Editing Service economy (section)

==Servitization drivers==
The trend of servitization is very visible while looking at the growth of the service shares in the United States and European countries GDP than 20 years ago. Services are becoming an inseparable component of the product, as the supplier offers them jointly with the core to improve its performance (IBM, 2010). However, what are the key drivers for reshaping the business model of the company? Baines, Lightfoot, & Kay (2006) name three main sets of factors that motivate companies to expand into services sectors: financial, strategic and marketing.

===Financial drivers===
The financial driver is reflected in improved profit margins and stable income, that come with servitization. In the increasing price competition among product offering, companies can use services to recover the lost potential revenue. GE's transportation division encountered a 60% drop in the number of locomotives sold between 1999 and 2002 but did not turn out disastrously because the revenue from services has tripled from $500M to $1.5B from 1996 to 2002.<ref>Sawhney, M. S., Balasubramaniam, S., & Krishnan, V. V. (2004). Creating Growth with Services. MIT Sloan Management Review. https://doi.org/10.1080/13552600410001470973
</ref> According to an AMR Research (1999) report, companies earn over 45% gross profits from the aftermarket services although they represent only 24% of revenues. It also shows that GM earned more profits in 2001 from $9 billion after-sale revenues than it did from $150 billion income from car sales.<ref>Cohen, M. A., & Agrawal, N. (2006). Winning in the Aftermarket. Harvard Business Review, 84, 129–138. https://doi.org/Article
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Also, the servitization levels the seasonality of the product and increases life cycles of the complex products, examples of which one can see in the aircraft industry, whereby companies stop focusing on the pure product delivery but start introducing maintenance and other aftermarket activities.<ref>Ward, Y., & Graves, A. (2007). Through-life management: the provision of total customer solutions in the aerospace industry. International Journal of Services Technology and Management, 8(6), 455. https://doi.org/10.1504/IJSTM.2007.013942</ref>

===Strategic drivers===
Strategic drivers focus mainly on gaining and securing the competitive advantage by the company. For the company to be able to achieve sustainable competitive advantage, its resources should be valuable, rare, difficult to imitate and organised. Servitization might not be the ultimate and only guarantee for the company of achieving it. However, it shows to be valuable as it is not provided by many suppliers, and it facilitates the usage of the product by the customer. It is also rare and difficult to imitate as not too many companies have capabilities of providing service to the customer since the producer has better knowledge and experience in the product functioning. Moreover, services are less visible and require more labour, therefore, prove to be more difficult to imitate. Finally, commoditisation is pushing the prices down, forcing companies to constantly innovate. However, adding services to the product enhances its value to the customer making it more valuable and perceived customised as service delivery can be done in a more individual way answering the customer needs on a more ad hoc manner.

===Marketing and sales drivers===
As services are provided on a long-term basis rather than one-time sale they offer more time to build the relationship with the customers and allow supplier to create the brand. Moreover, it enables the sales team to influence the purchasing decisions, by giving them opportunities to upsell additional product extension or other complementing parts of the product. Growing needs for services in the B2B industry comes from the customer and his need for not universal but custom-made solutions and this requires understanding his scope of work. This kind of work requires time and meetings of both sides during which trust and understanding are developed, which further leads to loyalty.<ref>Vandermerwe, S., & Rada, J. (1988). Servitization of Business: Adding Value by Adding Services. European Management Journal, 6(4), 314–324. https://doi.org/10.1016/0263-2373(88)90033-3
</ref> Last but not least working closely with customer and having opinions from a different perspective provides the supplier with valuable insights about the industry enabling him to innovate with a more customer-centric approach.

Designing a proper go-to-market strategy (aligned with an operations strategy) is key success factor for the PSS to be successfully introduced on the market. The 5Cs marketing framework analysis shall be applied: 
* Context ([[PESTEL]] analysis) 
* Customer
* Competition
* Collaborators (suppliers and distributors)
* Company (Internal capabilities, for instance with a [[VRIN]] test)

Perticularly important is the pricing approach, that to be successful shall adopt a Total Economic Value approach supported by a [[conjoint analysis]] to determine customer preferences and price sensitivity. Servitization contracts are typically based on fixed-fee schemas with increasing level of risks:
* fixed-fee for Product oriented PSS have the lowest level of risks
* level of risks increase moving versus usage-based oriented PSS, as an agreed uptime level is the base of pricing
* highest risks is captured with fixed fee for result-based PSS.
[[Total economic value|TEV]] analysis shall identify how the repositioning of such risks from customers to supplier creates value for the client and shall be used in pricing strategy