Experience and Word-of-Mouth—Breaking the Servitization Paradox from the Perspective of Matching Hidden Demands

Abstract

Manufacturing firms may lose profits after a servitization transition due to a mismatch between service offerings and demand, causing them to fall into the servitization paradox. The purpose of this paper is to address the reality of the mismatch between the heterogeneous needs of consumers and the levels of services provided by firms. This paper constructs a two-stage game model and proposes a servitization pricing strategy based on consumers’ willingness to pay. The results show that a premium pricing strategy yields optimal profits; a value-for-money pricing strategy is preferred only when consumers’ willingness to pay is extremely high. Further, we propose to optimize the level of demand matching by matching hidden demand. Considering the characteristics of services, this paper proposes programs based on experience and word-of-mouth marketing to achieve hidden demand matching. It was verified that based on Nash equilibria, the level of supply–demand matching and the profit of firms were improved. In practice, this research provides firms with guidance on servitization pricing strategies and offers a reference path to break the servitization paradox.