Business Solutions as Signals

Abstract

Many manufacturing firms today claim to be solution providers. By means of highly customized and integrated, product-service offerings, these firms address complex business problems of customers in a holistic way. However, the extent to which manufacturers derive financial returns from these investments remains debatable. But despite the dubious profitability, we are not witnessing any large-scale transition away from the solution business. We assume that irrespective of the direct revenues generated by the solution business, manufacturers benefit strategically from the positive spillover effects of solutions on the firm’s underlying product business through a signaling mechanism. This assumption has been tested in a scenario-based, within-subjects, cross-industries online experiment. The results show that a market positioning 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. Moreover, the signaling effect of solution business is even stronger if the seller can boost the credibility of the signal through evoking upon prior reference projects.