Service Innovation: Obstacles to Implementing the Total Cost of Ownership Concept

Abstract

Firms recently face considerable challenges caused by a rather pervasive trend of globalizing economic transactions. Confronted with this challenge, firms are forced to develop and sustain competitive advantages in particular by proactive moves of service innovations to secure their market survival. Against this background, we focus a particular kind of innovative service concepts: the total cost of ownership (TCO) approach in business-to-business settings. Due to complexity and newness of our research topic, we employ a primarily conceptual procedure to analyze how the market-driven necessity to offer complex and extensive, customized service solutions forces firms to develop unique service capabilities like TCO to enrich and ‘hybridize’ their product portfolio. Our paper advances to business research in three main ways: first we highlight, building on competence-based thinking and service-dominant logic (SDL), the challenge of firms to implement innovative blends of products and services – an aspect that is still rather understated in literature. Second, we analyze consequences of demand-side cognitive biases on complex buying-decisions. Third, we provide evidence that these demand-side biases are relevant to decision-making and therefore should be considered by suppliers in designing their offerings.