Pricing service maintenance contracts using predictive analytics
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Publication:2029372
Abstract: As more manufacturers shift their focus from selling products to end solutions, full-service maintenance contracts gain traction in the business world. These contracts cover all maintenance related costs during a predetermined horizon in exchange for a fixed service fee and relieve customers from uncertain maintenance costs. To guarantee profitability, the service fees should at least cover the expected costs during the contract horizon. As these expected costs may depend on several machine-dependent characteristics, e.g. operational environment, the service fees should also be differentiated based on these characteristics. If not, customers that are less prone to high maintenance costs will not buy into or renege on the contract. The latter can lead to adverse selection and leave the service provider with a maintenance-heavy portfolio, which may be detrimental to the profitability of the service contracts. We contribute to the literature with a data-driven tariff plan based on the calibration of predictive models that take into account the different machine profiles. This conveys to the service provider which machine profiles should be attracted at which price. We demonstrate the advantage of a differentiated tariff plan and show how it better protects against adverse selection.
Recommendations
- Pricing of full-service repair contracts
- Optimizing maintenance service contracts through mechanism design theory
- Network and contract optimization for maintenance services with remanufacturing
- Modelling and analysis of maintenance service contracts
- Optimal pricing policies for services with consideration of facility maintenance costs
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Cited in
(10)- Pricing of full-service repair contracts
- Empirical risk assessment of maintenance costs under full-service contracts
- Information acquisition for service contract quotations made by repair shops
- Optimizing predictive precision in imbalanced datasets for actionable revenue change prediction
- Evolutionary behaviors regarding pricing and payment-convenience strategies with uncertain risk
- Optimizing maintenance service contracts through mechanism design theory
- Optimal pricing policies for services with consideration of facility maintenance costs
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