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

TY - JOUR

T1 - Pricing Structures for Solutions

T2 - An Exploratory Study within the Oil and Gas Industry

AU - Frandsen, Thomas

AU - Boa, Sofie Østergaard

AU - Raja, Jawwad

N1 - Published online: 31 Jan 2019

PY - 2019/11

Y1 - 2019/11

N2 - 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.

AB - 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.

KW - Solutions

KW - Pricing

KW - Value-based pricing

KW - Condition-based maintenance

KW - Buyer–supplier relationship

KW - Solutions

KW - Pricing

KW - Value-based pricing

KW - Condition-based maintenance

KW - Buyer–supplier relationship

UR - https://sfx-45cbs.hosted.exlibrisgroup.com/45cbs?url_ver=Z39.88-2004&url_ctx_fmt=info:ofi/fmt:kev:mtx:ctx&ctx_enc=info:ofi/enc:UTF-8&ctx_ver=Z39.88-2004&rfr_id=info:sid/sfxit.com:azlist&sfx.ignore_date_threshold=1&rft.object_id=954925264203&rft.object_portfolio_id=&svc.holdings=yes&svc.fulltext=yes

U2 - 10.1080/00207543.2019.1572933

DO - 10.1080/00207543.2019.1572933

M3 - Journal article

VL - 57

SP - 6977

EP - 6992

JO - International Journal of Production Research

JF - International Journal of Production Research

SN - 0020-7543

IS - 22

ER -