Pricing structures for solutions: an exploratory study within the oil and gas industry^†

† An earlier version of this paper was presented at the Spring Servitization Conference held in Manchester, United Kingdom (see Boa, Frandsen, and Raja 2016).

Abstract

A growing number of companies have begun to realise the potential for differentiating their product offerings by integrating services to provide customised solutions. Although there is now an extensive and growing literature on this trend, researchers have only recently begun to consider the pricing structures for such solutions. To address this shortcoming, the present study adopts an exploratory case-based approach to investigate a buyer (drilling contractor) and two suppliers of offshore capital equipment, each of whom provides condition-based maintenance solutions for offshore drilling units in the upstream oil and gas industry. The findings of the study identify a number of underlying mechanisms for solution offerings (i.e. innovativeness, benchmarking alternatives, measurability, replicability and operational risk) that are important considerations in the process of determining appropriate pricing structures based on the buyer’s business model, procurement practices and maintenance strategy vis-à-vis the supplier’s capabilities and the buyer–supplier relationship. The present study contributes to the literature by providing empirical evidence on and insight into the complexity of determining the pricing structure for solution offerings from the perspective of the supplier as well as the buyer.

Keywords:

• Solutions
• pricing
• value-based pricing
• condition-based maintenance
• buyer–supplier relationship

Acknowledgements

The work presented here was undertaken at Copenhagen Business School, as part of the ‘Driving Competitiveness through Servitization’ project, which is supported by the Danish Industry Foundation (Project number: 2014-0095). We would like to thank the respondents in each of our case firms for their generosity, both in their time and the depth and extent of the insights provided, during the research. Lastly, we are grateful to the two anonymous reviewers for their helpful comments.

Disclosure statement

No potential conflict of interest was reported by the authors.

ORCID

Thomas Frandsen http://orcid.org/0000-0002-9487-5339

Notes

† An earlier version of this paper was presented at the Spring Servitization Conference held in Manchester, United Kingdom (see Boa, Frandsen, and Raja 2016).

Additional information

Funding

The work presented here was undertaken at Copenhagen Business School, as part of the ‘Driving Competitiveness through Servitization’ project, which is supported by the Danish Industry Foundation [Project number: 2014-0095].