by 5 publications

(1 citation statement)

References 25 publications

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“…The literature comparing resourcebased and performance-based contracts indicates that product reliability is generally higher under performance-based contracts [Guajardo et al, 2012;Bakshi et al, 2015]. Chan et al [2018] study sales and service records of medical equipment. Their dataset consists of service records for 700 devices over a four-year period including the maintenance visits and their associated part costs and labor.…”

Section: Literaturementioning

confidence: 99%

Pricing service maintenance contracts using predictive analytics

Deprez

Antonio

Boute

2021

European Journal of Operational Research

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As more manufacturers shift their focus from selling products to end solutions, full-service maintenance contracts gain traction in the business world. These contracts cover all maintenance related costs during a predetermined horizon in exchange for a fixed service fee and relieve customers from uncertain maintenance costs. To guarantee profitability, the service fees should at least cover the expected costs during the contract horizon. As these expected costs may depend on several machine-dependent characteristics, e.g. operational environment, the service fees should also be differentiated based on these characteristics. If not, customers that are less prone to high maintenance costs will not buy into or renege on the contract. The latter can lead to adverse selection and leave the service provider with a maintenance-heavy portfolio, which may be detrimental to the profitability of the service contracts. We contribute to the literature with a data-driven tariff plan based on the calibration of predictive models that take into account the different machine profiles. This conveys to the service provider which machine profiles should be attracted at which price. We demonstrate the advantage of a differentiated tariff plan and show how it better protects against adverse selection.

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Section: Literaturementioning

confidence: 99%

Pricing service maintenance contracts using predictive analytics

Deprez

Antonio

Boute

2021

European Journal of Operational Research

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The Potential of Servicizing as a Green Business Model

2017

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It has been argued that servicizing business models, under which a firm sells the use of a product rather than the product itself, are environmentally beneficial. The main arguments are as follow. First, under servicizing the firm charges customers based on the product usage. Second, the quantity of products required to meet customer needs may be smaller because the firm may be able to pool customer needs. Third, the firm may have an incentive to offer products with higher efficiency. Motivated by these arguments, we investigate the economic and environmental potential of servicizing business models. We endogenize the firm’s choice between a pure sales model, a pure servicizing model, and a hybrid model with both sales and servicizing options; the pricing decisions; and the resulting customer usage. We consider two extremes of pooling efficacy, i.e., no pooling versus strong pooling. We find that under no pooling servicizing leads to higher environmental impact due to production but lower environmental impact due to use. In contrast, under strong pooling, when a hybrid business model is more profitable, it is also environmentally superior. However, a pure servicizing model is environmentally inferior for high production costs because it leads to a larger production quantity even under strong pooling. We also examine the product efficiency choice and find that the firm offers higher efficiency products only under servicizing models with strong pooling. This paper was accepted by Serguei Netessine, operations management.

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The Car Sharing Economy: Interaction of Business Model Choice and Product Line Design

Bellos

Ferguson

Toktay

2017

M&SOM

221

113

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Several auto manufacturers have recently introduced car sharing programs. Although the structure of most programs is the same, there is no clear dominant strategy for the type of vehicles that should be provided through car sharing. In this paper, we consider an original equipment manufacturer (OEM) that contemplates car sharing and designs its product line by accounting for the trade-off between driving performance and fuel efficiency under CAFE standards. Customers have different valuations of driving performance and decide whether to buy, join car sharing or rely on their outside options. We find that the OEM increases the fuel efficiency of the vehicles it provides through car sharing. This higher efficiency enables the OEM to charge a higher selling price to the higher end of the market, thus increasing its profit. This is especially beneficial to higher-end OEMs that face greater cannibalization and can explain why Daimler and BMW have been particularly active in introducing car sharing. Offering car sharing is not always environmentally beneficial. Even when it is, we find that doing so may reduce the OEM’s Corporate Average Fuel Economy (CAFE) level. In such cases, incentive multipliers should be granted for each shared car. Finally, if anticipating aggressive CAFE standards, OEMs may introduce car sharing to better absorb the increase in the production cost. The online appendix is available at https://doi.org/10.1287/msom.2016.0605 .

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Contracting in Medical Equipment Maintenance Services: An Empirical Investigation

Cited by 5 publications

References 25 publications

Pricing service maintenance contracts using predictive analytics

Pricing service maintenance contracts using predictive analytics

The Potential of Servicizing as a Green Business Model

The Car Sharing Economy: Interaction of Business Model Choice and Product Line Design

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