Aalto University

Executive Education

Service Management
Online Course
Chapter 5: B2B Services
Chapter 5: B2B Services
Topic Content Readings
5.1 Customer value • Defining Customer Value Rust, R. T., Moorman, C., and G. Bhalla (2010),
“Rethinking Marketing,” Harvard Business Review, 88
• Customer Value Waterfall (1/2), 94-101.

5.2 Hybrid Offerings • Defining Hybrid Offerings Ulaga, Wolfgang and Werner J. Reinartz (2011), “Hybrid
Offerings: How Manufacturing Firms Combine Goods and
• Variants of Hybrid Offerings Services Successfully,” Journal of Marketing, 75 (6), 5-
23.
• Resources and Capabilities for Designing Hybrid Offerings

5.3 Customer Centricity • Elements of Customer Centricity Shah, Denish, Roland T. Rust, A. Parasuraman, Richard
Staelin, and George S. Day (2006), “The Path to
• Product vs. Customer Centricity Customer Centricity,” Journal of Service Research, 9 (2),
113-124. (skim through).

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Chapter 5: B2B Services
Content

5.1 Customer Value

5.2 Hybrid Offerings
5.3 Customer Centricity
5.3 Take-aways

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Chapter 5: B2B Services
Learning Goals

LG 5.1 To learn about the elements of the customer value waterfall.

LG 5.2 To understand the nature of various forms of hybrid offerings.

LG 5.3 To differentiate customer centricity from product centricity.

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Customer Value

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Defining Customer Value

“One of the most important tasks in marketing is to create and communicate

value to customers to drive their satisfaction, loyalty, and profitability. It truly is

at the heart of what marketing is all about” (Marketing Science Institute 2014).

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Defining Customer Value

Google Scholar: 3,100,000 search results for the term”customer value”

Competitive
advantage

Customer
satisfaction

Services
https://scholar.google.fi/scholar?hl=en&as_sdt=0%
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Defining Customer Value

Customer value = customer benefits – customer costs

“Perceived customer value of an offering is the aggregation of benefits that the customer is

seeking, expecting, or experiencing and the undesired consequences that come with them” (Gutman
1982).

“Customer value is the “customers’ net valuation of the perceived benefits accrued from an

offering that is based on the costs they are willing to give up for the needs they are seeking

to satisfy (Kumar and Reinartz 2016, p. 37).”

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The Customer Value Waterfall
Customer Positive attitude
Value

Customer Loyalty
Satisfaction

Customer Cash Flow

Retention Constructed based
”Customer Value on Anderson and
Mittal (2000);
Waterfall” Hogreve et al.
(2017); Kamakura
and Wagner (2002);
Customer Ravald and
Lifetime Value Grönroos (1996);
Sasser et al. (1997)

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Customer Value and Company Mission Statements

“Out of the 30 Dow Jones (United States) and 30 DAX (Germany) companies,

50% of the companies’ vision or mission statements explicitly mention the notion

of value creation for customers and/or stakeholders” (Kumar and Reinartz 2016, p. 37).

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Creating Customer Value

Customer value = customer benefits – customer costs

Differentiation based on superior benefits Cost leadership

“Customers do not buy goods or services, they buy the
benefits goods and services provide them with.
(…) value is created in customers’ value-generating
processes, when individual consumers or industrial users
make use of the solution or package they have
purchased” (Grönroos 2000, p. 3) .
“The cost leadership strategy aims at efficiency of
operations in order to achieve the most favorable cost
position within an industry.
(…) Such a position allows the company greater flexibility
in terms of pricing”
(Homburg et al. 2013, p. 72).

Cost-effective service excellence (Wirtz and Zeithaml 2017):

(…) delivering simultaneously high levels of customer satisfaction and high levels of productivity
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Variants of Hybrid Offerings

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Relevance and Definition of Hybrid Offerings

“Traditional manufacturers have moved into service and customer solution fields to
solidify their positions in increasingly competitive markets and grow their revenues
and margins, leading to the well-documented shift from a goods-dominant to a
service-dominant logic in business markets.” (Ulaga and Reinartz 2011, p. 17)

“In the past decade, service sales have grown at more than twice the rate of
manufacturing in the European Union (2006–2015: 21% vs. 9%).” (Worm et al. 2017, p. 490;
http://ec.europa.eu)

“Hybrid solutions are products and services combined into innovative offerings”.
(Shankar et al. 2009, p. 95)

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Four Variants of Hybrid Offerings

Service recipient
Value proposition Service oriented towards the
customer’s goods
1. Product Life-Cycle Services:
Supplier’s promise to perform Services to facilitate customer
an activity access to the supplier’s good and
to ensure its proper functioning
(input-oriented)
during all stages of the life cycle.
2. Asset Efficiency Services:
Supplier’s promise to achieve Services to achieve productivity
a goal gains from assets invested by
customers.
(output-oriented)
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Service oriented towards the
customer’s processes
3. Process Support Services:
Services to assist customers in
improving their own business
processes.
4. Process Delegation Services:
Services to perform processes on
behalf of the customers.
Ulaga and Reinartz (2011), p. 17
B2B Services
Four Variants of Hybrid Offerings
Service recipient
Value proposition Service oriented towards the
customer’s goods
1. Product Life-Cycle Services:
• Inspection of an ATM machine
Supplier’s promise to perform
• Regrooving of an industrial tire
an activity • Recycling of a power transformer
(input-oriented)
2. Asset Efficiency Services:
• Remote monitoring of a jet engine
Supplier’s promise to achieve
• Welding robot software
a goal customization
(output-oriented)
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Service oriented towards the
customer’s processes
3. Process Support Services:
• Energy efficiency audit for a
commercial building
• Logistics consulting for material-
handling processes in a warehouse
4. Process Delegation Services:
• Tire fleet management on behalf of a
trucking company
• Paint finishing of a chemical
company at a car manufacturer’s
production plant
Ulaga and Reinartz (2011), p. 17
B2B Services

Hybrid Offerings – A Resource and

Capability Perspective

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Hybrid Offerings – Resources and Capabilities
Unique resources Distinctive
capabilities
Installed base Service-related
product usage data processing
and process and interpretation
data capability
Execution risk Differentiation
assessment and
Product mitigation advantage
development and capability
manufacturing
assets
Design-to-service
capability
Product sales Cost
force and
distribution leadership
network Hybrid offering advantage
sales capability

Field service Hybrid offering

organization deployment
capability
Ulaga and Reinartz (2011), p. 17
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B2B Services
Hybrid Offerings – Unique Resources
Unique Resources
Installed base product usage
and process data
Product development and
manufacturing assets
Product sales force and
distribution network
Field service organization
Definition Example
The stock of product usage and customer process Forklift truck downtime
data collected through a firm’s installed base of goods data.
and/or used in customers’ operations.
The stock of resources invested in a firm’s R&D and Patented tire casing.
manufacturing infrastructure. Product development
and manufacturing assets are of tangible and
intangible nature.
The stock of resources tied in a firm’s direct sales Direct sales force of 600
organization and channel intermediaries to cover its power tools sales reps.
sales territory.
The stock of resources allocated to a network of Network of 110 field
specialized technicians aimed at deploying and technicians servicing offset-
servicing the firm’s installed base. printing presses.
© Aalto University Executive Education Ulaga and Reinartz (2011), p. 16
B2B Services
Hybrid Offerings – Distinct Capabilities
Distinctive Definition Example Resource
Capabilities Base
Service-related data The manufacturer’s capacity to analyze and Analysis of energy consumption Installed base
processing and interpret installed base product usage and in commercial buildings based on product usage and
interpretation process data to help customers achieve data collected from electricity process data
productivity gains and/or cost reductions. meters.
capability
Execution risk The manufacturer’s capacity to evaluate the Percentage of correctly operating Installed base
assessment and uncertainty whether contractually agreed-upon video screens for inflight product usage and
mitigation capability outcomes will be realized and to design and entertainment systems in process data
implement safeguarding mechanisms to meet commercial aircrafts.
performance commitments while maintaining
internal profit targets.
Design-to-service The manufacturer’s capacity to integrate tangible Reengineering of a laser printer Product
capability and intangible offering elements synergistically to to reduce potential failures and development and
tap its potential for new revenue generation decrease unscheduled manufacturing
and/or cost reduction. maintenance. assets

© Aalto University Executive Education Ulaga and Reinartz (2011), p. 16

B2B Services
Hybrid Offerings – Distinct Capabilities
Distinctive Definition Example Resource
Capabilities Base
Hybrid offering sales The manufacturer’s capacity to reach key Dedicated sales force recruited, Product sales force
capability decision makers in the customer organization, trained, and incentivized to sell and
coordinate key contacts in the customer and “tons of iron are transported” distribution network
vendor firms, sell value based on specific instead of promoting “heavy-duty
documentation and communication tools, and mining equipment.”
align its sales force with the field organization
and channel partners to grow revenues.
Hybrid offering The manufacturer’s capacity to rely on flexible Configuration of six different Product
deployment platforms that allow for standardizing production printer maintenance packages to development
capability and delivery processes while safeguarding its cover the needs of retail banking and manufacturing
ability to adapt to individual customers’ needs. customers. and
assets field service
organization

© Aalto University Executive Education Ulaga and Reinartz (2011), p. 16

B2B Services

Variants of Hybrid Offerings and the

Respective Resources and
Capabilities

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B2B Services
Four Variants of Hybrid Offerings
Customer
Value proposition Service oriented towards the Service oriented towards the
customer’s goods customer’s processes
Product Life-Cycle Services: Process Support Services:
• Primary Distinctive Capabilities • Primary Distinctive Capabilities
Supplier’s promise to perform • Hybrid offering deployment capability • …
• Design-to-service capability • Main Underlying Resources
an activity • Main Underlying Resources • …
(input-oriented) • Field service organization
• Product development and manufacturing
assets
Asset Efficiency Services: Process Delegation Services:
• Primary Distinctive Capabilities • Primary Distinctive Capabilities
Supplier’s promise to achieve • … • …
• Main Underlying Resources • Main Underlying Resources
a goal • … • …
(output-oriented)
© Aalto University Executive Education Ulaga and Reinartz (2011), p. 17
 B2B Services
Four Variants of Hybrid Offerings
Customer
Value proposition Service oriented towards the Service oriented towards the
customer’s goods customer’s processes
Supplier’s promise to perform Product Life-Cycle Services:
• Primary Distinctive Capabilities
Process Support Services:
• Primary Distinctive Capabilities
an activity • … • …
• Main Underlying Resources • Main Underlying Resources
(input-oriented) • … • …
Asset Efficiency Services: Process Delegation Services:
• Primary Distinctive Capabilities • Primary Distinctive Capabilities
Supplier’s promise to achieve a • Service-related data processing and • …
interpretation capability • Main Underlying Resources
goal • Execution risk assessment and mitigation • …
(output-oriented) capabilities
• Hybrid offering sales capabilities
• Main Underlying Resources
• Installed base product usage and process data
• Product development and manufacturing assets

© Aalto University Executive Education Ulaga and Reinartz (2011), p. 17

B2B Services
Four Variants of Hybrid Offerings
Customer
Value proposition Service oriented towards the Service oriented towards the
customer’s goods customer’s processes
Product Life-Cycle Services: Process Support Services:
• Primary Distinctive Capabilities • Primary Distinctive Capabilities
Supplier’s promise to perform • … • Service-related data processing and
• Main Underlying Resources interpretation capability
an activity • … • Hybrid offering deployment and sales
(input-oriented) capability
• Main Underlying Resources
• Installed base product usage and process data
• Field service organization
• Product sales force and distribution network
Asset Efficiency Services: Process Delegation Services:
• Primary Distinctive Capabilities • Primary Distinctive Capabilities
Supplier’s promise to achieve • … • …
• Main Underlying Resources • Main Underlying Resources
a goal • … • …
(output-oriented)
© Aalto University Executive Education Ulaga and Reinartz (2011), p. 17
B2B Services
Four Variants of Hybrid Offerings
Customer
Value proposition Service oriented towards Service oriented towards the
the customer’s goods customer’s processes
Supplier’s promise to perform Product Life-Cycle Services:
• Primary Distinctive Capabilities
Process Support Services:
• Primary Distinctive Capabilities
an activity • … • …
• Main Underlying Resources • Main Underlying Resources
(input-oriented) • … • …
Asset Efficiency Services: Process Delegation Services:
• Primary Distinctive Capabilities • Primary Distinctive Capabilities
Supplier’s promise to achieve • … • Service-related data processing and interpretation
a goal • Main Underlying Resources capability
• … • Execution risk assessment and mitigation capab.
(output-oriented) • Design-to-service capability
• Hybrid offering deployment and sales capability
• Main Underlying Resources
• Installed base product usage and process data
• Product development and manufacturing assets
• Product sales force and distribution network
• Field service organization
© Aalto University Executive Education Ulaga and Reinartz (2011), p. 17
B2B Services

Customer Centricity

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Customer Centricity
Meeting/Exceeding
Customer Expectations
Centricity Bang
for the
Service Buck
Quality

Customer Attitude
Value

Customer Relationship
Satisfaction
Adapted based on
Cash Anderson and
Customer Flow Mittal (2000);
”Customer Centricity Retention
Hogreve et al.
(2017); Kamakura
Waterfall” and Wagner
(2002); Ravald
Customer and Grönroos
(1996); Sasser et
Lifetime Value al. (1997)
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B2B Services
Defining Customer Centricity

The definitions of customer centricity in the literature generally endorse the following
aspects:

(1) Customer in the focus: Customer centricity represents the opposite of product
centricity
(2) Customer intelligence: “Customer centricity encompasses (…) the idea of customer
orientation”
(3) Customer integration: “… affirming the need of a customer integration, that is, the
shift from understanding customer wants and translating them into suited products to
actively engaging customer competences in companies’ decision making (i.e., co-
creation).”

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B2B Services
Defining Customer Centricity

The definitions of customer centricity in the literature generally endorse the following
aspects (continued):

(4) Superior service quality: Customer centricity highlights customers value creation
and that the company’s resources are activated to develop real problem solutions for the
customer.
(5) Superior service experience: Customer centricity says “(…) that customer
satisfaction is the goal of a firm.”
(6) Customer equity: “The true essence of the customer centricity paradigm lies (…)
creating value for the customer and, in the process, creating value for the firm (…).”

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Product vs. Customer Centricity
Criteria Product-Centric Approach Customer-Centric Approach

Basic philosophy Sell products; we'll sell to whoever will buy Serve customers; all decisions start with the
customer and opportunities for advantage
Business orientation Transaction-oriented Relationship-oriented

Product positioning Highlight product features and advantages
Organizational structure Product profit centers and product managers
Management criteria Portfolio of products
Organizational focus Internally focused, new product development,
new account development, market share
growth; customer relations are issues for the
marketing department
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Highlight product's benefits in terms of
meeting individual customer needs
Customer segment centers and customer
relationship managers
Portfolio of customers
Externally focused, customer relationship
development, profitability through customer
loyalty; employees are customer advocates
Shah et al. (2008), p. 115.
B2B Services
Product vs. Customer Centricity
Criteria Product-Centric Approach Customer-Centric Approach

Performance metrics Number of new products, profitability per
product, market share by product/subbrands
Selling approach How many customers can we sell this product
to?
Customer knowledge Customer data are a control mechanism
In an insurance company, the story of a sales
person is admired who very successfully sold
Narratives
highly profitable policies to customers that did
not meet customers’ needs.
Share of wallet of customers, customer
satisfaction, customer lifetime value,
customer equity
How many products can we sell this
customer?
Customer knowledge is a valuable asset
In a machinery construction company, stories
are told about a top manager, who drove
spare parts to a customer during the week-
end, when a service technician fell ill.

© Aalto University Executive Education Homburg et al. (2013), p. 560; Shah et al. (2008), p. 115.
B2B Services

Take-aways

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Take-aways

Customer value represents an important pre-economic success factor that enhances customer
LG 5.1 satisfaction and retention, ultimately contributing to a customer’s lifetime value.

Depending on the value proposition (input vs. output) and a services orientation (product vs
LG 5.2 process), four variants of hybrid offerings exist: product life-cycle services, asset efficiency
services, process support services, and process delegation services.

Customer-centric companies foster a learning-oriented culture, develop horizontal organization

LG 5.3 forms, emphasize processes to build and maintain lasting customer relationships, and include
customer-oriented metrics in their control systems.

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