Abstract: Coproductive services involve the active participation of customers by exerting physical/mental effort as a part of the service process to co-create value. While the demand for coproduction models is surging, there are complaints about customer experience and service system design. Owing to these dissatisfaction issues, providers are now shifting away from self-service models, towards the notion of smart service; where service tasks are efficiently divided between the provider and the customer. This study addresses the business problem of the configuration and pricing of such a smart coproduction service channel targeted at a segment within an incumbent provider's captive customer base. We analyze the relative preference of the popular uniform pricing policy against a new proposed policy that accounts for the strategic behaviour of customers. This study uses a suite of analytical modelling tools to address this problem. We analyze the applicability of the alternate pricing regimes when providers are pursuing certain prevalent marketing strategies. We also analyze the influence of relative co-creation productivity between the provider and customer on the choice of pricing regime. We find that the popularity of the uniform pricing model can be explained with its simplicity in configuration and applicability. On the other hand, we find that the proposed strategic pricing regime not only induces customers to adopt coproduction channels but also enables providers to charge a price premium where possible. Furthermore, our analysis explains several observations in practice w.r.t. uptake and proliferation of coproduction channels. We also present useful guidelines to managers for configuring and pricing coproduction service channels.

Authors’ Names: B Mahadevan and Sivakumar

Journal Name: European Journal of Operational Research

URL: https://www.sciencedirect.com/science/article/pii/S0377221721000710