Designing profitable joint product-service channels: case study on tablet and eBook markets

Abstract

Consumers' choice of services and the product platforms that deliver them, such as apps and mobile devices, or eBooks and eReaders, are becoming inextricably interrelated. Market viability demands that product-service combinations be compatible across multiple producers and service channels, and that the producers' profitability must include both service and product design. Some services may be delivered contractually or physically, through a wider range of products than others. Thus, optimization of producers' contingent products, services, and channel decisions becomes a combined decision problem. This article examines three common product-service design scenarios: exclusive, non-exclusive asymmetric, and non-exclusive symmetric. An enterprise-wide decision framework has been proposed to optimize integrated services and products for each scenario. Optimization results provide guidelines for strategies that are mutually profitable for partner-competitor firms. The article examines an example of an eBook service and tablet, with market-level information from four firms (Amazon, Apple, Barnes & Noble, and Google) and conjoint-based product-service choice data to illustrate the proposed framework using a scalable sequential optimization algorithm. The results suggest that firms in market equilibrium can markedly differ in the services they seek to provide via other firms' products and demonstrate the interrelationship among marketing, services, and product design.