1. How to Master the Transition “From
Free-to-Fee”?
Heiko Gebauer
Associate Professor
Business Innovation
Environmental Social Sciences (EAWAG), Zurich, Switzerland
Center of Service Research, Karlstad University, Sweden
Discovery Event Lausanne – April 25-26, 2013

2. Services trigger differentiation and
business growth
Business-to-Consumer
Price for a single cup of
coffee ($)
Supermarket
1
2
3
4
5
Café
Service x52
Nespresso
Convenience x6
Starbucks
Experience x80
Business-to-Business
0
1
2
3
4
5
2000 2012
Ship Power Power plants Services
32%
37%
31%
24%
33%
43%
Revenues in billion Euro
Annual reports: 2000 and 2012

3. Dräger aims at profitable service growth
Profitability
Profitable
growth
Time
Product
Services
Sum
Add-on Free-of-charge
20%
34%
80%
66%
0%
20%
40%
60%
80%
100%
2002 2009
Service revenues
Product revenues

4. Dräger recognizes that pricing services is
rather complex
Criteria Products Services
Cost transparency High
supported by ERP-system
Low
limited support by ERP-system
Price anchor Product competitors
Complex competitive
landscape (e.g.
customers, service
specialists, suppliers)
Perceived value Homogenous Heterogeneous
Pricing decision Global Local
Cross selling
considerations
Low High

5. Dräger embeds free-to-fee into improvement and
innovation activities
Service
Improvements
Service
Free-to-fee
Service
Innovation
Key
concerns
• Process optimization
(delivery)
• Competence
development
• Performance
indicators
• Cost & benefit
transparency
• Service selection
• Commercialization
approach
• Service ideas
• Service
modifications
• New service
development
Examples • Free shipment services to a logistic fee (≈ $ 150‘000 p.a. additional
revenue by $ 15‘000 investment costs)
• Test certificates (≈ $ 30‘000 p.a.additional revenue by $ 10‘000
investment costs)
• Education service for fire fighting in tunnels (≈ $ 1 million p.a. by $
200’000 investments costs)

6. Lessons learned for profitable
service growth
Market organization (e.g., Asia and China) drive Free-to-fee
initiatives
Service improvement and innovation trigger free-to-fee (e.g.
organizational setting)
Careful balance with customer satisfaction (e.g., satisfaction
assessments)
New technologies or product generations enable new service fees
(e.g., diesel, hybrid, and electric engines)
Internal rather than external barriers hinder service
commercialization
Management innovation (e.g. cost versus value-driven pricing, life
cycle cost assessments …)