Pricing Structures for Solutions: An Exploratory Study within the Oil and Gas Industry

Thomas Frandsen, Sofie Østergaard Boa, Jawwad Raja

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

A growing number of companies have begun to realise the potential for differentiating their product offerings by integrating services to provide customised solutions. Although there is now an extensive and growing literature on this trend, researchers have only recently begun to consider the pricing structures for such solutions. To address this shortcoming, the present study adopts an exploratory case-based approach to investigate a buyer (drilling contractor) and two suppliers of offshore capital equipment, each of whom provides condition-based maintenance solutions for offshore drilling units in the upstream oil and gas industry. The findings of the study identify a number of underlying mechanisms for solution offerings (i.e. innovativeness, benchmarking alternatives, measurability, replicability and operational risk) that are important considerations in the process of determining appropriate pricing structures based on the buyer’s business model, procurement practices and maintenance strategy vis-à-vis the supplier’s capabilities and the buyer–supplier relationship. The present study contributes to the literature by providing empirical evidence on and insight into the complexity of determining the pricing structure for solution offerings from the perspective of the supplier as well as the buyer.
A growing number of companies have begun to realise the potential for differentiating their product offerings by integrating services to provide customised solutions. Although there is now an extensive and growing literature on this trend, researchers have only recently begun to consider the pricing structures for such solutions. To address this shortcoming, the present study adopts an exploratory case-based approach to investigate a buyer (drilling contractor) and two suppliers of offshore capital equipment, each of whom provides condition-based maintenance solutions for offshore drilling units in the upstream oil and gas industry. The findings of the study identify a number of underlying mechanisms for solution offerings (i.e. innovativeness, benchmarking alternatives, measurability, replicability and operational risk) that are important considerations in the process of determining appropriate pricing structures based on the buyer’s business model, procurement practices and maintenance strategy vis-à-vis the supplier’s capabilities and the buyer–supplier relationship. The present study contributes to the literature by providing empirical evidence on and insight into the complexity of determining the pricing structure for solution offerings from the perspective of the supplier as well as the buyer.
LanguageEnglish
JournalInternational Journal of Production Research
Number of pages16
ISSN0020-7543
DOIs
StatePublished - 31 Jan 2019

Keywords

  • Solutions
  • Pricing
  • Value-based pricing
  • Condition-based maintenance
  • Buyer–supplier relationship

Cite this

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abstract = "A growing number of companies have begun to realise the potential for differentiating their product offerings by integrating services to provide customised solutions. Although there is now an extensive and growing literature on this trend, researchers have only recently begun to consider the pricing structures for such solutions. To address this shortcoming, the present study adopts an exploratory case-based approach to investigate a buyer (drilling contractor) and two suppliers of offshore capital equipment, each of whom provides condition-based maintenance solutions for offshore drilling units in the upstream oil and gas industry. The findings of the study identify a number of underlying mechanisms for solution offerings (i.e. innovativeness, benchmarking alternatives, measurability, replicability and operational risk) that are important considerations in the process of determining appropriate pricing structures based on the buyer’s business model, procurement practices and maintenance strategy vis-{\`a}-vis the supplier’s capabilities and the buyer–supplier relationship. The present study contributes to the literature by providing empirical evidence on and insight into the complexity of determining the pricing structure for solution offerings from the perspective of the supplier as well as the buyer.",
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Pricing Structures for Solutions : An Exploratory Study within the Oil and Gas Industry. / Frandsen, Thomas; Boa, Sofie Østergaard; Raja, Jawwad.

In: International Journal of Production Research, 31.01.2019.

Research output: Contribution to journalJournal articleResearchpeer-review

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