Paper: Configuring and Pricing Smart Coproductive Services

Paper: Configuring and Pricing Smart Coproductive Services

Sivakumar S. and Mahadevan B. (2021)

Journal: European Journal of Operational Research (forthcoming)

Coproductive services involve the active participation of customers by exerting physical/mental effort as a part of the service process to co-create value. While the demand for coproduction models is surging, there are complaints about customer experience and service system design. Owing to these dissatisfaction issues, service providers are now shifting away from self-service models, towards the notion of smart service, where service tasks are efficiently divided between the provider and the customer. This study addresses the business problem of the configuration and pricing of such a smart coproduction service channel targeted at a segment within an incumbent provider’s captive customer base.

The authors analyze the relative preference of the popular uniform pricing policy against a new policy that accounts for the strategic behaviour of customers using a suite of analytical models.  Their modelling approach draws on the paradigms of the theory of service-dominant logic (SDL) and service science to determine the coproduction levels of the provider and the customer. They analyze the applicability of the alternate pricing regimes when providers are pursuing certain prevalent marketing strategies viz. skimming, integration, and retention strategies. They also analyze the influence of relative co-creation productivity between the provider and customer on the choice of pricing regime.

Their findings corroborate with some of the observations of the UK’s 2017 FinTech survey with respect to customer switching behaviour and adoption of digital channels. Furthermore, their study provides several insights and guidance for the practice for gainful use of coproduction opportunities. These include the following:

  • Uniform pricing models are popular on account of their simplicity in configuration and applicability.
  • When customers indulge in strategic behaviour, it is optimal for the provider to pick-up more tasks from the customer.
  • The proposed strategic pricing regime not only induces customers to adopt coproduction channels but also enables service providers to charge a price premium where possible.
  • They also present useful guidelines to managers for configuring and pricing coproduction service channels.