Servicisation: Extending the product life cycle of high
technologically manufactured goods
Dieter Mellet
Mini-research report
presented in partial fulfilment
of the requirements for the degree of
Master of Business Administration
at the University of Stellenbosch
Supervisor: Prof. FJ Herbst
Degree of confidentiality: Grade A
December 2008
ii
Declaration
Hereby I, Dieter Sydney-Charles Mellet, declare that this research report is my own
original work and that all sources have been accurately reported and acknowledged,
and that this document has not previously in its entirety or in part been submitted at
any university in order to obtain an academic qualification.
D.S. Mellet
31 July 2008
iii
DEDICATED TO MY WIFE AND DAUGHTER
Esté & Annebel
iv
Acknowledgments
The following contributed to the successful completion of my master’s thesis and I
would like to thank them:
•
My Creator for giving me the opportunity and talent to complete my MBA.
•
Prof Frikkie Herbst, my study leader, for helping me back on track, for his
guidance and assistance and his interest in the topic.
•
My wife Esté for her love and support from the beginning without which this
achievement would not have been possible.
•
My daughter Annebel for her regular entertaining contributions, “C rs
zzzzzzzzzzzzzzzzzzzzzzz c \ UI I IUY M,P [F5RFFER5E/”.
hhh
v
Abstract
An investigation of the servicisation phenomenon and its influence on the product life
cycle of high technologically manufactured goods.
Rising demand for services and ongoing commoditisation of goods has forced
businesses to purse alternatives to differentiate themselves in the market place. This
has renewed interest to reposition the unit of exchange from a goods dominant to a
service dominant perspective. Although applicability of the product life cycle as a
marketing tool has often been questioned, it continues to form a fundamental building
block of marketing theory.
The purpose of this research report was to determine whether the servicisation
phenomenon can be utilised as part of corporate strategy to extend the product life
cycle of high technological goods. The primary objective was to gain new insight into
the interesting and profitable combination of goods and services within the goods
manufacturing industry. The main focus was to test whether a service dominant
business model can extend the product life cycle.
A case study of the product life cycle of the Apple iPod versus Creative’s digital
media player value offerings was analysed.
The main finding was that the iPod as opposed to Creative’s media player, did show
signs of a longer product life cycle in the role of a service delivery vehicle. The
service dominant business model has created many alternative revenue streams for
Apple.
vi
Opsomming
‘n Ondersoek oor die dienste verskynsel en die invloed daarvan op die
produkleefsiklus van hoë tegnologiese goedere.
‘n Toename in die aanvraag na dienste, en voortdurende omskepping van
verbruikersartikels in kommoditeite, forseer besighede om na alternatiewe te soek
om hulself in die markplek te differensieer. Daar is dus nuwe belang om die eenheid
van handel te herdefinieer vanuit ‘n diens perspektief teenoor die tradisionele
goedere een. Alhoewel die toepaslikheid van die produkleefsiklus, as ‘n instrument
vir bemarkingsbesluitneming, talle keer bevraagteken is, bly dit ‘n hoeksteen van
bemarkingsteorie.
Die doel van hierdie navorsingsprojek was om te bepaal of die dienste verskynsel
gebruik kan word in korporatiewe strategie om die produkleefsiklus te verleng. Die
hoof doelwit was om nuwe insig te kry oor hoe ‘n produk en dienste gekombineer kan
word om winste van vervaardigers te verbeter. Die hoof fokus was om te toets of ‘n
diensgesentreerde besigheidsmodel die produkleefsiklus kan verleng.
‘n Studie van die produkleefsiklus van Apple se iPod is gedoen teenoor dié van
Creative se digitale mediaspeler.
Daar is bepaal dat die iPod, teenoor Creative se mediaspeler, wel tekens van ‘n
langer produkleefsiklus toon, in die rol van ‘n diensleweringsinstrument. Dié diens
gesentreerde besigheidsmodel voorsien Apple van vele alternatiewe bronne van
inkomste.
vii
Table of contents
Declaration…………………………………………………………………………………….ii
Acknowledgements…………………………………………………………………………. iv
Abstract……………………………………………………………………………………….. v
Opsomming………………………………………………………………………………….. vi
List of tables……………………………………………………………………………...... xiii
List of figures…...………………………………………………………………………….. xiv
List of acronyms….……………………………………………………………………….... xv
CHAPTER 1 INTRODUCTION.................................................................................... 1 1.1 Introduction............................................................................................................ 1 1.2 Definition of the research problem ......................................................................... 2 1.2.1 Problem statement ............................................................................................. 2 1.2.2 Subordinate problems ........................................................................................ 3 1.3 Demarcation of the study....................................................................................... 3 1.4 Literature review .................................................................................................... 3 1.5 Clarification of key concepts .................................................................................. 4 1.5.1 Service and services .......................................................................................... 4 1.5.2 Servicisation ....................................................................................................... 4 1.5.3 Product life cycle ................................................................................................ 5 1.6 Research objectives .............................................................................................. 5 1.6.1 Primary objective ................................................................................................ 5 1.6.2 Secondary objectives ......................................................................................... 5 1.7 Research hypothesis ............................................................................................. 6 viii
1.8 Assumptions .......................................................................................................... 6 1.9 Importance and benefits of the study .................................................................... 6 1.10 Research design and methodology ..................................................................... 6 1.10.1 Research approach .......................................................................................... 6 1.10.2 Research purpose ............................................................................................ 7 1.10.3 Research strategy ............................................................................................ 7 1.10.4 Case selection .................................................................................................. 7 1.10.5 Secondary data analysis .................................................................................. 7 1.10.6 Data analysis .................................................................................................... 8 1.11 Chapter outline .................................................................................................... 8 1.12 Conclusion........................................................................................................... 9 CHAPTER 2 LITERATURE REVIEW ....................................................................... 10 2.1 Goods and services in the global economy ......................................................... 10 2.2 Goods versus services ........................................................................................ 10 2.2.1 Intangibility ....................................................................................................... 11 2.2.2 Heterogeneity ................................................................................................... 12 2.2.3 Inseparability .................................................................................................... 12 2.2.4 Perishability ...................................................................................................... 12 2.3 Global trends ....................................................................................................... 13 2.4 The threat of commoditisation ............................................................................. 14 2.5 Evolution of services within the manufacturing environment ............................... 15 2.6 Services or service? ............................................................................................ 17 2.7 The product life cycle .......................................................................................... 20 2.7.1 The phases of the product life cycle ................................................................. 21 ix
2.8 The product life cycle in the technological environment ...................................... 23 2.9 Different product life cycle patterns ..................................................................... 24 2.10 Levels of aggregation of the life cycle model ..................................................... 26 2.11 Application of the product life cycle ................................................................... 27 2.12 Services in the growth stage of the product life cycle ........................................ 27 2.13 Services and the industry life cycle model ......................................................... 31 2.14 The product service system............................................................................... 33 2.15 Criticism and limitations of the product life cycle ............................................... 34 2.16 Supply and demand theory................................................................................ 35 2.17 Conclusion......................................................................................................... 37 CHAPTER 3 RESEARCH DESIGN AND METHODOLOGY .................................... 38 3.1 Research aproach ............................................................................................... 38 3.2 Research purpose ............................................................................................... 39 3.3 Research strategy ............................................................................................... 39 3.3.1 Case study strategies ....................................................................................... 40 3.3.2 Case selection .................................................................................................. 40 3.3.3 Criticism of the case study method ................................................................... 41 3.4 Conclusion........................................................................................................... 43 CHAPTER 4 RESEARCH RESULTS AND ANALYSIS ........................................... 44 4.1 Introduction.......................................................................................................... 44 4.2 The Apple iPod story ........................................................................................... 44 4.2.1 2001 ................................................................................................................. 44 4.2.2 2002 ................................................................................................................. 45 x
4.2.3 2003 ................................................................................................................. 46 4.2.4 2004 ................................................................................................................. 46 4.2.5 2005 ................................................................................................................. 47 4.2.6 2006 ................................................................................................................. 47 4.2.7 2007 ................................................................................................................. 48 4.2.8 2008 ................................................................................................................. 48 4.3 Creative’s personal digital entertainment history ................................................. 49 4.3.1 1999 ................................................................................................................. 49 4.3.2 2000 ................................................................................................................. 49 4.3.3 2001 ................................................................................................................. 49 4.3.4 2002 ................................................................................................................. 50 4.3.5 2003 ................................................................................................................. 50 4.3.6 2004 ................................................................................................................. 50 4.3.7 2005 ................................................................................................................. 51 4.3.8 2006 ................................................................................................................. 51 4.3.9 2007 ................................................................................................................. 52 4.4 Analysis of the case ............................................................................................ 52 4.4.1 Identifying core competence............................................................................. 53 4.4.2 Cultivating relationships for co-creation through core competencies ................ 55 4.4.3 Gauging value proposition fulfilment through financial feedback ...................... 56 4.5 Product life cycle evaluation ................................................................................ 59 4.6 The service system life cycle concept ................................................................. 63 4.6.1 The service system .......................................................................................... 64 4.6.2 Specific services ............................................................................................... 65 4.6.3 Specific products .............................................................................................. 65 xi
4.7 Evaluation of objectives ....................................................................................... 65 4.7.1 Primary objective 1 ........................................................................................... 65 4.7.2 Secondary objective 1 ...................................................................................... 66 4.7.3 Secondary objective 2 ...................................................................................... 66 4.7.4 Secondary objective 3 ...................................................................................... 67 4.7.5 Secondary objective 4 ...................................................................................... 67 4.8 Conclusion........................................................................................................... 68 CHAPTER 5 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ............... 69 5.1 Introduction.......................................................................................................... 69 5.2 Outcomes ............................................................................................................ 69 5.3 Summary of the main conclusions and implications based on the main findings 70 5.3.1 Main finding 1 ................................................................................................... 70 5.3.2 Main finding 2 ................................................................................................... 71 5.3.3 Main finding 3 ................................................................................................... 72 5.3.4 Main finding 4 ................................................................................................... 72 5.3.5 Main finding 5 ................................................................................................... 73 5.4 Linking the research results and major findings to the proposed research
objectives ............................................................................................................ 74 5.5 Limitations ........................................................................................................... 75 5.5.1 Limitations in the literature review .................................................................... 75 5.5.2 Limitations in the case study research ............................................................. 75 5.6 Recommendations .............................................................................................. 76 5.6.1 Recommendations for future research ............................................................. 76 5.6.2 Recommendations based on the literature review ............................................ 77 xii
5.7 Summary ............................................................................................................. 78 LIST OF SOURCES .................................................................................................. 79 xiii
List of tables
Page
Table 2.1 : Major criticisms of and problems with the PLC concept
35
Table 3.1 : Single versus multi unit research designs, tradeoffs and affinities
42
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xiv
List of figures
Page
Figure 2.1 : The non-cumulative product life cycle
21
Figure 2.2 : The market development cycle
23
Figure 2.3 : The three alternate product life cycle patterns
25
Figure 2.4 : The three common categories of the product life cycle
26
Figure 2.5 : The product life cycle model showing an increase in services within the
phasing out of a product
Figure 2.6 : Traditional supply and demand curves
33
36
Figure 4.1 : Graph illustrating iPod revenues as a percentage of total revenues
between 2002 and 2007
57
Figure 4.2 : Graph illustrating iTMS revenues as a percentage of total revenues
between 2002 and 2007
58
Figure 4.3 : Graph illustrating iTMS revenues as a percentage of iPod revenues
between 2002 and 2007
58
Figure 4.4 : Graph showing non-cumulative revenues of the iPod between 2002 and
2007
59
Figure 4.5 : Graph illustrating non-cumulative revenues of the iTMS between 2002
and 2007
60
Figure 4.6 : Graph showing non-cumulative revenues of Creative PDEs between
2000 and 2007
61
Figure 4.7 : Graph showing non-cumulative unit sales of iPods between 2002 and
2008
Figure 4.8 : Conceptual model of the service system life cycle
62
63
xv
List of acronyms
AEGIS - Australian Expert Group in Industry Studies
DAP – Digital audio player
GDP – Gross domestic product
G-D Logic – Goods dominant logic
G:S ratio – Goods to service ratio
LAFTA – Latin-American Free Trade Association
NAFTA – North American Free Trade Agreement
PDE – Personal digital entertainment
PLC – Product life cycle
PSS – Product service system
S-D Logic – Service dominant logic
WTO – World Trade Organisation
1
CHAPTER 1
INTRODUCTION
1.1 Introduction
Consumer behaviour makes up the cornerstone for economic demand (Doyle,
2005:77). It is this demand type microeconomic behaviour that shapes the basic
economic system we partake in today. Consumption goods make up a substantial
proportion of economic activity and it is thus important that businesses understand its
fundamental drivers.
For many years, researchers have focused studies on understanding supply and
demand behaviour (Doyle, 2005), product life cycles (Utterback and Abernathy,
1975) and consumer perceptions of products and services (Mont & Plepys, 2003).
Many resources have been deployed influencing demand, increasing efficiency,
improving quality and features of consumable goods (Min, 2006:1). The last 20 years
however have seen an increased demand for services related consumption
(Anderson, Fornell & Rust, 1997:141). Using gross domestic product (GDP) as a
measure , this figure is approximately 40 percent goods and 60 percent services
(Doyle, 2005:79-81) in developed economies while in developing economies, the
ratio is 60 percent goods, 40 percent services (Seyoum, 2007:385).
With the global demand for services outgrowing global demand for goods as well as
continued commoditisation resulting from volatile and rapidly changing markets
(Matthyssens & Vandenbempt 2008:316), how are manufacturers of goods
responding and approaching global markets given these statistics? More specifically,
2
are the manufacturers of goods responding to the increase in service trends offering
the correct product-service mix to meet the expectations and perceptions of
contemporary consumers of such goods? Is there potential for businesses to manage
a transition from products to services or a successful combination thereof that can
lead to longer product life cycles?
Slowing economic growth, mature markets and increased foreign competition in
developed economies (low G:S ratio economies) are typical problems that companies
continue to face. For this reason, companies continue to emphasise customer
satisfaction as part of corporate strategy such as to retain customer loyalty.
This research is intended to investigate the servicisation phenomenon through a
comprehensive literature study with specific reference to manufacturers of goods.
The emphasis consumers are placing on services related to the purchasing of such
goods will be examined. Conclusions will then be drawn about these perceptions and
how they affect the product life cycle. It is the purpose of this research report to
achieve awareness of the ‘servicisation’ phenomenon, such that it can be included in
corporate strategy to meet consumer demands and ultimately increase the product
life cycle of manufactured goods.
1.2 Definition of the research problem
1.2.1 Problem statement
How can the servicisation phenomenon be utilised to increase the product life
cycle of high technologically manufactured goods?
3
1.2.2 Subordinate problems
To fully comprehend how the above statement impacts a business, it is necessary to
research the following:
(a)
Current research and definition of servicisation within the context of high
technological manufacturing of goods.
(b)
Understand the traditional product life cycle (PLC) model.
(c)
Current research on extending the product life cycle.
1.3 Demarcation of the study
The study will focus on manufactured goods specifically within the high technological
manufacturing industry for the following reasons:
(a)
The researcher is involved in the design and manufacture of consumer goods
within the semiconductor industry.
(b)
The researcher has been involved in business to business relationships dealing
with consumers in different countries and cultures.
1.4 Literature review
Defining goods, services and product and product life cycles will require reviewing
literature in the fields of economics, marketing and operations management. These
fields offer very different perspectives on the topics, each fulfilling different aspects of
the economic activity in question. The literature will focus on aspects of product and
services marketing, industrial management, production management and supply and
demand theory. The valuable contributions of Min (2006), Mont (2001,2002,2003),
Araujo & Spring (2006), Lovelock and Gummesson (2004) and Vargo and Lusch
(2004, 2006, 2008a, 2008b, 2008c) to the fields of servicisation, industrial marketing,
4
services as well as service dominant logic (S-D logic) research will form the point of
departure of this study.
1.5 Clarification of key concepts
1.5.1 Service and services
John (2007:2) in his research on servicisation noted that the word ‘service’ according
to the Oxford English Dictionary has 38 meanings. These range from an experience
or repair through to the co-creation of services between suppliers and consumers. A
clear distinction must be made, however, between services directly related to the
products during the different sales phases from indirect services such as accounting,
legal etc. References to services (plural) in this research report refer to the former.
Much research has gone into understanding the characteristics of services over the
years (Zeithaml, Parasuraman & Berry, 1985). The past five years however have
seen new contributions, approaching services from a service-dominant logic (S-D
logic) perspective rather than the traditional goods-dominant logic (G-D logic)
perspective (Vargo, et al., 2004, 2006, 2008a, 2008b, 2008c). A reference to service
(singular) in this research report refers to the S-D logic perspective. A distinction
between goods and services as well as services and service will be made.
1.5.2 Servicisation
A new school of thought known as servicisation has been introduced, aimed at
understanding the growing importance of service orientated products. Traditionally,
servicisation was mainly focused at increasing revenue streams. This research report
investigates the extension of the product life cycle and its indirect impact on
increasing revenue streams. The early models pioneered by Min (2006) focus on the
5
initial phase of a product in its life cycle and propose a framework for manufacturing
strategies to attain high performance during this phase.
1.5.3 Product life cycle
The product life cycle (Utterback, et al., 1975) model is essentially used as a market
analysis tool to describe market dynamics representing the different stages of a
product (Levitt, 1965:81) over its economically useful lifetime. The basic framework
consists of product introduction, growth, maturity and a decline phase.
1.6 Research objectives
1.6.1 Primary objective
The primary objective of this research report is to gain new insight into the interesting
and profitable combination of goods and services within the goods manufacturing
industry.
1.6.2 Secondary objectives
(a)
To investigate and identify ways in which servicisation can be incorporated into
corporate strategies.
(b)
To determine whether servicisation can have the effect of extending the product
life cycle.
(c)
To present a conceptual product life cycle model based on a servicisation
strategy.
(d)
To stimulate new schools of thought that can be utilised in defining new
extended product life cycle models and their indirect impact on increasing
revenue streams.
6
1.7 Research hypothesis
H1: Servicisation can be utilised to extend the product life cycle.
1.8 Assumptions
The research report is based upon the following assumptions:
(a)
High technological consumer goods are reflective of manufactured goods in the
broader context.
(b)
The product life cycle model is valid for goods that successfully enter the
market.
(c)
Any evidence found regarding any correlation between the researcher’s findings
and hypothesis supports a cause for further empirical studies.
1.9 Importance and benefits of the study
By understanding how servicisation can be utilised to de-commoditise product
offerings, goods manufacturers are able to incorporate this into product design
strategies from the initial phase, increasing customer loyalty throughout the product
life cycle and thus proactively extending it. With intense world wide competition, it is
necessary for businesses to consider new ways to differentiate themselves in search
of increased revenue and profits.
1.10 Research design and methodology
1.10.1 Research approach
The research approach will be deductive.
7
1.10.2 Research purpose
The research purpose is a mixture between exploratory and explanatory.
1.10.3 Research strategy
A strategy should be chosen that is capable of answering the research question and
reach the proposed objectives. Furthermore, the topic under investigation is
contemporary and the theory regarding service within the manufacturing industry and
S-D logic perspective is still in its infancy. According to Yin (1989:59), case studies
are well suited to this type of research.
1.10.4 Case selection
Eisenhardt (1989:536-537) notes that case study selection differs somewhat from
other strategies in that cases are chosen based on theoretical rather than statistical
reasons. Generally, cases are chosen to replicate previous cases, extend emerging
theory or to fill theoretical categories as well as provide examples of polar types. For
this reason, a case study strategy was chosen based upon the life cycle of the Apple
iPod. This case has been chosen as it represents a unique case of combining
innovative service and services within its product offering (Saunders, Lewis &
Thornhill, 2007:140).
1.10.5 Secondary data analysis
A comprehensive literature study will be the main source of information and will
comprise of:
(a)
An extensive review of literature regarding goods and services, the servicisation
phenomenon as well as service from the S-D logic perspective as applicable to
the manufacturing industry.
8
(b)
Focusing on secondary data to find evidence in support of or contradiction of
the researcher’s findings.
1.10.6 Data analysis
The data will be analysed and used to develop a conceptual product life cycle model
incorporating servicisation as applicable to manufactured goods in the high
technology industry for the use of strategic decision making.
1.11 Chapter outline
Chapter 1 focuses on the problem definition of the research. The research objective
was explained along with some key concepts of the research project. The benefit of
the research was provided and followed by a description of the research design and
methodology.
Chapter 2 will comprise of a comprehensive literature study focusing on
understanding similarities and differences between services and products and
clarifying servicisation, looking at different combinations of services and goods as
well as examining current schools of thought in the field. The traditional product life
cycle model is presented and concluded by an in-depth discussion on the interaction
between goods and services within the manufacturing industry.
Chapter 3 will discuss the research design and methodology. The nature of the
literature study will be explained in conjunction with its significance to the problem
statement.
Chapter 4 will present the research results and analysis.
9
Chapter 5 will provide a summary, conclusion and recommendations based upon the
findings of the researcher as well as recommendations for future research.
1.12 Conclusion
This chapter serves as introduction. The problem statement was given followed by
the research objective along with some key concepts of the research report. The
benefits and significance of the research was given followed by the research
methodology and basic layout of the report. In Chapter 2, a comprehensive literature
study will explain servicisation, the product life cycle and the significance of the
interaction that goods and services have with manufactured goods.
10
CHAPTER 2
LITERATURE REVIEW
2.1 Goods and services in the global economy
Goods and services are both contained within the broader definition of consumption
goods and consumers derive benefit, satisfaction or utility from the goods they
consume (Doyle, 2005:79). Consumption goods are then categorised into durable
goods, non-durable goods and services. Durable goods are tangible in nature and
are consumed in time after purchase and roughly make up 10 percent of developed
economies. They also tend to be the most volatile during recessions. Non-durable
goods are typically consumed in less than one year, are mostly tangible in nature
physically or through experience, make up approximately 30 percent of developed
economies and are less volatile than durable goods. Pure services make up the
remaining 60 percent of developed economies, are consumed as they are created
and the least volatile of the three (Doyle, 2005:79-81).
2.2 Goods versus services
The goods versus services debate has been an ongoing one for decades (Lovelock,
et al., 2004:22). Generally, it has been argued that the characteristics of services
differ from those of goods in that goods are characterised as articles, devices,
materials, objects or things (Berry, 1980; Rathmell, 1966). In an extensive review of
services literature between 1963 and 1983, Zeithaml, et al., (1985) found that the
most frequently cited characteristics were intangibility, inseparability, heterogeneity
and perishability. Almost a decade later, Edgett and Parkinson (1993) repeated a
11
similar review covering more than double the publications than Zeithaml, et al.,
between 1963 and 1990 and yielding the same result (Lovelock, et al., 2004:23).
The four characteristics of services find their roots in classical and neoclassical
economics. Based on the work of Delaunay and Gadrey (1992), Hill (1977) and Hill
(1999) (Lovelock, et al., 2004:24-25), the goods versus services debate was initially
started by Adam Smith (1776) in his publication, Wealth of Nations. The French
economist Say (1803) made the first reference to immaterial (intangible) as well as
introduced the concept of simultaneity (inseparable). Say actually considered using
perishable but dismissed it based on the fact that certain physical goods were also
perishable (perishable). Heterogeneity however differs from the other three
characteristics in that it was only introduced in the 20th century by Robinson (1933) in
her discussion of the distinction between “perfect” and “imperfect” competition.
The four characteristics of services or “IHIP” characteristics have been extensively
researched by Lovelock, et al., (2004:25-30) and the explanation that follows is
closely based on their findings.
2.2.1 Intangibility
Intangibility is the most cited characteristic of the four. Bateson (1979) made a critical
distinction between physical and mental intangibility, the former referring to
impalpability while the latter refers to that which cannot be grasped mentally thus
making it doubly intangible. Empirical studies by Bielen and Sempels (2003)
confirmed the intangibility to be a bi-dimensional concept, a physical dimension with
a specific degree of materiality of the product or service in question and secondly, a
mental dimension depending on the degree of difficulty involved in defining,
12
formulating or understanding in a clear and precise fashion the product or service in
question.
2.2.2 Heterogeneity
Heterogeneity refers to the difficulty of achieving uniform output and is specifically
linked to the inherent variability when involving the human element. The reasons that
have been cited are the differences between service workers as well as the varying
interaction with customers from day to day (Sasser, Olsen & Wyckoff, 1978) and
variability caused by workers in manufacturing (Rathmell, 1974; Levitt, 1972; Eiglier &
Langeard, 1975, 1977; Morris & Johnston, 1987). More recently however, Zeithaml
and Bitner (2003) have cited the difference between customer’s needs and
experiences of services. Other influential factors such as weather, crowding and
service locations have been studied (Desmet, van Looy & van Dierdonck, 1998).
2.2.3 Inseparability
Linked to the concept of interaction and the service encounter, inseparability focuses
on the presence of the customer as well as their role as co-producers within the
service delivery process. Lovelock, et al., (2004:28-29) explain that co-producing
customers have also been referred to as “partial employees” and that co-production
refers to customers that engage in self-service utilising systems, facilities or
equipment supplied by the service provider.
2.2.4 Perishability
Lovelock, et al., (2004:29) found that literature contains multiple views on the
meaning and implications of perishability and concluded the commonality to be that
services can’t be saved, stored for later reuse, resold or returned and have a strong
13
dependence on time. They conclude that unused capacity is wasted in times of low
demand and that un-serviced demand occurs when demand exceeds supply.
2.3 Global trends
In the United States of America (US), according to the US Coalition of Service
Industries (2007), 78 percent of economic output and employment resulted from
services and although this has been established for over two decades (Bowen &
Hallowell, 2002:69), what is important is that it remains the fastest growing sector in
developed economies (Johnston, 1994:53; Ueltschy, Laroche, Eggert & Bindl,
2007:411). Kleinaltenkamp (2007:54) also noted that 70 percent of employment in
the industrial sector directly contributes to an internal or external service to
customers. Jacob and Ulaga (2008:247) continued to add that macro-economics
indicated similar trends in other sectors (VDMA, 2002; IMT, 2002). It is also projected
that 90 percent of all new vacancies in the US up to 2012 will be service oriented
(Fine, 2008:163). The shift from product driven to service driven trends in
industrialised countries has been noted as a long-term business trend (Jiang &
Rosenbloom, 2005) and was predicted by Colin Clark in 1940. Clark (1940)
described the transition that economies undergo over time with each phase
characterised by a dominant sector. These are pre-industrial (agriculture), industrial
(manufacturing) and post-industrial (services). This has spawned new research in the
field of services to increase business understanding of service as well as challenge
old paradigms ranging from customer loyalty, switching and service failure (Fine,
2008) to service quality and satisfaction (Ueltschy, et al., 2007). The last 10 years
has seen decentralisation, deregulation, privatisation and massive growth of internet
technologies. Decentralisation has resulted in an increase in the production and
14
selling of products according to regional and local needs. International deregulating
trade agreements were formed such as the World Trade Organisation (WTO), North
American Free Trade Agreement (NAFTA), Latin-American Free Trade Association
(LAFTA) etc. that have helped private companies finance, produce and trade their
products more easily and efficiently. Information flow has increased the flow of
knowledge in both research and communication leading to technology transfer
between businesses as well as educating and stimulating global consumer demand
for a greater variety of goods with increasing levels of quality and service (Czinkota &
Samli, 2007).
2.4 The threat of commoditisation
One of the major threats that manufacturing businesses continue facing is
commoditisation which mainly occurs during the mature phase of the product life
cycle (Moore, 2004:89). Matthyssens, et al., (2008:316) state that eventually all
products and services reach a commodity status. Shortening product life cycles due
to volatile and rapidly changing markets, intense global rivalry and more professional
buyers continue squeezing profit margins and fuelling commoditisation. Their
definition summarises commoditisation as, “a dynamic process that erodes
competitive differentiation potential and consequently deteriorates the financial
position of any organisation”. Matthyssens, et al., (2008:317) explain that the major
problem with commoditisation is that once products and services between different
offerings are eventually perceived by the customer to be similar, costs are increased
as companies focus on retaining their customers through selling, marketing and
branding. For this reason, businesses have searched for other business innovations
post product innovation ranging from process to structural (Moore, 2004:88-89).
15
Michael Schrage supports this argument. In his article “The Myth of Commoditization”
he argues that it is not commoditisation that is the problem but rather the lack of
businesses to successfully differentiate, segment and innovate (Schrage, 2007:12).
The focus on product innovation has similarly shifted from understanding and
creating value embedded in the products to understanding value creation in
relationships (Payne & Holt, 1999; Olivia & Kallenberg, 2003:169; Ulaga & Eggert,
2006; Matthyssens, et al., 2008). Schrage also points out that within new customers
that are drawn to a market resulting from a price war come novel and unconventional
uses that demand unique innovative responses (Schrage, 2007:14). A discontinuity
within the life cycles provides an environment for opportunity (Cusumano, Suarez, &
Kahl, 2007:15). Strategies from a service perspective have captured the attention of
other scholars studying discontinuous innovation (Michel, Brown & Gallan, 2008).
Although research devoted to understanding the transition from product to service in
business to business markets is growing, it is still at an early stage (Olivia, et al.,
2003; Jacob, et al., 2008:251).
2.5 Evolution of services within the manufacturing
environment
Traditionally customer satisfaction has been approached as a balanced trade off
between customisation and standardisation (Anderson, et al., 1997:132) with regards
to both goods and services. Typically, goods manufacturers reduce customisation
such as to benefit from economies of scale through standardisation. Services related
businesses tend toward the opposite, increasing customer satisfaction through higher
levels of customisation. However it is important to emphasise that within the correct
16
context, high levels of customisation and/or standardisation can both be perceived as
high quality by the consumer (Anderson, et al., 1997:141). This suggests that
increasing customer satisfaction in goods may come at a higher cost resulting from
customisation while the opposite is true for the services industry. Increasingly
however, businesses require sharpening their superiority in both dimensions to
increase differentiation and it is suggested that a broader variety of products meeting
a wider variety of customer needs is most likely (Anderson, et al., 1997:141). Slowing
economic growth, mature markets and increasing foreign competition in developed
economies are typical problems companies continue to face. For this reason,
companies continue to emphasise customer satisfaction as part of corporate strategy
such as to retain customer loyalty.
The traditional search for increasing revenue streams and profits has been
dominated by optimising the internal efficiencies of the operations side of
manufacturing (Johnston, 1994:52; Cusumano, et al., 2007:1). Although many
researchers noted the growing importance of services within the manufacturing
industry during the nineties (Anderson, et al., 1997; Fuchs, 1968; Quinn, 1992), over
time, it is clear that it has not received much empirical attention (Lindberg & Nordin,
2008:292, Min, 2006:14; Cusumano, et al., 2007:2). It seemed however that many
scholars focused their efforts on the ongoing debate and separation of defining goods
and services (Lovelock, et al., 2004, Bowen, et al., 2002:71) rather than trying to
understand the potential of how products and services can both be complements and
substitutes of each other (Araujo, et al., 2006:803; Cusumano, et al., 2007; Min,
2006:1). A clear distinction has evolved as to the definition of a product, a good
(Araujo, et al., 2006:801), and service (Lovelock, et al., 2004).
17
Lovelock, et al. (2004:33) also emphasised the clear distinction between the
marketing of services and marketing products through services and has called for a
new paradigm within which to describe services. Perhaps the new paradigm lies not
within the continued separation of services and goods but rather the interesting and
profitable combination thereof? The phenomenon has been readily described as
servicisation (Jordan, 2007; Johnston, 1994; Min, 2006), servitisation (Lindberg, et
al., 2008; Matthyssens, et al., 2008) as well as hybridisation (John, 2007) and is
defined as the manufacturer’s increasing attention to service activities (Min, 2006).
But the question arises, are there meaningful differences between goods and
services that require differing management practices for each (Bowen, et al.,
2002:69)? IBM is well cited (Lindberg, et al., 2008:292; Gabauer, 2008:279; Vargo, et
al., 2008a:254; Cusumano, et al., 2007:3) as an example of a business that seems to
be one of the early adopters of recognising a service approach when CEO Lou
Gerster was appointed to target the service component of the business. The services
component of IBM’s revenue was consequently increased from 23 percent of
revenues in 1992 to 52 percent in 2005 (Cusumano, et al., 2007:3). This is more than
a 100 percent increase over a 13 year period and a strong indicator of how services
are becoming the focal point in contemporary high tech business.
2.6 Services or service?
Although the definition services and service within the context of the manufacturing
industry is still in its infancy, some directions have emerged (Cusumano, et al., 2007;
Min, 2006; Vargo, et al., 2004) over the past decade. The first distinction is made
between services and service (Vargo, et al., 2008a:255). Vargo, et al., (2004) called
for a new paradigm in the marketing discipline. They suggested a shift from a goods
18
oriented marketing focus to a service oriented one and called it the goods (G-D) or
service (S-D) dominant logic respectively (Vargo, et al., 2008a:255). In general they
describe that there are two considerations for services. The first, the G-D logic, views
tangible goods as the primary focus with services as a restricted intangible good or
as an add-on that enhances the value of the good. The second, the S-D logic, views
service as the primary focus of economic exchange and defines service as, “the
application of competences (knowledge and skills) for the benefit of another party”
(Vargo, et al., 2008b:2). They make a clear distinction between services and service
in their description, the former associated with the G-D logic as a secondary activity
and the latter as the primary. The good still plays an important role in the S-D logic
but is repositioned into a service delivery role with service itself the process. Their
distinction is clearly visible in many marketing text books where focus on services
formed part of the underlying theory. Kotler (1997:10) stated, “The importance of
physical products lies not so much in owning them as in obtaining the services they
render……Manufacturers often make the mistake of paying more attention to their
physical products than to the services produced by those products……Sellers who
concentrate their thinking on the physical product instead of the customer’s need are
said to suffer form marketing myopia”.
G-D logic has a long heritage and its roots are found as far back as 1776 in the work
of Smith in search of a science for economics (Vargo, et al., 2008a:255). Vargo, et al.
(2008a:255-256) discuss how marketers inherited this logic directly from economics
but that it failed to satisfy the dynamics of business to business marketers leading to
new perspectives such as the networking perspective, interactivity and relationships.
They explain how business marketing scholars were well ahead of consumer
19
marketers in their understanding of the shift from exchanging products to the
concepts of exchanging value. Business to business marketers also understood the
development of collaborations and partnerships and that those customers buy
service capability of output. Finally, business to business marketers recognised and
assessed value in use in relation to value in exchange in terms of total cost of
ownership and were analysing the long-term value of customers. They concluded by
stating that although business to business marketers took the lead, they still did so
from a G-D logic perspective.
Vargo, et al.’s (2004) S-D logic paradigm offers useful guidelines for the evolution of
service within the manufacturing industry and it is from this perspective that the
product life cycle will be analysed. They suggest the following transitional shifts to
move from a product focus to a service focus (Vargo, et al., 2008a:258).
(a)
From thinking about the purpose of firm activity as making something (goods or
services) to a process of assisting customers in their own value-creation
processes.
(b)
From thinking about value as something produced and sold to thinking about
value as something co-created with the customer and other value-creation
partners.
(c)
From thinking of customers as isolated entities to understanding them in the
context of their own networks.
(d)
From thinking of firm resources primarily as operand — tangible resources such
as natural resources—to operant— usually intangible resources such as
knowledge and skills.
(e)
From thinking of customers as targets to thinking of customers as resources.
20
(f)
From making efficiency primary to increasing efficiency through effectiveness.
Since its inception, the S-D logic paradigm has sparked much international debate
and evolved (Vargo, et al., 2006, 2008b) through a process of dialogue and debate,
the value creation process itself describes making up its very nature.
The ten
foundational premises of the S-D logic paradigm are (Vargo, et al., 2008b:7):
i.
Service is the fundamental basis of exchange.
ii.
Indirect exchange masks the fundamental basis exchange.
iii.
Goods are a distribution mechanism for service provision.
iv.
Operant resources are the fundamental source of competitive advantage.
v.
All economies are service economies.
vi.
The customer is always a co-creator of value.
vii.
The enterprise cannot deliver value, but only offer value propositions.
viii.
A service-centred view is inherently customer oriented and relational.
ix.
All social and economic actors are resource integrators.
x.
Value is always uniquely and phenomenologically determined by the
beneficiary.
2.7 The product life cycle
The product life cycle was originally developed in the 1950s, popularised in the 1960s
and has since become one of the most quoted and most frequently taught elements
of marketing theory (Herbst, 2001:56). Although the product life cycle has been
subject to some criticism over the years (Levitt, 1965; Dhalla, et al., 1976; Grantham,
1997; Polli & Cook, 1969; Webber, 1976; Tellis & Crawford, 1981), it still remains a
corner stone for understanding that a product has a limited life, that product sales
21
and profits vary through the phases with different challenges, opportunities and
problems and lastly, that different strategies for marketing, manufacturing, purchasing
and human resources are required within each phase (Kotler, 1997:345).
2.7.1 The phases of the product life cycle
Traditionally, the product life cycle has been defined as four distinct phases namely,
introduction, growth, maturity and decline phases (Kotler, 1997:346). The traditional
non-cumulative bell shaped product life cycle is illustrated in Figure 2.1.
Growth
Maturity
Decline
Sales/Revenue/Saturation
Introduction
Time
Figure 2.1 : The non-cumulative product life cycle
Source: Adapted from Perreault & McCarthy, 2005:271
Kotler (1997:350-362) explains that the launching of a new product kicks off the
introductory phase and is characterised by slow sales while the product is rolled out
into the market. Slow growth has several causes, for example slow production
expansion, technical problems, customer reluctance to behavioural change, high
initial costs etc. Profits tend to be at their lowest in this phase as suppliers focus on
22
attracting both distributors and customers through high levels of promotional activity.
Purchases are mainly from the risk taking early adopters.
The growth stage shows a rapid climb in sales. The phase is typically characterised
by more consumers, new competitors, development of product features and an
expansion of distribution channels. Price and promotion are mainly dependent on the
speed of adoption and level of competition. Promotion is also aimed at educating the
market. Sales and profits tend to grow much faster than expenses in this phase and
businesses focus on strengthening their competitive position.
When a product’s rate of sale growth slows it marks the beginning of the mature
phase of the product life cycle. The mature stage typically lasts longer than the
introduction and growth stages. As this phase posts the most problems for marketing
management, most research has been focused on this phase to improve efficiency
and quality, increasing product/market differentiation and reducing overall costs (Min,
2006:9-10). The mature phase itself can be subdivided into three stages, namely
growth, stable and decay. The growth stage signifies a slow down in sales and no
new distribution channels. The stable stage signifies market saturation with future
sales mainly coming from population growth (slow) and replacement demand. The
decaying stage signifies a decline in sales as consumers either switch to other
products or substitute products erode the demand base. This creates manufacturing
overcapacity and intensifying competition. Typically, a market shakeout begins as
each supplier attempts to seek to extend this phase for as long as possible, normally
resulting in a small number of suppliers dominating (quality, service and cost leaders)
23
and the remaining few focusing on niche demand (market, product and customising
specialists) with competitive advantage as their main driver.
During the declining phase, sales decline further and even come to a sudden halt in
some cases. Reasons include technological advances, shifts in consumer tastes and
increased competition (local and global), leading to overcapacity, price reductions
and profit erosion. This phase also experiences a withdrawal of businesses from the
market and a slow or fast reduction of a product’s extensions.
2.8 The product life cycle in the technological environment
Moore (2004) illustrates the market development life cycle of technological products
and focuses on innovation as a means of business survival (Moore, 2004:88-89). The
market development cycle model is based on the traditional product life cycle but
Sales/Revenue/Saturation
includes extensions worthy of mention especially in the early phase (see Figure 2.2).
Main street (declining)
Main street (early)
Main street (mature)
Fault line
Tornado
End of life
The chasm
Early market
Bowling Alley
Time
Figure 2.2 : The market development cycle
Source: Adapted from Moore, 2004:89
24
The early market sees newly introduced technology accepted by early adopters enthusiasts and visionaries. The Chasm phase is when a product is now floating
somewhere between novelty and widespread acceptance and niche market targeting
is essential to be able to move through this phase. Once the technology gains
acceptance it moves into the bowling alley phase. Here the technology spreads from
one niche to the next but is still unknown outside of the niches. Once the technology
becomes perceived to be necessary and standard for many applications, pragmatists
rush in and a wide variety of customers start making their first purchase. This tornado
(growth phase) phase is coupled with double to triple digit growth rates also referred
to as hyper growth.
The main street phase (Mature phase) has three stages, early, mature and declining.
The early stage is signified by steady growth and systematic product improvements.
The mature stage sees growth levelling off and an increase in commoditisation. The
category is taken for granted and the larger firms grow organically as well as through
merger and acquisition. The declining stage is typically associated with dominators
unresponsive to customer needs who as a result seek active relief. Entrepreneurs
thrive in these conditions with new technologies in their early, chasm or bowling alley
stages. The product life is finally shattered in the fault line as the market demands
finally differ from what is being offered and businesses focus on how much existing
customers are still willing to spend until the product is completely eradicated.
2.9 Different product life cycle patterns
The shape and duration of the product life cycle is highly dependent on many factors
ranging from product type to global economic conditions. Kotler (1997:347) did
25
however identify three common patterns and three distinct categories of the
traditional bell shaped product life cycle.
The alternate patterns are the growth-slumped-maturity, cycle-recycle and scalloped
patterns. The growth-slumped-maturity pattern is characterised by late adopters
buying a product while early adopters continue replacing their old one. The cyclerecycle pattern is typical of a product with a long lasting mature phase in which
aggressive second phase promotion boosts sales to produce second and more peak
cycles. Scalloped patterns often result from the invention of new uses of a product.
The growth-slumped-maturity, cycle-recycle and scalloped product life cycle patterns
are illustrated in Figure 2.3.
Sales/Revenue/saturation
Growth-slump-maturity
Cycle/recycle
Scalloped
Time
Figure 2.3 : The three alternate product life cycle patterns
Source: Adapted from Kotler, 1997:347
26
The three distinct categories are style, fashion and fad life cycles. A style is a basic
and distinctive mode of expression. Fashions are currently accepted or popular styles
in a given field. Lastly, fads are fashions that appear, are adopted quickly, peak early
and then decline just as fast. Figure 2.4 illustrates these three categorical life cycles.
Sales/Revenue/saturation
Style
Fashion
Fad
Time
Figure 2.4 : The three common categories of the product life cycle
Source: Adapted from Kotler, 1997:349
2.10 Levels of aggregation of the life cycle model
It is important to distinguish the level of aggregation applicable to a specific life cycle.
The different levels help identify the different strategies required when analysing a
specific life cycle. These are (Herbst, 2001:62-63):
(a)
International product life cycle – describes international trade patterns and
fluctuations.
(b)
Corporate life cycle – describes a whole organisation life cycle.
27
(c)
Industry life cycle – describes the life cycle of many organisations making up an
industry.
(d)
Brand product life cycle – describes the sales history of a brand.
(e)
Brand form or type life cycle – describes the life cycle of many brands making
up a type of product.
(f)
Product class life cycle – describes the life cycle of product classes making up a
product form.
2.11 Application of the product life cycle
In his research of the product life cycle as an instrument for marketing decision
making in small organisations in the Republic of South Africa, Herbst (2001) found
that most applications to date had been focused on fashion retailing, fast moving
consumer goods, technological products, manufactured goods and industrial
products (Herbst, 2001:69). Herbst (2001:315) also found that little attention had
been paid over the years to how service and services both influence and impact the
product life cycle and highlighted the need for the development of service inclusive
and exclusive life cycle models.
2.12 Services in the growth stage of the product life cycle
It seems that the argument that most servicisation efforts are still approached from a
G-D logic point of view (Vargo, et al., 2008a:256) is valid. Min (2006:10) summarised
the various areas in which research had been carried out on the product life cycle
and found that the largest number of studies conducted, were based around the
maturity stage. The dominating areas here were improved efficiency, quality, product
and market differentiation and the reduction of costs and it was found that little study
had been conducted regarding strategies for high performance during the growth
28
stage and that most strategies were basically focused around informative behaviour.
He went on to develop a conceptual framework for such a strategy by investigating
what the roles of services contribute in the early phase of a product life cycle (Min,
2006:1). In Levitt’s (1965:82) words, “Bringing a new product to market is fraught with
unknowns, uncertainties and frequently unknowable risks”, he suggested that
manufacturers can reduce the perceived risk that customers experience within the
early phase through focusing on product related services. Other types of services
related to servicisation are product related service activities (Quin, Doorley &
Paquette, 1990), product services (Martinelli 1991), service encapsulation (Howell,
2000) and product service packages (AEGIS, 2002).
Product related service activities focus on a company’s core competence. These
include research, logistics, maintenance as well as indirect service activities such as
accounting, law, financing and personnel.
Martinelli (1991) defined producer services from a demand for services perspective
as, “activities related to the mobilisation of resources (banking, finance, engineering,
recruiting and training), the conception and innovation of products and processes
(R&D, design, engineering), the actual organisation and management of production
(consulting, information processing, accounting, legal services), production itself
(quality control, maintenance, logistics), the promotion and distribution of products
(transportation, commercial intermediation, marketing, advertising)” (Martinelli,
1991:21-22). This implies that value is added not only during the product life cycle,
but also in the creation, distribution and consumption thereof (Min, 2006:6).
29
Min (2006:8) also explains that service encapsulation is focused on the consumption
or after sales phase of a product. These include maintenance and repair, monitoring
and diagnostics as well as disposal and recycling.
Lastly, the product service package first introduced by the Australian Expert Group in
Industry Studies (AEGIS) proposes that services be combined with products at any
stage of a product’s life cycle in the form of packages by the manufacturer.
The model arises from defining “what might the development of product-related
services be integrated with (in the) traditional manufacturing strategy development
process?” To answer this, a business must investigate the following (Min, 2006:12):
(a)
What types of product-related services are provided by manufacturers?
(b)
How are they provided?
(c)
Why are they provided?
It is then also necessary to do the following:
(a)
Investigate the kinds of services provided with various types of products.
(b)
Explore how manufacturers organise product related services.
(c)
Understand a manufacturer supplier’s and customer’s perceptions of productrelated services as well as the underlying motivations in providing them.
(d)
Develop a framework based upon the findings that can be used as a model to
assist managers in planning the development of services with their products.
(e)
Explore the integration of the framework with traditional manufacturing
strategies.
30
Defining what types of services are provided by manufacturers, Min (2006:13) makes
a clear distinction between services directly related to the products during the
different sales phases from indirect services such as accounting, legal etc. The
before sales services include items such as design, technical and customisation
services. This is then followed by the active sales services phase in which
installation, financial, training and delivery all form part. Finally, the after sales
services follow in which traditional warranties, maintenance and repairs, upgrades,
diagnostic services etc. are offered.
It is important to understand exactly why a specific service is to be offered. In doing
so, the service can be better tailored to directly satisfy consumer needs, as well as
create a platform for future enhancing of each individual service offering. To better
illustrate this concept, an example from a manufacturing firm designing consumer
products in the semiconductor industry is used. With microcontrollers now in a
mature phase of its product life cycle, consumers have become accustomed to its
highly customisable nature due to programmable technology. The devices however
remain complex, require special processing technologies and as a result, have
continued on an upward migration in increasing functionality. There are however still
benefits in designing customised chips for product specific consumer goods at a
much lower cost. But the dilemma is that custom chip designers are faced with the
problem that these standardised products, although low cost, are in conflict with the
way consumers have become accustomed with high levels of customisability. It is
important to thus recognise the fundamentals driving customer needs during these
early stages of a custom solution. By working in a close relationship with the
customer from the initial phase of the product, it is possible to offer a variety of
31
solutions balancing customisation and standardisation. It is thus possible to
understand exactly why a specific design/service package is offered and how to
strategically approach the complete manufacturing process based upon consumer
needs.
The AEGIS proposes three aspects of how services are integrated into the
manufacturing process (Min, 2006:14). The first approach is based on the
conventional perspective which is simply the traditional continuum of manufacturing
through to after sales services. The second is based on networking and outsourcing,
looking at the diverse relationships between businesses making and servicing
products. The last and highest form of integrating services is called the product
service package. A product is packaged with services within every stage of its life
cycle.
2.13 Services and the industry life cycle model
Cusumano, et al. (2007) proposed a new life cycle model based on product, process
and service. They argued that although the product life cycle model does not truly
hold for all industries, it does give us an important framework on which to base
different management strategies and investments during various phases and
competitive environments of a product life cycle. The model focuses on the inclusion
of services into existing industry life cycle theory with specific attention to the mature
phase and presents a strategic alternative for firms in maturing businesses
(Cusumano, et al. 2007:3). From the perspective of the industry life cycle model, they
too state how services have been neglected in research in favour of a focus on
products and processes, again supporting the G-D logic perspective argument.
32
Products in an early phase require high levels of customer interaction due to
uncertainty and risk. The mature phase however may see lower levels of interaction
and is the phase in which services flourish due to low levels of uncertainty. During the
declining phase, services may again increase in a final attempt to explore service
opportunities as a source of revenue (Cusumano, et al. 2007:9-10).
The effect of discontinuities or disruptive technologies is also explored. They propose
that a discontinuity itself presents new opportunities for both existing and new market
participants. The role of services in discontinuities is mainly determined by the level
of integration required between the existing and discontinuous technology. High
levels of backward integration would require upholding services after the discontinuity
while low levels of backward integration would undermine the importance of services.
This implies that a need for backward integration with existing technology increases
the value of the assets of existing market participants as new entrants seek access to
existing technology such as to ensure compatibility with the existing installed base
(Cusumano, et al. 2007:17).
Figure 2.5 illustrates the product life cycle model and shows how services are
increased during the phasing out of a product.
33
Level of Importance
Product
Processes
Services
Product Life Cycle Stage
Figure 2.5 : The product life cycle model showing an
increase in services within the phasing out of a product
Source: Adapted from Cusumano, et al., 2007:28
2.14 The product service system
There are radical new paradigms coming to the fore within the services oriented
schools of thought (Mont, 2000, 2001, 2002, 2003; Clarke & Gershenson, 2006).
Mont (2002) has been actively involved in a new paradigm that is increasingly gaining
momentum called product service systems (PSS). The paradigm forms part of a
larger body of study focused on sustainable production and consumption. The
primary objective of this model is to “dematerialise” society through stimulating a
service rather than consumer orientation. The net result is a reduction in the growing
burden on the environment to sustain growing consumptions level. The approach is
based on the following:
(a)
The sale of the use of products instead of the product itself.
(b)
A migration to a leasing society.
(c)
Substituting goods by means of service machines.
34
(d)
Stimulating a repair oriented rather than a throw away society.
(e)
The migration from a sales society to a service society.
The main difference between the PSS model and the services approach within the GD logic paradigm discussed is a complete rethink of the way businesses and
government legislation approach consumer behaviour. Both approaches still provide
utility to satisfy consumer needs and both exploit the fact that contemporary
consumers are increasingly focusing on service oriented consumer behaviour. The
fundamental differences however lie within the emphasis between services in the
former and goods with an increased focus on service in the latter.
2.15 Criticism and limitations of the product life cycle
Although the product life cycle serves as a useful tool for planning and strategising
during each phase, it has also been the subject of some criticism and limitations
(Levitt, 1963; Dhalla, et al., 1976; Grantham, 1997; Polli, et al., 1969; Webber, 1976;
Tellis, et al., 1981). Critics claim that life cycle patterns are too variable in shape and
duration making its application troublesome and that it is also difficult to identify the
current stage a product is in. Dhalla, et al., (1976:105) go as far as claiming that the
product life cycle is a dependent variable influenced by marketing efforts and should
not be used as an independent variable to which businesses should adapt their
marketing programmes. Thus the product life cycle is the result of marketing
strategies rather than the other way around. Herbst (2001:72) summarises this
criticism which can be seen in Table 2.1.
35
Table 2.1 : Major criticisms of and problems with the PLC concept
Major criticisms and problems
Author(s)
The PLC concept has no practical use
Levitt (1963:93)
Difficulty in determining the current phase of a
Levitt (1963:93)
product or service
Dhalla and Yuspeh (1976:102-110)
Grantham (1997:9)
PLC not tested systematically
Polli and Cook (1969:385-400)
PLC led businesses to make costly mistakes and
Dhalla and Yuspeh (1976:102-110)
missed opportunities. Shortcomings on practical
application of the PLC concept
No evidence of the efficacy of the PLC as a tool
Dhalla and Yuspeh (1976:102-110)
to predict marketing strategy
Grantham (1997:9)
Empirical studies prove PLC lacks validity or
Webber (1976:19-290)
usefulness in explaining sales growth
PLC causes an expectation of sales displaying
Tellis and Crawford (1981:125-132)
growth, levelling and declining over time
Some products or brand life cycles are longer
Mercer (1993:269-274)
than actual planning life cycles of organisations
Doubt about the applicability of the PLC as a
Grantham (1997:4)
marketing tool
Source: Adapted from Herbst, 2001:72
2.16 Supply and demand theory
The traditional laws of supply and demand in Figure 2.6 illustrate that at equilibrium
point C, consumers are paying price A for a given supply of a specific product B
(Doyle, 2005:92). There are however, consumers that are willing to pay a higher price
but due to an increased supply, prices are under pressure due to increased
competition. This is illustrated in Figure 2.6 in the shaded area and is known as the
consumer surplus. Through the laws governing supply and demand, consumers in
36
the consumer surplus region are able to satisfy their needs at a lower cost. A
potential thus exists to exploit the consumer surplus by adding value through
servicisation of products. It is thus possible to increase differentiation by reducing the
supply of the specific service-product bundle and have consumers willing to accept a
higher price D. Once the differentiation is eroded by competition through either
mimicking the service model or supplying a better service, the price will again fall
back to a new equilibrium E.
Price
servicisation
CS
D
E
A
standardisation
C
B
Demand/Supply
Figure 2.6 : Traditional supply and demand
curves
Source: Adapted from Doyle, 2005:92
37
2.17 Conclusion
This chapter presented a literature review of the different concepts of service,
services, servicisation, the product life cycle and supply and demand behaviour. It is
clear that much research in the field of marketing was based on economic thought
with a focus on the separation of goods and services. Global trends however prove
an ever increasing trend in service provision as businesses seek to differentiate
themselves when faced with commoditisation. Scholars noting this trend termed it
servicisation while others called for a new paradigm on which global exchange
should be based. The S-D logic is presented as a possible solution in which a clear
distinction is made between services and service. The traditional product life cycle as
applicable in the technological environment is then discussed, followed by two
examples of how servicisation can be applied to increase performance within
different stages. The product life cycle concept however is not without challenges.
The chapter ends with a short discussion on how servicisation applies to traditional
supply and demand theory. Chapter 3 will discuss the research design and
methodology. The nature of the literature study is explained in conjunction with its
significance to the problem statement.
38
CHAPTER 3
RESEARCH DESIGN AND METHODOLOGY
3.1 Research approach
There are two main approaches to research, namely deduction and induction.
Contrary to induction where data is collected and theory developed from the analysed
data, deduction is closely related to scientific research as it involves development of
theory that is subject to a rigorous test (Saunders, et al., 2007:117). Servicisation is a
phenomenon that is gaining more and more interest. Scholars are approaching
service from new paradigms and trying to understand how to incorporate it into
current business philosophies. The product life cycle was noted as being the most
quoted model in marketing theory yet, there seems to be little or no reference of
combining the two concepts. For this reason, theory will be reviewed to find evidence
in favour of or against the possible use of service to extend the product life cycle,
thus suggesting a deductive approach.
Saunders, et al. (2007:117) list five
sequential progressive stages of deductive research.
(a)
Deducing a hypothesis.
(b)
Expressing the hypothesis in operational terms which propose a relationship
between two specific concepts or variables.
(c)
Testing the operational hypothesis based on a research strategy.
(d)
Examining the specific outcome of the inquiry, thus either confirming the theory
or indicate a need for modification of it.
(e)
Modifying the theory if required in the light of the findings.
39
3.2 Research purpose
The purpose of this research is a mixture between exploratory and explanatory.
Robson, (2002:59) defines an exploratory study as a, “valuable means of finding out
what is happening; to seek new insights; to ask questions and to assess phenomena
in a new light”. Exploratory studies are based on a search of literature, interviewing
experts in the subject as well as conducting focus group interviews. Explanatory
studies seek to establish a causal relationship between variables (Saunders, et al.,
2007:134).
3.3 Research strategy
A strategy should be chosen that is capable of answering the research question and
reach the proposed objectives. The problem statement in this research is
fundamentally based on how? In an attempt to understand the how? i.e. how to
combine service with goods, it is also required to understand the what?, i.e. what can
be done to combine service with the product life cycle to extend it?. Furthermore, the
topic under investigation is contemporary and the theory regarding service within the
manufacturing industry from and S-D logic perspective is still in its infancy. Case
studies are well suited to this type of research as Yin (1989:59) explains when
“boundaries between the phenomenon being studied and the context within it is being
studied are not clearly evident”. Gerring (2004:342,352) argues that the case study is
best defined as “an intensive study of a single unit for the purpose of understanding a
larger class of (similar) units”. In other words, it is the aim to “elucidate features of a
larger class of similar phenomena” and is the most commonly used research strategy
to research or investigate a single phenomenon, instance or example (Gerring,
2004:341-342).
40
3.3.1 Case study strategies
Yin (2003) lists four case study strategies and bases them on two discrete
dimensions, namely single versus multi case and holistic versus embedded case
(Saunders, et al., 2007:139). Single cases are often used to represent extreme or
polar type as well as unique examples while multiple cases are aimed at generalising
findings from a single case. Holistic case studies are concerned with whole units
such as an organisation while embedded case studies are aimed at explaining
subunits such as a number of departments within the organisation. Yin (1981:58-59)
highlighted the existence of frequent confusion in research methodology when using
case studies (a research strategy) between types of evidence, data collection
methods and research strategies. He explains that the case studies do not imply the
use of a particular evidence type or data collection method and that the case study
represents a research strategy. Evidence type can be either quantitative, qualitative
or both. Secondly, data collection methods are not necessarily solely from
ethnographies or participant observation. He states that the distinguishing factor for
using case studies rather than any other method is that it is well suited to study
contemporary phenomenon within its real life context but especially when the
boundaries between phenomenon and context are not clearly evident (Yin, 1989:59)
as mentioned earlier.
3.3.2 Case selection
Eisenhardt (1989:536-537) notes that case study selection differs somewhat from
other strategies in that cases are chosen based on theoretical rather than statistical
reasons. Generally, cases are chosen to replicate previous cases, extend emerging
theory or to fill theoretical categories as well as provide examples of polar types. She
41
continues to explain that random sampling can be done but is neither necessary nor
desirable and that is makes more sense to choose cases that serve to make the
process of interest observable and transparent. This calls for cases of extreme
situations and polar types. For this reason, a case study strategy was chosen based
on the life cycle of the Apple iPod. This case has been chosen as it represents a
unique case of combining innovative service and services within its product offering
(Saunders, et al., 2007:140). It is unique in that its success has contributed to a rise
in Apple’s share price by over 1200 percent over a period of four years (Jordan,
2007:5). For this reason, the iPod has become the focus of attention and many
aspects of Apple’s success have been researched and published by many authors
(Hormby & Knight, 2006, Linden, Kraemer & Dedrick, 2007, Lusch, Vargo & Malter,
2006, Reppel, Szmigin & Gruber, 2006). The main source of data of this case study
is from peer reviewed literature.
3.3.3 Criticism of the case study method
It is important to note that case studies cannot substitute qualitative, ethnographic or
process tracing research. A case study presupposes a relatively bounded
phenomenon (Gerring, 2004:342). Gerring (2004:352) explains six methodological
ambiguities that exist in case studies. Firstly, case studies are built on a variety of
covariational evidence. He refers to three types, namely variation in a single unit over
time (type I), breaking down the primary unit into subunits for covariational analysis
either synchronically (type II) or synchronically and diachronically (type III). Secondly
informal units are required to be integrated into formal units of study without
compromising integrity. Thirdly, a distinction must be made between single and cross
unit analysis when grouping multiple cases into a single case. The fourth point states
that case studies serve a double purpose. This is to study a single unit as well as a
42
broader class of units. The fifth ambiguity refers to the fact that the status of the work
can change over time, i.e. as the information is digested. The last ambiguity concerns
the inferences a case study is aimed at. These are either illustrative or falsifiable.
Gerring (2004:346) tabulates the trade offs and affinities of single versus cross unit
research designs and is listed in Table 3.1.
Table 3.1 : Single versus multi unit research designs, tradeoffs and affinities
Affinity
Case study
Descriptive
Cross-unit study
X
Type of inference
Causal
X
Scope of
Depth
proposition
Breadth and boundedness
Case comparability
X
X
X
Unit homogeneity
Representativeness
Causal mechanism
X
X
Causal insight
Casual effect
Casual
Invariant
relationship
Probabilistic
Strategy of
Exploratory
research
Confirmatory
For only a single unit
X
X
X
X
X
X
Useful variance
For many units
Ontology
Source: Adapted from Gerring, 2004:346
X
Indeterminate
43
3.4 Conclusion
This chapter presented the research design and methodology. It was proposed that a
deductive research approach would be followed and that the research purpose would
be a mixture between exploratory and explanatory. The research strategy was then
discussed based on the problem statement and it was proposed that a case study
would be an appropriate strategy to answer the research question and achieve the
relevant objectives. The academic case selection method was used, based on a
unique case of combining innovative service and services of the Apple iPod. The
chapter was concluded by a discussion regarding the major criticisms of case
studies. Chapter 4 will present the case study in combination with the research
results and analysis.
44
CHAPTER 4
RESEARCH RESULTS AND ANALYSIS
4.1 Introduction
This chapter presents a case study comprising of the history of personal digital
entertainment devices of two companies, namely Apple Inc. and Creative Labs.
These companies have been chosen as they represent the two largest market shares
in this market with Apple’s iPod leading it. The chapter starts with a brief history of
the two companies’ value offering and is analysed from the S-D logic perspective.
The product life cycle of each company’s offering is then presented and analysed,
followed by the presentation of a conceptual life cycle model based on the findings of
the case and referred to as the service system life cycle model. The chapter is
concluded by an analysis of the research objectives as stated in Chapter 1.
4.2 The Apple iPod story
The following discussion is based on an article called iPod history published by The
Media LLC in their 2007 iPod Buyer’s Guide, by iLounge.com, a company
specialising in the testing and reviewing of iPods as well as the thousands of iPod
accessories available (Lloyd, 2006:48-59).
4.2.1 2001
On 9 January 2001 Apple launched iTunes 1.0 marking the beginning of an
enormously profitable journey after acquiring software rights to a program called
SoundJam MP from a company called Cassady and Greene. The software was
designed to convert audio CDs into a compressed digital format, organise play lists
as well as tune into internet radio stations and was only available on the Apple
45
supplied Mac platform. Later that year Apple announced the release of a digital
media player called the iPod. The Mac compatible player was based on a high
capacity micro hard drive technology which at the time was in minority supply. The
iPod was the brainchild of Tony Faddell (Hormby, et al., 2005:1), a former employee
of General Magic and Philips, who after unsuccessful attempts at pitching the idea to
both RealNetworks as well as Philips approached Apple. Faddell’s idea appeared to
be the perfect fit to the iTunes business model. Faddell was brought on board, given
30 designers and one year to design a successful product. CEO Steve Jobs took a
keen interest in the project from the beginning, creating high levels of confidence
within the design team. Faddell realised the importance of working under pressured
time schedules and restricted budgets with high expectations of success and
scanned around for possible partners. A company called PortalPlayer appeared most
suitable who prior to the deal was developing mp3 players for various clients, their
most promising at the time being IBM. The partnership realised the first prototype
within three months and was officially announced on 23 October 2001 six months
after development began. On 10 November 2001, the first iPod was shipped. The
first generation iPod with its novel scrolling wheel, the first in the industry to break
away from the regular skip button configuration, was met with enthusiasm and by 21
December 2001 Apple had already sold 125 000 units.
4.2.2 2002
By 20 March 2002, Apple released the second generation iPod with increased
capacity but still only Mac compatible. External to Apple, the world had not only
started writing software to make it compatible with PCs but an entire “ecosystem”
began forming around the device in the form of third party products. Apple noticing
this, responded and by July 2002 the first PC compatible iPods were launched, this
46
time with solid state touch sensitive scrolling wheels. The rest of the year was
focused on increasing their sales network through partnerships such as BestBuy,
Target and Dell. By the end of 2002 and in time for Christmas, Apple released limited
edition iPods with licensed celebrity signature engravings on them.
4.2.3 2003
28 April 2003 marked the launch of the iTunes Music Store (iTMS) bringing the iPod
to its intended purpose, an end player of music sold through a legal online channel.
Within one week of its launch, one million songs were sold and downloaded.
Unfortunately iTunes was only available on the Mac operating system thus excluding
the MusicMatch based PC users from participating. June marked the sale of the one
millionth iPod sold and by October the PC software problem was resolved with the
release of iTunes 4.1 for PC based users along with further upgrades and
improvements to the iPod unit itself. By now already 13 million songs had been sold
via iTMS.
4.2.4 2004
In January 2004, Apple announced their plans to launch the iPod mini to replace their
entry level model as well as their intention to license iPods through HP. The iPod mini
was again met with higher than expected demand thus delaying its international
release. By the middle of 2004, Apple had already sold three million iPods and was
now widely recognised as the dominant media player. By this time, 100 million songs
had been sold legally via iTMS also marking an industry first. Later that year Apple
launched the fourth generation iPod, boasted a catalogue of one million songs on
iTMS, over 150 million legal songs sold, six million iPods sold as well as the launch of
photo capable iTunes software.
47
4.2.5 2005
By 2005, Apple was dominating the media player as well as the online music content
market and was named the top global brand. The year started with the launch of the
iPod shuffle aimed at the flash player market, the replacement of the iPod mini by the
iPod nano as well as the fifth generation iPods with increased video capability. iTMS
was also growing from strength to strength now with a two million catalogue and
having sold a total of 600 million songs. By October 2005, iTMS also offered TV
shows and music video content. The first month was met with one million video
downloads. By December 2005, 30 million iPods had been sold to date.
4.2.6 2006
In 2006, Apple focused on expanding their product base with the release of many
accessories, the second generation iPod shuffle and nano as well as the launch of
iTV. Accessories included items such as an FM radio plug-in, the iPod hi-fi and iPod
ready athletic accessories through collaboration with Nike. In February 2006, 1 billion
songs had been sold on iTMS. The business world had accepted the dominant iPod
portable media player and was looking at innovative ways of exploiting this. GM, Ford
and Mazda for example announced iPod ready stereo systems for 2007 releases,
BMW offered iPod control via controls on the steering wheel and third party
companies offered an extensive array of iPod integration accessories. Apple had
successfully managed to change the culture of portable entertainment and with iTMS
now offering 2.9 million songs, 60 000 podcasts, 9000 video and 70 TV shows, it was
appropriate to rebrand their online entertainment delivery vehicle as iTunes Store. By
the end of 2006, Apple had sold 69 million iPods.
48
4.2.7 2007
As now customary, in January 2007 Apple announced yet another new addition to
their portfolio, the iPhone. The iPhone would offer full touch technology and was
released in June 2007. By July the iPhone had already captured 1.8 percent of the
cellular phone market, 0.8 percent higher than had been originally planned. In
September 2007, the whole iPod portfolio was revised introducing the iPod shuffle
3G, iPod nano 3G, iPod classic 6G and the all new iTouch, in essence an iPhone
without camera and phone. They further expanded their online content to now include
items for the iPhone through the launch of iTunes Wi-fi. By the end of 2007, the iPod
had now sold a total of 120 million, a number that by the second quarter of 2008
tallied 150 million.
4.2.8 2008
Apple continues expanding its service offering not only through iTunes Store but also
through other value channels. These include services from movie rentals to iPod
education solution, business solutions, maps and navigation as well as software
development capability allowing customers to co-create value for the iPhone (Apple,
2008) according to Apple’s guidelines and then allowing customers to sell their
creations via Apple’s internet distribution channels. This allows for Apple’s customers
to also profit through the owning of their products.
49
4.3 Creative’s personal digital entertainment history
4.3.1 1999
Creative is one of the first competitors to enter the digital audio player market with the
launch of their Creative NOMAD line of digital audio players. Based on solid state
memory technology, CEO Sim Wong Hoo saw strong potential from this market as
well as the potential that e-commerce had to offer through the internet (Creative,
1999:4). Their internet activities however were mainly aimed at new distribution
channels i.e. business to consumer as well as business to business. These included
hifi.com, an online home entertainment distribution channel, SI-direct.com, their
business to business e-commerce channel and finally LAVAmusic.com, an online
community site for experiencing the LAVA! music videos for mp3. LAVA! stands for
live audio video animation.
4.3.2 2000
In 2000, Mr. Hoo highlighted the growing potential of downloadable entertainment.
He also mentioned that their flagship media player, the NOMAD Jukebox went
beyond simply selling a piece of hardware (Creative, 2000:5). 2000 also saw the
launch of three new digital audio players namely the NOMAD II, NOMAD II MG and
their flagship NOMAD Jukebox (Creative, 2000:3).
4.3.3 2001
Troubled by global events in 2001, Creative focused on the launching of the NOMAD
Jukebox along with their other products, leaning the business and improving
operations (Creative, 2001:2-3).
50
4.3.4 2002
2002 saw the launch of three new product ranges, NOMAD Jukebox 3, NOMAD
Jukebox ZEN and the NOMAD Muvo (Creative, 2002:2). The year was still troubled
by negative market sentiment and as a result, Creative again turned to improving
operations through focusing on profitability and higher margin core products while
reducing costs and expenses (Creative, 2002:3).
4.3.5 2003
In 2003 Mr. Hoo continued his praise of the growing digital audio player market.
Creative increased the breadth of their product range by introducing the largest
amount of new products in their history (Creative, 2003:3). Their digital audio players
included the launch of more improved versions of their product line up and were
named the Creative NOMAD Jukebox ZEN NX, NOMAD Muvo NX and NOMAD
Muvo. By now, Creative’s strategy was clear, namely to increase product breadth and
focus on improving operations.
4.3.6 2004
Creative returned to revenue growth in 2004 which was mainly driven by the personal
digital entertainment boom (Creative, 2004:2). They segmented the market into four
segments namely the flash memory, 1.0 inch drive, 1.8 inch drive and the personal
media centre segments. The flash memory segment was covered by the new Muvo
NX, TX, TX FM and Muvo Slim products while the Muvo was positioned in the 1.0
inch hard drive segments with a range of capacities. Creative identified key features
that consumers were after in the 1.8 inch drive segment with the Creative Zen Touch
as the answer. The personal media centre segment included the growing video and
image market and Creative’s solution was offered via the Creative Zen Portable
51
Media Centre. Mr. Hoo also announced that they were increasing research and
development focus on the mp3 market and aimed at doubling their product line up by
the end of the year from 8 to 16 lines. This would be supported by an increase in
marketing as well as build on growing e-commerce channels (Creative, 2004:3).
4.3.7 2005
Creative achieved a milestone in the second quarter of 2005 when they shipped two
million mp3 players. This successfully established them as the second largest player
in the market. They shipped a further two million units for each of the third and fourth
quarter. This year saw the first reference to aggressive pricing practices and intense
competition (Creative, 2005:2). Creative was awarded a US patent named the “Zen
Patent” which covered aspects of the user interface of their portable media players.
Their products this year included Creative Zen Micro, Creative Zen MicroPhoto,
Creative Zen Neeon and the flagship Creative Zen Vision. In the flash memory
market they now offered Creative Zen Nano Plus and Creative Muvo Chameleon
V200.
4.3.8 2006
The “Zen Patent” yielded large dividends for Creative after filing complaints against
Apple for infringing their patent in the iPod products. Apple chose a settlement that
allowed the continued use of the play list features while allowing Creative to partake
in the “made for iPod” program, a program that allowed Creative to design and sell
iPod accessories. Creative again reported the continued pressure on gross margins
resulting from strong competition (Creative, 2006:2). The year again saw Creative’s
continued expansion of their product line up and included their flagship and
rebranded capitalised ZEN Vision: M and ZEN Vision W in the higher end of the
52
market with the ZEN V and ZEN V Plus in the flash memory market segment. Mr.
Hoo noted that their future lay in their key competence of advanced audio
technologies and now made clear their intension to streamline their mp3 business to
focus on a few high growth, high margin products rather than the large number of
product offerings they had (Creative, 2006:3).
4.3.9 2007
2007 was again met with high levels of competition and operating losses due to
pressured margins. They introduced their new products in line with their new focused
strategy and this included the Creative ZEN Stone and Creative ZEN Stone Plus in
the lower end flash memory segment and the credit card sized Creative ZEN digital
media player, an improved ZEN Vision: M and also based on flash memory albeit on
the higher end. Again Mr. Hoo made note of continuing their focus on the streamlined
mp3 product portfolio as well as continued efforts in improving operations. This
ensured that Creative maintained their second position in the digital media player
market (Creative, 2007:2-3).
4.4 Analysis of the case
Lusch, et al., (2006:268) recommend the following S-D logic prescriptions in a global
management context:
(a)
Identify and develop core competence, i.e. knowledge and skills of an economic
entity that creates global competitive advantage.
(b)
Use core competencies to cultivate relationships with potential customers.
(c)
Collaborate with customers and partners in a value network – co-create value
with customers.
(d)
Gauge value proposition fulfilment through financial feedback.
53
Lusch, et al., (2006:269) continues stating that from an S-D logic perspective, a
business should focus on selling a continuous flow of service. This in turn
encourages the determination of the optimum configuration of goods that will sustain
a level of service. Secondly, it is required to determine the optimum organisation or
network configuration to maintain the service. Lastly, it is required to determine an
optimal payment mechanism in exchange for the service. Such a reference thus
helps businesses think about a service system.
4.4.1 Identifying core competence
Apple’s head of design, Jonathan Ive, stated that Apple “follows a holistic approach in
its product design that tries to figure out [the customer’s] connection to the product”.
Apple has an incredible ability to understand the way customers relate to its products
(Reppel, et al., 2006: 240). This is also evident when Apple, even though it regularly
applied technology push tactics, replaced two of its products with what was
considered at the time as backward steps in technology. The iPod shuffle for
example was introduced without a digital display; something that had not been seen
on the market in years (Reppel, et al., 2006: 240) yet met with enormous demand
(Lloyd, 2006:53). In September, the iPod mini was replaced by the lower storage
capacity iPod nano, again an attribute considered to be crucial at the time. Here too,
the iPod nano became the best selling digital player worldwide (Reppel, et al., 2006:
240). In their market analysis of the iPod phenomenon, Reppel, et al. (2006: 249)
found that from an organisational perspective, the most important factors that
contributed to their success was their strong brand, influence of its leaders, the ease
of use of the product and the distinctive product design. They described the iPod as
“an elegant method of promoting individual choice” and that their strength was in their
ability to determine the customer’s connection with the product. Although these
54
statements are clearly from a G-D logic perspective, what is clear is that Apple
identified that the value in their creation was not the latest attributes and features but
rather in the use of it. Apple thus had only three very distinct product lines, each line
having limited specification variations. Their products were designed to be clearly and
uniquely identifiable as Apple iPods.
Creative’s CEO Mr. Hoo in his 2007 financial results (Creative, 2007:3) stated his
intention to “continue to focus on our core competence - advanced audio
technologies, and work on leveraging on our leadership in this area and, together
with the other key technologies we have, exploit them to develop the next generation
of advanced, cutting edge, ground-breaking personal digital entertainment products”.
Creative clearly understood their competencies in creating tangibles. The problem
however was their continued G-D paradigm perspective of their business. This focus
led Creative to develop a confusing breadth of their offering rather than the service
provision supported by their offering. Creative used traditional market segmentation
and focused on creating products to offer these segments. Interestingly however is
that Mr. Hoo actually identified this at the beginning of their digital audio player
journey. In his annual financial report of 2000, he identified innovative ways in which
their newly launched jukebox NOMAD could be used as well as ways in which their
product could serve both their customers and other service providers alike. Lastly, he
also made mention of the possible creation of many interesting alternative business
models based on digital audio players. He stated that, “The potential for this type of
product goes far beyond just selling a piece of hardware” (Creative, 2000:5). Yet,
Creative failed to act on the very potential itself placed on offer.
55
4.4.2 Cultivating relationships for co-creation through core competencies
From the very beginning of the iTunes and iPod creation, Apple recognised the
potential of collaboration with partners. This is evident in their purchasing the rights to
SoundJam as well as their collaboration with PortalPlayer in developing the
hardware. Here again it can be seen that they leveraged their core competencies to
ensure a matching of customer requirements with software and hardware producers
even though they clearly possessed the ability to design this themselves given their
iMac history. On the other hand, the partners were drawn to Apple’s strong brand
reputation as well as faith in their leadership ability to execute. This resulted in an
end product within six months, half the time that had originally been allocated to it.
iTunes eventually led to the launch of the iTMS in 2003, a service offering that truly
increased the value in use for the iPod owner.
Realising the value people place in identity of music, led Apple to licensing and
engraving celebrity signatures on the back of iPods. This partnership allowed for
premium pricing of these iPod models while other digital audio suppliers were already
engaging in price wars. In 2008, Apple also offered personalised laser engraving
capability to its consumer’s further extending co-creation of value between
themselves and their customers. Apple would extend its partnerships even further
with the “made for iPod” program, a program designed to have third party suppliers
engage in a whole accessory industry around the iPod. By 2008, many audio
systems had some form or another to support iPod playback which even extended
into the automotive industry. Apple thus successfully cultivated relationships not only
between themselves and their customers but between whole networks of value
creators, all co-creating around the iPod platform.
56
Creative had a G-D logic approach as they identified internet channels as a
mechanism for increasing distribution rather than a service delivery channel. They
correctly identified the need to increase the ease of collaboration between
themselves and their partners albeit the focus was on business to business
collaboration rather than customer collaboration and co-creation (Creative, 1999:4).
Their most successful collaboration ironically occurred between themselves and iPod
when Apple settled a claim of infringing the “Zen patent”. The collaboration helped
Creative break into the “made for iPod” program.
4.4.3 Gauging value proposition fulfilment through financial feedback
Clearly end customers found that Apple had more value in use of the iPod than any
other digital audio player on offer, making it possible for Apple to launch its offering
during the difficult market conditions of late 2001. By 2007, Apple was able to offer
their value propositions at a premium compared to other suppliers. iPods created
around $8 billion revenue (Figure 4.4) compared to Creative’s now declining $0.6
million (Figure 4.6). The iTunes Store alone showed revenues of $2.5 billion (Figure
4.5), four times that of Creative’s product revenues and still showed signs of steady
growth. Apple was able to sustain better than industry standard margins based on a
better value proposition. Creative fully engaged in the G-D logic perspective through
market segmentation and price war by focusing on increasing the breadth of their
offerings, a mistake that Creative finally identified in 2007 when they announced that
they would narrow their portfolio in an attempt to focus on increased value offering.
Feedback of Apple’s value proposition can also be seen in the growing portion that
iTMS was contributing to total revenues (Figure 4.2) as well as to the portion of iPod
revenues (Figure 4.3). All financial details were accessed from annually published
results.
57
Figure 4.1 below illustrates iPod revenues as a percentage of total revenues between
2002 and 2007. iPod contributions peaked in 2006, declining slightly in 2007.
iTMS revenue %
iPod revenues as a percentage of total revenues (2002 ‐ 2007)
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2002
2003
2004
2005
2006
2007
Fiscal Years
Figure 4.1 : Graph illustrating iPod revenues as a percentage of total
revenues between 2002 and 2007
Source: Adapted from Apple Inc. annual report, 2002-2007
Figure 4.2 illustrates how iTMS revenues as a percentage of total revenues
continued increasing in 2007, indicating continued growth in a slowing media player
market.
Figure 4.3 shows further evidence of the growing iTMS demand illustrating the
growing iTMS revenues as a percentage of iPod revenues.
58
iTMS revenues as a percentage of total revenues (2002 ‐ 2007)
12%
iTMS revenue %
10%
8%
6%
4%
2%
0%
2002
2003
2004
2005
2006
2007
Fiscal Years
Figure 4.2 : Graph illustrating iTMS revenues as a percentage of total
revenues between 2002 and 2007
Source: Adapted from Apple Inc. annual report, 2002-2007
iTMS revenues as a percentage of iPod revenues (2002 ‐ 2007)
iTMS revenue %
25%
20%
15%
10%
5%
0%
2002
2003
2004
2005
2006
2007
Fiscal Years
Figure 4.3 : Graph illustrating iTMS revenues as a percentage of iPod
revenues between 2002 and 2007
Source: Adapted from Apple Inc. annual report, 2002-2007
59
4.5 Product life cycle evaluation
Figure 4.4 shows the non-cumulative revenues of the iPod between 2002 and 2007.
There first two phases, the introduction and growing phases, can clearly be noted.
There is indication of a slow down in revenues in 2007 which could mark the
beginning of a maturing phase for the digital audio player market. Later evaluation of
the quarterly unit sales shows stronger evidence of this. With a market share of
almost 80 percent (Lloyd, 2006:54), Apple must take special notice of this as they
lead the direction of the market.
Non‐cumulative iPod revenues (2002 ‐ 2007)
9
Sales ($ Billions)
8
7
6
5
4
3
2
1
0
2002
2003
2004
2005
2006
2007
Fiscal Years
Figure 4.4 : Graph showing non-cumulative revenues of the iPod between
2002 and 2007
Source: Adapted from Apple Inc. annual report, 2002-2007
Figure 4.5 shows the non-cumulative iTMS revenues for the period 2002 to 2007.
Here, the first two phases of the product life cycle are also evident but are not
showing any signs of slow down indicating that the service is still in a growing phase.
60
The introduction of the iPhone and iTouch continues to add more platforms focused
on the continued growth of the iTMS offering.
Non‐cumulative iTMS revenues (2002 ‐ 2007)
iTMS revenue ($ Billions)
3
2.5
2
1.5
1
0.5
0
2002
2003
2004
2005
2006
2007
Fiscal Years
Figure 4.5 : Graph illustrating non-cumulative revenues of the iTMS between
2002 and 2007
Source: Adapted from Apple Inc. annual report, 2002-2007
Figure 4.6 shows the non-cumulative graph for Creative’s personal digital
entertainment revenues. Their representation of the product life cycle model shows
two striking features. Firstly, Creative were pioneers in the digital audio market and
correlate with Moore’s (2004:89) representation of the product life cycle in the
technological environment. The early market is evident in 2000 with a signs of the
bowling alley and tornado in 2001. This is followed by a distinct dip in 2002 before the
main street follows in 2003 to 2005. The dip may however also be the result of either
the introduction of the iPod itself as well as the difficult market conditions late 2001
presented. The second feature shows that in Creative’s case, their revenues are
followed by immediate decline in 2006 and 2007 which would normally mark the
market street declining phase. Creative virtually skipped the main street mature
61
phase and should set off alarm bells for a business holding the second position in the
market as well as being the product making up two thirds of total revenues (Creative,
2005:4, 2006:4, 2007:4).
The declining phase can be the contribution of one of two factors. Either the digital
audio player market is moving into the declining phase or a price war is diminishing
margins and placing pressure on revenues. Creative identified the latter to be the
case (Creative, 2005:2).
Sales ($ Millions)
Non‐cumulative Creative personal digital entertainment revenues (2000 ‐ 2007)
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2000
2001
2002
2003
2004
2005
2006
2007
Fiscal Years
Figure 4.6 : Graph showing non-cumulative revenues of Creative PDEs
between 2000 and 2007
Source: Adapted from Creative annual report, 2000-2007
This is also evident in the non-cumulative unit sales of the iPod in Figure 4.7 which
shows stronger evidence of a maturing phase of the digital audio player.
Commoditisation and price wars are typical factors of this phase. Although iPod
revenues make up a smaller portion of total revenues in 2007 (Figure 4.1), Apple
continues small revenue growths in the iPod with strong growth in the iTMS offering.
62
From an S-D logic perspective, Creative’s financial feedback is showing a decrease
in their value proposition. This is a strong indicator that Apple’s value proposition is
firstly helping them maintain superior margins compared with other competitors and
secondly that their value proposition is helping them extend the product life cycle of
the iPod. Although the classical iPod will eventually reach the declining phase, it is
clear that Apple has built a new service system business model that is supported by
products as the vehicles of service rather than the other way around. This is evident
in their latest offerings of the iPhone and iTouch supporting their latest service
offerings such as educational services, business services, software development
services and the like.
Non‐cumulative iPod unit sales (2002 ‐ 2008)
Sales (Millions)
25
20
15
10
5
2002 Q1
2002 Q2
2002 Q3
2002 Q4
2003 Q1
2003 Q2
2003 Q3
2003 Q4
2004 Q1
2004 Q2
2004 Q3
2004 Q4
2005 Q1
2005 Q2
2005 Q3
2005 Q4
2006 Q1
2006 Q2
2006 Q3
2006 Q4
2007 Q1
2007 Q2
2007 Q3
2007 Q4
2008 Q1
2008 Q2
0
Fiscal Quarters
Figure 4.7 : Graph showing non-cumulative unit sales of iPods between
2002 and 2008
Source: Adapted from Apple Inc. annual report, 2002-2008
63
4.6 The service system life cycle concept
Figure 4.8 shows a conceptual model of the service system life cycle model. The
model is in line with the S-D logic paradigm and what Lusch, et al. (2006:269) calls
the service system. Based upon the traditional product life cycle concept, the service
system life cycle concept aims to elaborate on the traditional product life cycle from
iTMS
Level of Importance High
Performance
Early Phase
iTS
Entertainment
service
system High
Performance
Final Phase
Product 1 Product 2 Product 3
iPod iPod
iPhone
(video)
iTouch Early Phase iT ? iT Wi-fi
Mature Phase Product 4
?
Decline Phase Phase Out Product Life Cycle Stages (time) Figure 4.8 : Conceptual model of the service system life cycle
Source: Author’s own
64
an S-D logic perspective. The iPod is used as the primary example to explain the
concept. The model thus comprises of the service system, services and products
each with its own characteristic life cycle.
4.6.1 The service system
From the service system perspective, Apple presents its services and products as
part of an entertainment service system. Again, service is used instead of services to
highlight the distinct difference between the two as described in paragraph 2.6. The
life time duration of a service system would typically be the duration of either the
business itself or until the core focus of the service changes away from entertainment
after which the process will start all over again. The service system is thus based on
the 10 foundational premises of the S-D logic paradigm (Vargo, et al., 2008b:7) and
repeated here.
i.
Service is the fundamental basis of exchange.
ii.
Indirect exchange masks the fundamental basis exchange.
iii.
Goods are a distribution mechanism for service provision.
iv.
Operant resources are the fundamental source of competitive advantage.
v.
All economies are service economies.
vi.
The customer is always a co-creator of value.
vii.
The enterprise cannot deliver value, but only offer value propositions.
viii.
A service-centred view is inherently customer oriented and relational.
ix.
All social and economic actors are resource integrators.
x.
Value is always uniquely and phenomenologically determined by the
beneficiary.
65
4.6.2 Specific services
The system comprises specific services, i.e. iTunes Music Store, iTunes Store and
iTunes Wi-fi. These services, like each product offering, are adapted according to
society value requirements. Such adaptation may come through the form of
increased features, product or services upgrades, new products or services offerings
and are co-created by all network partners through constant conversation and
dialogue.
4.6.3 Specific products
The system also comprises specific product offerings, i.e. iMac, iPod, iPhone, iTouch
as well as software products such as iTunes, with its main purpose being the delivery
vehicles of the services forming part of the larger service system. Focus does not fall
on riding the product life cycle as Apple very well demonstrated by executing the
introduction and removal of products in the value network with military precision.
Thus, products are not necessarily exploited right through to the end of their
respective life cycles. Instead, the extended use of the products is encouraged rather
than accelerated product replacement. The service offering thus encourages brand
loyalty once replacement is required.
4.7 Evaluation of objectives
4.7.1 Primary objective 1
To gain new insight into the interesting and profitable combination of goods and
services within the goods manufacturing industry.
66
It is clear from the above case study that Apple achieved a dominant global position
through combining products with services. Their 80 percent market position for both
the iPod as well as iTMS strongly suggests this when compared to Creative who did
not offer such a combination. New products and services from Apple were offered in
parallel suggesting their intent for their parallel use by their customers. This
combined offering has enhanced the value in use of their service offering and is
clearly visible in their annual financial feedback.
4.7.2 Secondary objective 1
To investigate and identify ways in which servicisation can be incorporated into
corporate strategies.
In designing the iPod, Apple used their core competence of understanding how their
customers connect with their products at the centre of their innovation. In this way,
Apple’s strategy differs from Min’s (2006:12) added product related services within
the manufacturing process in that Apple first answers the question to how their
customers connect with their products before exploring the details of product-related
services.
4.7.3 Secondary objective 2
To determine whether servicisation can have the effect of extending the product life
cycle.
From the case study of the iPod, the evidence suggests a longer living product for
Apple in comparison to Creative’s value offering. There is strong indication of a
service dominant perspective from Apple versus a goods dominant perspective from
67
Creative. This difference has not only extended the life cycle of the iPod but has also
brought Apple alternative sources of revenue.
4.7.4 Secondary objective 3
To present a conceptual product life cycle model based on a servicisation strategy.
The service system life cycle is presented. The model resembles the traditional
product life cycle in its characteristics but differs from it in that it represents the life
cycle of a service offering. The life cycle may be linked to the life cycle of the service
itself or the life cycle of the business offering the service. The service system life
cycle is made up of two components, namely specific services and specific products
that are offered as vehicles of service delivery.
4.7.5 Secondary objective 4
To stimulate new schools of thought that can be utilised in defining new extended
product life cycle models and its indirect impact on increasing revenue streams.
Apple’s service offering has presented the company with an opportunity of creating
an entirely new business model not only for themselves but also for third party
suppliers generating an array of innovative alternate revenue streams. Their offering
has not only positioned them as the market leaders but also with opportunities of
creating new markets stemming from this position.
68
4.8 Conclusion
This chapter presented the results and findings of the application of the servicisation
phenomenon within the manufacturing industry and its effects on the product life
cycle based on a case study of the Apple iPod versus Creative PDEs. The results
and findings were evaluated against the literature review. All objectives were
evaluated and evidence was found to suggest that product life cycle of the iPod was
extended through the application of S-D logic business models. From the iPod case,
a conceptual model was presented called the service system life cycle model
illustrating how services and product offerings can be combined within the service
system life cycle. Chapter 5 will provide conclusions and recommendations based on
the major findings presented in this chapter.
69
CHAPTER 5
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction
The previous chapter presented the results and analysis of the case study. This
chapter will present the major conclusions, recommendations and limitations of this
study. The chapter will be concluded with recommendations for future research.
5.2 Outcomes
It is clear that servicisation is not just a phenomenon in contemporary business
models and can no longer be ignored. Many business examples are being studied
with regular examples appearing in literature such as IBM (Lindberg, et al., 2008:292;
Gabauer, 2008:279; Vargo, et al., 2008a:254; Cusumano, et al., 2007:3) who has
successfully transformed their business model from a G-D logic approach to an S-D
logic approach. Businesses such as Apple have also responded by focusing on their
core capabilities of understanding customer interaction with their products. This S-D
logic approach has led Apple to the recognition of their customers as co-creators of
value and has not only resulted in their market dominance but continues to reward
Apple with price premiums ranging between 50 to 100 percent over their closest
rivals even as the market is showing signs of maturing. This is in contradiction to
Kotler’s (1997:363) assumptions around certain marketing strategies, especially
strategies of product and price during the various product life cycle phases. The most
significant differences that were found in the product and pricing strategies were
during the maturing phase. While Creative aggressively developed their product
breadth to a line up of 16 products during the growing phase, Apple expanded their
range to only three very clear and well focused product ranges. Apple also
70
maintained high premiums over Creative during both the growing and maturing
phases even though they were late entrants to the market.
This case shows that the traditional characteristics, marketing objectives and
strategies which the product life cycle is based on, are no longer sufficient by
themselves to drive high performance marketing strategies. The case also indicates
that service strategies can have the potential of causing significant variations in
traditional marketing mixes.
5.3 Summary of the main conclusions and implications
based on the main findings
The findings in Chapter 4 and conclusions in this chapter cannot be generalised
beyond the circumstances of the case study presented.
5.3.1 Main finding 1
The Apple iPod was built on a service dominant logic business model as
compared to Creative’s goods dominant logic approach.
•
The launching of Apple’s iTunes offering in 2000 was followed by the iPod and
not visa versa. The product was an important “goods” offering that soon
became a delivery vehicle for Apple’s service offering.
•
Apple identified their core capability as their ability to understand the
customer’s connection with the product while Creative identified their technical
capabilities as their core competence.
71
•
Creative followed a traditional marketing mix strategy by focusing on product
breadth, price wars and operations efficiency. Creative’s CEO did however
note the service potential that the product had to offer but failed to act on it.
The main conclusion is that Apple did reposition the iPod into a service delivery role
with service itself as the process bringing it in line with the S-D logic perspective
proposed by Vargo, et al. (2008b:2). It may have been better for Creative to partner
with Apple by offering their core capability of technical expertise rather than compete
against them with this capability.
5.3.2 Main finding 2
The iPod is showing signs of a longer product life cycle compared to its
closest rival.
•
Figure 4.4 and Figure 4.7 show the non-cumulative dollar and unit sales of the
iPod. The graph shows a distinct movement into the mature phase for the
iPod.
•
This differs from similar sales data from Creative’s PDEs in Figure 4.6 which
shows signs of decline without having entered a mature phase.
The main conclusion is that the product life cycle of the iPod did benefit from the
service dominant approach in comparison to Creative’s goods dominant approach.
72
5.3.3 Main finding 3
The non-cumulative sales figures for the iPod, iTunes Store as well as
Creative’s products conform to the product life cycle shape as depicted in
literature.
•
Figure 4.4, Figure 4.5, Figure 4.6 and Figure 4.7 all illustrate non-cumulative
dollar and unit sales of product and service offerings from both Apple and
Creative that conform to the shape of the traditional product life cycle as
depicted in Figure 2.1 (Kotler, 1997:346).
•
Creative’s PDE non-cumulative sales shows signs of conformation to Moore’s
(2004:89) market development cycle.
The main conclusion is that the product life cycle does have validity in this case and
the data that both Apple and Creative had could be used as an indicator of the
product phase.
The implications are that the criticisms and limitations as sited in paragraph 2.15
must be investigated in more detail and that the early signs of a maturing phase must
be closely monitored for any signs of deviation.
5.3.4 Main finding 4
Apple made extensive use of co-creation with partners.
•
Apple’s “made for iPod” programme has resulted in a major supporting
industry around the product.
73
•
The latest iPod Touch now allows owners to write software which if conforming
to Apple’s standards can be sold via Apple’s internet distribution channels.
The main conclusion is that the supporting industry around the iPod has assisted in
creating a “pull” in the market.
The implications are that businesses should look at ways to release parts of their
intellectual property in the interest of co-creation and market “pull” effects.
5.3.5 Main finding 5
Apple
created
growing
alternative
sources
of
revenue
through
a
comprehensive service offering thus reducing risk.
•
iTunes Store accounted for 10 percent of total revenues in 2007 and was still
growing.
•
iPod revenues as a percentage of total sales were declining in 2007 even
though iPod revenues showed a marginal growth and indicate Apple’s non
reliance on a single product offering.
•
Creative showed similar trends in that PDE sales as a percentage of total
sales were declining. The difference however was that this had a direct impact
on total revenues as declining product revenues contributed to 63 percent of
total revenues in 2007.
The main conclusion is that Apple has created a business upon which product
offerings are supplied as service delivery vehicles. This has led to many alternative
revenue streams through services as well as through various forms of co-creation
74
partnerships. It has also opened a channel for direct customer contribution thus
enhancing brand ownership through customer co-creation.
The implication is that the product life cycle is not a sufficient marketing decision
making tool by itself to design innovative business strategies from a service dominant
perspective.
5.4 Linking the research results and major findings to the
proposed research objectives
The literature as presented in Chapter 2 and the case study results and findings in
Chapter 4 allowed the researcher to support or reject the objectives as set out in
section 1.6. These are set out in Error! Reference source not found.Error!
Reference source not found. which illustrates that all secondary objectives were
achieved.
Table 5.1 : Linking objectives with research literature and case study findings
Secondary objectives
(a) To investigate and identify ways in which servicisation can be
Supporting chapter
2.6, 2.12, 2.13, 4.2, 4.4 & 0
incorporated into corporate strategies
(b) To determine whether servicisation can have the effect of
4.5
extending the product life cycle
(c) To present a conceptual product life cycle model based on a
2.6, 2.11, 2.12, 2.13 & 0
servicisation strategy
(d) To stimulate new schools of thought that can be utilised in
defining new extended product life cycle models and its indirect
impact on increasing revenue streams.
Source: Author’s own
2.6, 2.11, 2.14, 2.16, 4.2, 0
&0
75
5.5 Limitations
This research is the result of exploratory and explanatory investigation into new
schools of thought surrounding a service approach to conducting business and its
interaction with the product life cycle. Specific limitations of the literature review and
case study research are presented.
5.5.1 Limitations in the literature review
Based on the literature review, the following limitations are presented:
•
An attempt was made to review literature to the point of saturation around the
S-D logic topic. As the topic is still in its infancy, some unpublished findings
may have been omitted as a result.
•
The researcher found that the S-D logic paradigm is still being widely debated
and the 10 foundational premises as set out in section 2.6 are being updated
from time to time to reflect new understandings and clarifications of the
approach.
•
Very limited literature exists on the application of the S-D logic within the
business environment.
•
Very limited literature was found on the application of the product life cycle
based on servicisation and no literature based on the S-D logic approach.
5.5.2 Limitations in the case study research
After completion of the case study, the following limitations are presented:
•
As the case was chosen academically, the study is limited to two companies
within the digital media player market.
76
•
The major limitation of this research is that any findings are only applicable to
the case presented.
5.6 Recommendations
Based on the results achieved in this research, the following recommendations are
presented.
5.6.1 Recommendations for future research
•
A comparative study should be done using the same methodology across
other markets and/or industries where businesses are dominating, resulting
from innovative service approaches.
•
Further study should be done using a multi case strategy such that findings of
this research can be statistically tested and generalised.
•
Empirical research is needed to test the product life cycle in contribution to the
debate around its validity and application as a decision making tool.
•
Empirical research is needed to test the validity of the product life cycle
concept as applied to the S-D logic approach.
•
Research is required to provide empirical evidence that the S-D logic
approach results in high performance business.
•
Further empirical research is needed to test and broaden the conceptual
model presented in this research.
77
5.6.2 Recommendations based on the literature review
•
The researcher observed that many terms for servicisation exist in literature. It
is recommended that academics and academic writers standardise on one
definition.
•
The researcher observed that both service and services are used to mean
the same. Standardising on the S-D logic would require academics and
academic writers to use these terms according to the S-D logic definition.
•
The S-D logic proposes collaboration between co-creators and is a process
that is actively being used to broaden and clarify its definition. It is
recommended that academics and academic writers observe this dialogue and
apply the principle of co-creation to all fields of knowledge.
•
More literature is required to clarify the applicability of the S-D paradigm in
sub-fields of marketing.
•
More literature is needed on the application of service literature rather than
services literature.
•
The product life cycle must be broadened to include service and services and
its application thereof to business strategy.
78
5.7 Summary
This research report was aimed at understanding how servicisation can be utilised to
increase the product life cycle of high technological goods.
The primary objectives and secondary objectives were achieved. The results in this
study thus adds value to the body of knowledge of marketing in general but
specifically adds value to the emerging S-D logic paradigm as well as broadening the
product life cycle to include the concepts of service and services.
79
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