When and why do customer solutions pay off in business markets?
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Manufacturers invest in customer solutions to differentiate their offerings and sustain profitability despite declining margins from goods sales. Notwithstanding strong managerial and academic interest, an examination of whether and explanations for when and why solutions translate into superior performance are lacking. We test hypotheses developed from the resource-based theory and transaction cost economics, supplemented with in-depth theory-in-use interviews, on primary and secondary data collected from 175 manufacturers. From a model that corrects for endogeneity, the findings suggest that, compared with other service offerings, solutions are associated with increased return on sales. This positive profitability effect is enhanced in firms with greater sales capabilities; it is stronger in industries with greater buyer power but weaker in technology-intensive industries. These results caution against the simplistic view of solutions as a universal route to gaining competitive advantage and aid in better identifying the role of solutions in a manufacturer’s offering portfolio.
KeywordsCustomer solutions B2B services B2B marketing Firm performance Return on sales Differentiation
The authors would like to thank Son K. Lam and Kapil Tuli for their insightful and constructive comments on a previous version of this manuscript. They would also like to thank the editor-in-chief, AE, and three anonymous reviewers for their constructive feedback. The authors acknowledge financial support by HEC Foundation. Aleksandra Chabanova, Mehdi Nezami, Nimish Rustagi, and Shiva Taghavi provided research assistance.
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