Behavior-Dependent Pricing: An IoT-Enabled Pricing Model Under Servicizing

The benefits of the servicizing business model, in which a firm sells the use or functionality of a product rather than the product itself, extend beyond attracting new customers and driving economic growth. Aligned with circular economy principles, servicizing promotes sustainability by encouraging firms to enhance product durability and customers to be more mindful of their amount of usage. However, the lack of product ownership may lead to product misuse, negatively affecting both economic and environmental outcomes. This study addresses product misuse as a major risk to servicizing firms’ performance and investigates whether, and under what conditions, adopting Behavior-Dependent Pricing (BDP) can mitigate this risk. Leveraging digital technologies such as the Internet of Things (IoT), we develop a BDP model in which a firm monitors customers’ usage behavior and provides monetary incentives for more sustainable use. We identify conditions under which BDP leads to a win–win–win outcome by increasing firm profits, enhancing customer utility, and reducing environmental impacts. This study provides firms with insights on how and when servicizing can be less vulnerable to product misuse risk that could undermine profitability, thereby encouraging adoption of the servicizing business model and generating economic and environmental benefits.