Effective product-service systems

Article

Kuijken, Bram. Gerda Gemser, Nachoem M. Wijnberg. (2017). “Effective product-service systems: A value-based framework.” Industrial Marketing Management. 60, 33-41.

Reviewer

Dr. Michael Gunderson, Director and Professor

Summary

Like many business sectors, food and agribusiness firms are increasingly offering product-service systems to meet customer expectations. In fact, the entire January 2017 issue of Industrial Marketing Management is dedicated to the topic and could be worth a read if your company is contemplating a product-service system. We have seen many agribusinesses with outstanding product offerings move to a product-service system offering that brings complementary services to the challenges producers face. Marketing researchers call this change “servitization.” The authors note that companies that have undertaken a “servitization strategy” have not benefitted as much as they anticipated. The authors use a matrix to guide companies that are contemplating or undergoing such a transformation in marketing.

The authors suggest that the two dimensions of servitization most broadly relevant are (1) the importance of tangible characteristics to the value of the offering and (2) the importance of the interaction between manufacturer and customer to the value of the offering.

What this means for food and agribusinesses

Firms and forces have historically shaped the agribusiness value chain so that, typically, products are the realm of the manufacturers and services are the realm of retailers. In this way, we have witnessed strong product brands paired with strong producer loyalty to local retailers and dealerships. Often the retailers have chosen to bundle the cost of service into the product offering. In this way, the industry led the way in the servitization process the authors describe.

The historical structure of agricultural retail is undergoing a shift. Increasingly, manufacturers of products are able to interact more closely with large commercial producers. In most situations, the manufacturers have continued to work through the agricultural retail chain. In others, manufacturers have opted to take product and service options directly to those producers.

As the value chain undergoes a transformation, the authors of the article remind all to keep customer value in the forefront. The product-service system increasingly requires that the suppliers consider the “super additive” value. The authors note that product offerings and service offerings must have their own intrinsic value. Suppliers can only begin to adopt an effective product-service system when a super additive value exists.

The two axes of the authors’ matrix are (1) the importance of tangible characteristics and (2) the importance of the interaction. They note some examples relevant to other industries. In production agriculture, the standardization of data analysis from yield monitors, soil mapping, GPS data, and the like, is an example of a low importance of tangible and a low importance of interaction. An example of a low importance of tangible and high importance of interaction could be consulting on the outputs of standardized data analysis. Alternatively, there could be high importance of tangible benefits and low importance of interaction like the purchase of air filters for combines or treatment of seed. Finally, examples of high importance on both could be the delivery of grain at harvest.

An interesting point that the authors make is that often product firms tend to layer on services without thinking first of creating customer value. Starting from scratch and focusing on customer value could possibly even lead to the conclusion that suppliers might no longer offer some products. As suppliers start this process, they should focus on product services systems that combine high importance for tangible benefits and interaction benefits. The authors suggest an experiment known as a Vickery Auction as a means of measuring customer value of a product-service system.

Finally, the authors note that as the supply chain undergoes changes, some strategic repositioning will occur. This could change the dynamics of the chain by rearranging who creates and captures value. The authors suggest that partnerships in executing a product-service system are risky and best accomplished by one firm. I would caution that in agriculture the partnerships that exist between agricultural equipment manufacturers and dealerships serve as a counter to this risk. The arrangement was successful in delivering value for producers both in new equipment sales and servicing of products. That said, even the agricultural equipment chain is working to best create and capture value from the increasing amounts of data that farmers are collecting and analyzing.