On 31 August 2021, Laurens Deprez will defend his PhD thesis Pricing full-service maintenance contracts. This thesis has been supervised by Prof. dr. Robert Boute and Prof. dr. Katrien Antonio. The ceremony will take place in Stuk (02.C004),  Naamsestraat 96, Leuven at 15:30.

Abstract

Manufacturers focus their attention to providing after-sales solutions to their customers instead of only selling products. After-sales service is a promising additional source of revenue. It is, however, challenging to be successful in the after-market. One of the main challenges is setting adequate prices for the service solutions in order to guarantee profitability of the service business.

In this dissertation, we study the price setting of full-service maintenance contracts. This is a popular service solution, especially in an industrial setting. These contracts cover all maintenance and failure costs during a predetermined horizon in exchange for a fixed, upfront service fee. Consequently, these contracts act as an insurance against maintenance and failure costs for the covered asset. Making use of insights of insurance pricing, we propose a break-even price setting method that takes into account the influence of machine and customer characteristics, which determine the machine profile, on the expected maintenance costs covered by the contract. Examples of these characteristics are type of machine, age of the equipment, service history, usage intensity, etc. Our pricing scheme allows for price differentiation between maintenance-heavy machine profiles, i.e. machines with higher maintenance costs, and maintenance-light machine profiles, i.e. machines with lower maintenance costs. Therefore, the charged service fee is in line with the expected costs for each machine profile and consequently the pricing method protects against adverse selection. Furthermore, this pricing scheme offers a solid foundation for commercial price setting when adding the appropriate loadings, e.g. risk margin, profit margins and expenses. To further optimize the costs covered by the contracts, we propose a preventive maintenance policy, adapted to full-service maintenance contracts, that differentiates the number of preventive maintenance interventions over the different machine profiles. This leads to lower maintenance costs and provides the opportunity for either higher profits or more competitively priced maintenance contracts.