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Imd 2013-04-26

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  • 1. How to Master the Transition “FromFree-to-Fee”?Heiko GebauerAssociate ProfessorBusiness InnovationEnvironmental Social Sciences (EAWAG), Zurich, SwitzerlandCenter of Service Research, Karlstad University, SwedenDiscovery Event Lausanne – April 25-26, 2013
  • 2. Services trigger differentiation andbusiness growthBusiness-to-ConsumerPrice for a single cup ofcoffee ($)Supermarket12345CaféService x52NespressoConvenience x6StarbucksExperience x80Business-to-Business0123452000 2012Ship Power Power plants Services32%37%31%24%33%43%Revenues in billion EuroAnnual reports: 2000 and 2012
  • 3. Dräger aims at profitable service growthProfitabilityProfitablegrowthTimeProductServicesSumAdd-on Free-of-charge20%34%80%66%0%20%40%60%80%100%2002 2009Service revenuesProduct revenues
  • 4. Dräger recognizes that pricing services israther complexCriteria Products ServicesCost transparency Highsupported by ERP-systemLowlimited support by ERP-systemPrice anchor Product competitorsComplex competitivelandscape (e.g.customers, servicespecialists, suppliers)Perceived value Homogenous HeterogeneousPricing decision Global LocalCross sellingconsiderationsLow High
  • 5. Dräger embeds free-to-fee into improvement andinnovation activitiesServiceImprovementsServiceFree-to-feeServiceInnovationKeyconcerns• Process optimization(delivery)• Competencedevelopment• Performanceindicators• Cost & benefittransparency• Service selection• Commercializationapproach• Service ideas• Servicemodifications• New servicedevelopmentExamples • Free shipment services to a logistic fee (≈ $ 150‘000 p.a. additionalrevenue by $ 15‘000 investment costs)• Test certificates (≈ $ 30‘000 p.a.additional revenue by $ 10‘000investment costs)• Education service for fire fighting in tunnels (≈ $ 1 million p.a. by $200’000 investments costs)
  • 6. Lessons learned for profitableservice growthMarket organization (e.g., Asia and China) drive Free-to-feeinitiativesService improvement and innovation trigger free-to-fee (e.g.organizational setting)Careful balance with customer satisfaction (e.g., satisfactionassessments)New technologies or product generations enable new service fees(e.g., diesel, hybrid, and electric engines)Internal rather than external barriers hinder servicecommercializationManagement innovation (e.g. cost versus value-driven pricing, lifecycle cost assessments …)