409 / 2024-04-24 22:59:08

A strategic analysis of servicization in competing with remanufacturing

servicization,operation model,remanfuacturing,competition

It has been proved that servicization, in which the manufacturer sells the functionality or use of a product instead of the product itself, becomes a new low-cost alternative for consumers besides remanufacturing.  This paper analyzes the interaction between servicization and remanufacturing by modeling a stylized game where an OEM provides a new product service to compete with an independent operator (IO) who sells remanufactured products. We capture the market feature by allowing the new product and the remanufactured to have asymmetric operation costs with consideration of durability. We derive a condition for the OEM to adopt the servicization and show how the cost structure and market-related parameters affect the profit potential of servicization. We find that servicization allows OEMs to switch target markets with IO via a pay-per-use price and brings positive additional profit for OEMs at high manufacturing costs. The profitability of servicization is moderated by operation cost and durability.  Further, when OEM shifts the operation model from selling to servicization, IO may benefit, leading to higher consumer surplus and social welfare in a relatively large region.