Several auto manufacturers have recently introduced car sharing programs. Although the structure of most programs is the same, there is no clear dominant strategy for the type of vehicles that should be provided through car sharing. In this paper, we consider an original equipment manufacturer (OEM) that contemplates car sharing and designs its product line by accounting for the trade-off between driving performance and fuel efficiency under CAFE standards. Customers have different valuations of driving performance and decide whether to buy, join car sharing or rely on their outside options. We find that the OEM increases the fuel efficiency of the vehicles it provides through car sharing. This higher efficiency enables the OEM to charge a higher selling price to the higher end of the market, thus increasing its profit. This is especially beneficial to higher-end OEMs that face greater cannibalization and can explain why Daimler and BMW have been particularly active in introducing car sharing. Offering car sharing is not always environmentally beneficial. Even when it is, we find that doing so may reduce the OEM’s Corporate Average Fuel Economy (CAFE) level. In such cases, incentive multipliers should be granted for each shared car. Finally, if anticipating aggressive CAFE standards, OEMs may introduce car sharing to better absorb the increase in the production cost. The online appendix is available at https://doi.org/10.1287/msom.2016.0605 .

It has been argued that servicizing business models, under which a firm sells the use of a product rather than the product itself, are environmentally beneficial. The main arguments are as follow. First, under servicizing the firm charges customers based on the product usage. Second, the quantity of products required to meet customer needs may be smaller because the firm may be able to pool customer needs. Third, the firm may have an incentive to offer products with higher efficiency. Motivated by these arguments, we investigate the economic and environmental potential of servicizing business models. We endogenize the firm’s choice between a pure sales model, a pure servicizing model, and a hybrid model with both sales and servicizing options; the pricing decisions; and the resulting customer usage. We consider two extremes of pooling efficacy, i.e., no pooling versus strong pooling. We find that under no pooling servicizing leads to higher environmental impact due to production but lower environmental impact due to use. In contrast, under strong pooling, when a hybrid business model is more profitable, it is also environmentally superior. However, a pure servicizing model is environmentally inferior for high production costs because it leads to a larger production quantity even under strong pooling. We also examine the product efficiency choice and find that the firm offers higher efficiency products only under servicizing models with strong pooling. This paper was accepted by Serguei Netessine, operations management.

No abstract

W hat do a Mongolian stir-fry restaurant and a medical lab providing home testing solutions have in common? They are both innovative services that base their success on customers controlling part of the service delivery. These providers allow service tasks to be performed by the customers as a means of shaping the overall experience and not strictly as a means of "outsourcing" the service. Motivated by such practices, we explore whether and how should providers allocate the control of different tasks of their service to the customers. We model services as multistep processes with each step affecting customers' experience at other steps. At certain steps the provider may hold an "expert" role and be more capable of performing than the customers, whereas at other steps she may hold an "administrative" role and be less capable of performing than the customers. We distinguish between routine services, where the service outcome must conform to standardized specifications, and non-routine services, where the value of the service outcome relies on subjective dimensions. We show that the optimal design is determined by an economically intuitive rule whereby the provider controls the steps based on the marginal benefit she can derive compared to self-service. For routine services, this rule translates to managing "blocks" of steps because the provider benefits from containing the volatility of the experiences across the service even when this implies the provision of service steps with a negative marginal benefit, that is, steps which she is less capable of performing than the customers. Instead, in non-routine services providers should focus on the value advantage they can ensure through a "core provision" even if this implies forgoing control of steps for which they are more capable of performing than the customers and from which they can derive positive marginal benefit. This implies that in non-routine services the provider exercises more control up to a certain process length; beyond that she delegates more steps to the customers. When customers differ in their abilities to perform the different steps, the provider may offer a service line. Service lines facilitate better segmentation than a single service offering, but their economic benefit exhibits an inverted "U-shaped" relationship with respect to the number of steps that a service comprises. Finally, we find that competition between two providers who differ in their capabilities to perform a service results in service design differentiation where the more capable provider offers a higher-end "focused service" against a lower-end "super-service" offered from the less capable provider.

No abstract