Business solutions as market signals that facilitate product sales

Abstract

Many manufacturers claim to be solution providers. However, solution business is notoriously difficult to manage and the associated profitability difficult to demonstrate. This raises the question: why should companies keep trying? We provide one possible answer by applying signaling theory to understand how engagement in solution business functions as a quality signal to a prospective buyer of products. The results of two scenario-based online experiments show that positioning oneself in the market as a solution seller has a highly significant and positive effect on the customer's purchase intention in cases where the customer is only considering the purchase of a single, product-based component. This signal functions as a risk-reduction mechanism and the observed effect is stronger if the seller can boost the credibility of the signal by citing prior reference projects. The primary theoretical contribution of the study is to provide an empirically grounded explanation of a possible outcome from engagement in solution business. For practitioners, our research suggests that a market positioning as a solution provider is strategically important because it supports the product business. Thus, it is advisable for manufacturers to consider persisting with the solution business even in cases where the direct revenues generated by this particular form of service provision in question may not offset the related costs. © 2020 Elsevier Inc.