The Potential of Servicizing as a Green Business Model

32 Pages Posted: 16 Sep 2013 Last revised: 6 Oct 2015

See all articles by Vishal Agrawal

Vishal Agrawal

Georgetown University - McDonough School of Business

Ioannis Bellos

George Mason University - Department of Information Systems and Operations Management

Date Written: October 2015

Abstract

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: 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, a pure servicizing, 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, viz., no 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 as 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.

Keywords: sustainable operations, servicizing, environment, product design, business models

Suggested Citation

Agrawal, Vishal and Bellos, Ioannis, The Potential of Servicizing as a Green Business Model (October 2015). Georgetown McDonough School of Business Research Paper. Available at SSRN: https://ssrn.com/abstract=2325218 or http://dx.doi.org/10.2139/ssrn.2325218

Vishal Agrawal (Contact Author)

Georgetown University - McDonough School of Business ( email )

3700 O Street NW
Washington, DC 20057
United States

Ioannis Bellos

George Mason University - Department of Information Systems and Operations Management

4400 University Drive
Fairfax, VA 22030
United States

HOME PAGE: http://mason.gmu.edu/~ibellos

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