Pricing and Profitability of Global Maintenance Service

Nowadays, very few of the machine manufacturers offer only machines to the customer but rather tries to offer different sorts of services to them as spare parts and maintenance. Furthermore, the literature has examined the shift of machine manufacturers to service providers and has given suggestions on management of the servitization. However, literature does not include that much research about the pricing of machine manufacturers’ service business. Thus, many manufacturers use only cost-based pricing to their maintenance work and do not take the customer perceived value into account. In addition to this, the global environment makes the pricing situation even more complex because different markets have different characteristics that have an impact on pricing. Therefore, the study brings a new viewpoint to the literature of the manufacturers’ service business by adding a pricing point of view to it. Furthermore, the study expands the literature on the value-based pricing and pricing process towards the industrial service business. This thesis is based on the case study, which is done to the large global machine manufacturer’s maintenance pricing, which does not include the maintenance contracts. The idea of the thesis was to investigate how to systematize the pricing of the hourly-based maintenance work by analyzing the pricing situation with the pricing process provided by literature and building the pricing model, which takes all the related factors into account. The topic was approached by creating a pre-understanding of the literature and the case company. The actual empirical study included both quantitative and qualitative analyses in terms of the theory given by the literature. The study finds out that the market characteristics and the pricing determinants, which are customer perceived value and costs, are the main factors, which affect the selection of the pricing model. Market characteristics as competition and customer characteristics have an impact on the objectives of pricing and pricing strategies, which together define the business model. The business model, in turn, defines how the manufacturer wants to pursue the whole maintenance business, which affects the price structure. Although that exact customer perceived value is difficult to define, this can be used to form the pricing structure, which depends on the complexity of the work and urgency of the need. In addition, the costs determine how much the manufacturer has to get from the customer at least, so it has an impact on the pricing policy. The pricing model should lead to the desired direction so that the manufacturer can obtain their objectives. The pricing structure should be based on different works rather than different customers and should have different price levels for preventive and corrective maintenance as the corrective maintenance generates more value to the customer. In addition, the structure should have higher prices for urgent work and overtime because the customer values those when they have a need. Although the pricing model is value-based, it can use the gross margin to reflect the value differences. Furthermore, the model should work as a framework for local units and allow discounts for good reasons, so that the prices are based on local needs and have the flexibility to obtain long-term profitability