Servitization as a Strategy for Remanufacturing: An Experimental Study.

AutorTondolo, Vilmar Antonio Goncalves

INTRODUCTION

Green supply chain management (GSCM) has caught the attention of researchers and practitioners due to its importance to the environment and business strategy (Srivastava, 2007). Based on this interest and expansion of the concept, GCSM has been expanded to sustainable supply chain management (SSCM). Thus, SSCM encompasses not just the environmental dimension of sustainability, but also its economic and social dimensions (Carter, Hatton, Wu, & Chen, 2020; Fracarolli Nunes, Lee Park, & Paiva, 2020; Seuring & Muller, 2008).

The closed-loop supply chain (CLSC) is one of the central aspects of SSCM implementation (Tsai et al., 2021). CLSC encompasses the traditional forward flow of the supply chain with the reverse logistic flow (Govindan, Soleimani, & Kannan, 2015). Reverse logistics provides for the proper disposal of discarded goods, and recaptures at least part of the market value (Bouzon, Govindan, & Rodriguez, 2018; Hanafi, Kara, & Kaebernick, 2008). Thus, CLSC contributes to SSCM by reducing the environmental impact and achieving economic and social goals (Tsai et al., 2021).

Remanufacturing is one of the better-known operations in reverse logistics (Turki, Sauvey, & Rezg, 2018), and responsible for reducing environmental impact and for economic gains, with reductions in production costs and lower prices for consumers (Fu, Qiang, Ke, & Huang, 2021). Remanufacturing also has a relevant role to play in the circular economy (CE) (Jensen, Prendeville, Bocken, & Peck, 2019). In general, remanufacturing can offer a purchase option that is 20% to 60% less expensive than for a corresponding new product (Steinhilper, 2001) and is importantly recognized as having a cleaner production process (Liu, Shang, Ding, Guo, & Zhang, 2019).

Remanufacturing is increasing in several markets, including for automobile products (Chakraborty, Mondal, & Mukherjee, 2019). In this particular market, the increasing demand for electric automobiles has created a new environmental challenge: battery disposal. For example, Nissan has a specialist plant for recycled and remanufactured lithium-ion electric vehicles (EV) to meet growing demand (Loughran, 2018). According to the Global EV Outlook 2019, the US is the third largest EV market (International Energy Agency [IEA], 2019). At the same time, a remanufactured EV battery (REVB) is a less expensive option for replacing the battery used in EV cars (Evarts, 2018b).

Environmental threats, such as the disposal of used batteries, can be mitigated by reusing them for other purposes (Evarts, 2018a), although this does not solve issues related to the second-hand EV market, for example. A second-hand EV is an option for those who cannot afford a new one (EDF Energy, 2021). The second-hand EV market may be as much as three times larger than the market for new EVs (Pedrosa & Nobre, 2018).

One of the major issues of purchasing a second-hand EV is the condition of the battery, due to the price of replacing it with a new one (Gibson, 2020); this is one of the main barriers to purchasing a second-hand EV (Pedrosa & Nobre, 2018). Replacing the battery with a remanufactured one, therefore, can be a viable alternative in such cases (EDF Energy, 2021). This option contributes toward a sustainable agenda by reducing the disposal of materials, boosting the life cycle of EVs, and making them more affordable.

Price, however, is one of the main factors influencing decisions about purchasing remanufactured products (Liu, Diallo, Chen, & Zhang, 2019; Michaud & Llerena, 2011; Vafadarnikjoo, Mishra, Govindan, & Chalvatzis, 2018; Xu & Gong, 2016). Price difference may give consumers the perception that remanufactured products are lower in quality (Singhal, Tripathy, & Jena, 2019), but remanufacturing not only recovers a used or damaged product, it can also lead to substantial improvements in the product when it undergoes the remanufacturing process (Hartwell & Marco, 2016). In light of these considerations, servitization can help increase the perceived value and purchase intention of a remanufactured product.

For the purposes of this study, servitization means adopting a product service system (PSS) strategy into a remanufactured product (Opresnik & Taisch, 2015). In general, a servitization strategy offers opportunities for new business as well as improved competitiveness, including remanufacturing (Chalal, Boucher, & Marques, 2015; Khan, Mittal, West, & Wuest, 2018). Therefore, it is important to address whether moving from a strict remanufacturing offer to a broader offer that has a service focus has an influence on the likelihood of a consumer purchase. New service models for remanufactured products might be studied, for example, such as an extended warranty or leasing (Zhu, Li, Zhao, & Lun, 2016).

There is still a gap in the literature when we analyze the integration of servitization into the remanufacturing process. When the role of servitization is associated with remanufactured products, the effect can be a relevant issue for the future of electric automobiles. We expect servitization and remanufacturing to reduce the consumer perception that remanufactured products are of poor quality.

Based on this gap, our research question, therefore, is: How do price and servitization affect the likelihood of buying a remanufactured EV battery? Here we use the context of EV batteries to examine whether price affects the purchase likelihood of a remanufactured battery for an electric vehicle when companies adopt a servitization strategy and additional services are provided as part of the offer. Since perceived value and perceived risk play an important role in the purchasing decision, we also evaluate if servitization moderates the relationship between price and purchase likelihood when accounting for perceived value and perceived risk. To achieve our goal, we developed a 2 x 2, full factorial, between-subjects, scenario-based, role-playing experiment.

This is one of the first studies to empirically test the influence of servitization on remanufacturing. Our study also helps fill the gap in the literature by identifying under which conditions low price is not a significant predictor of the likelihood of purchasing a remanufactured EV battery. The results suggest that consumers are more likely to pay a higher price for remanufactured products when there is servitization. Our study also can help managers configure more valuable remanufacturing offers, which result in the promotion of economic, environmental, and social benefits.

The article is organized as follows: First, we present the theoretical framework, the hypotheses, and the model. Second, we present the methodological procedures. Third, we present the results. Fourth, we discuss the results and present the contributions and limitations. We conclude by summarizing the study.

THEORETICAL FRAMEWORK AND HYPOTHESIS DEVELOPMENT

Theoretical framework

Remanufacturing is a process whereby the condition of a used or discarded product is restored to its original state, or is even improved (Ijomah, 2009), and the warranty is the same or better than that of a new product (Hartwell & Marco, 2016). Remanufacturing can also be considered a production strategy (Jensen et al., 2019; Wang & Hazen, 2016) and a supply chain capability (Bag, Gupta, & Foropon, 2019). Due to resource recovery and reductions in transformation costs, remanufactured products can be offered in the market at lower prices (Ijomah, 2009).

One of the major concerns regarding remanufacturing is whether the quality of the product is as good as that of a new product. This perception of lower quality is partly due to its lower price (Singhal, Jena, & Tripathy, 2019), but also a lack of information about the quality of remanufactured products (Hazen, Boone, Wang, & Khor, 2017) and uncertainty with regard to after-sales service (Zhu et al., 2016). These characteristics demonstrate the uncertainty that surrounds the decision to buy a remanufactured product (Bittar, 2018; Liao, 2018).

In this study, we considered price as a key factor of purchase likelihood. We also understand that sensitization has a potential influence on the likelihood of purchasing a remanufactured product. Servitization can be understood as a strategy for creating value by adding services to products (Vandermerwe & Rada, 1988). For instance, additional services contribute to the consumers' choice of products (Liao, 2018), including remanufactured products (Zhu et al., 2016), since servitization has the potential to reduce the perception that remanufactured products are of inferior quality (Opresnik & Taisch, 2015). Therefore, both factors were manipulated in our experiment.

Figure 1 shows our conceptual model that examines the effect of price and service on the purchase likelihood of remanufactured batteries for EVs. Our model also examines the direct and moderating effect of perceived value and perceived risk and their respective hypotheses.

Our study is guided by a comprehensive set of assumptions. First, price is the main factor influencing the likelihood of purchasing a remanufactured product (Abbey, Kleber, Souza, & Voigt, 2017; Singhal, Jena, et al., 2019). Second, an alternative assumption is that besides remanufacturing lowering price, servitization may also influence the purchase likelihood of remanufactured products (Jensen et al., 2019; Zhu et al., 2016). Thus, examining how servitization may influence the relationship between price and likelihood of purchasing a remanufactured battery for an electric vehicle may challenge current remanufacturing assumption. In addition, a third assumption refers to the positive role of perceived value on purchasing likelihood (Zeithaml, 1988). Thus, we assume that the greater the consumers' perceived value of remanufacturing, the more willing they will be to purchase a remanufactured battery (Hazen et al., 2017). On the other hand, a fourth assumption has to do with the...

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