The optimization of pricing strategy for the wind power equipment aftermarket service
| DOI | https://doi.org/10.1108/IMDS-01-2018-0032 |
| Published date | 08 April 2019 |
| Pages | 521-546 |
| Date | 08 April 2019 |
| Author | Lingcheng Kong,Ling Liang,Jianhong Xu,Weisi Zhang,Weijun Zhu |
| Subject Matter | Information & knowledge management,Information systems,Data management systems,Knowledge management,Knowledge sharing,Management science & operations,Supply chain management,Supply chain information systems,Logistics,Quality management/systems |
The optimization of pricing
strategy for the wind power
equipment aftermarket service
Lingcheng Kong
Business School, East China University of Science and Technology, Shanghai, China
Ling Liang
Tourism and Event Management School,
Shanghai University of International Business and Economics, Shanghai, China
Jianhong Xu
Business School, East China University of Science and Technology,
Shanghai, China, and
Weisi Zhang and Weijun Zhu
College of Business, Shanghai University of Finance and Economics, Shanghai, China
Abstract
Purpose –Although the wind powe r industry has been boom ing in China during the la st decade, the
development of wind turb ine aftermarket serv ice is still lagging beh ind, which seriously af fects the
operational efficie ncy of wind farms. If wind tur bine manufacturers ge t involved in the aftermark et,
the service pricing pol icy will impact the profits of both the manufacturer and the wind farm. Theref ore,
it is necessary to discu ss an optimal service pricing strat egy in the wind turbine aftermarket an d design a
method to improve electr icity generation effi ciency through servic e contract design. The pap er aims to
discuss these issues.
Design/methodology/approach –In order to decide the maintenance quantity and channel effort level, the
authors design a normal Stackelberg game and an efficiency value-added revenue-sharing contract and
discuss two kinds of revenue increment sharing models under situations, in which the supply chain’s leaders
are the wind farm and the wind turbine manufacturer, respectively.
Findings –The results show that in either case, there exist optimal power generation revenue-sharing ratios
that can maximize profit. At the same time, the authors outlinean optimal service pricing policy, maintenance
demand policy and channel service effort-level policy. The results summarize the influences of wind
aftermarket services on wind farms’and wind turbine manufacturers’profit, which provides managerial
insights into the process of manufacturing servitization.
Practical implications –The manufacturer’s channel effort level will influence the power generation
increments very much, so the authors have developed a mechanism to stimulate the manufacturer improving
the efficiency of aftermarket services.
Originality/value –Taking the power generation increment revenue as the profit increment function, the
authors discuss the influence of service price on the profit increment of the wind farm and the wind turbine
manufacturer and also consider the influence of service price on the wind farms maintenance quantity and
wind turbine manufacturers channel effort level.
Keywords Pricing strategy, Channel effort level, Wind turbine aftermarket service
Paper type Research paper
Nomenclature
PElectricity price
c
s
Cost of wind power equipment’s
operation management
ρ
0
Wind power equipment failure rate
φSharing ratio of power generation
incremental revenue Industrial Management & Data
Systems
Vol. 119 No. 3, 2019
pp. 521-546
© Emerald PublishingLimited
0263-5577
DOI 10.1108/IMDS-01-2018-0032
Received 20 January 2018
Revised 5 July 2018
15 September 2018
Accepted 22 September 2018
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0263-5577.htm
The work was supported by National Social Science Fund of China (Grant No. 15ZDB161).
521
Wind power
equipment
aftermarket
service
qwPower capacity of each wind turbine
NLatent failure quantity of wind power
equipment
KChannel effort cost coefficient
λRepair cost sensitivity coefficient of
wind power equipment
Decision variables
p
s
Repair fee for each piece of wind power
equipment
qRepair demand of wind power
equipment failure
LChannel effort level
1. Introduction
Since the new energy industry is receiving increasing attention in modern society, from 2005
wind turbine manufacturers around the world have experienced rapid growth. The situation
also applies to China. In 2009, the Chinese Government established a policy of benchmark
prices for wind power. Later, the 13th Five-Year Plan, published in 2015, put forward a
detailed strategic transformation plan for the Chinese energy industry: the scale of wind
power generation is expected to reach 200b kilowatts in 2020, which is twice that outlined in
the 12th Five-Year Plan (Kong et al., 2018). More specifically, the wind power generated in
Inner Mongolia, Gansu, Xinjiang, Jilin and Heilongjiang is planned to be 87b kilowatts,
which is 43 percent of the total wind power generated in China. The favorable policy is
accelerating the development of the wind power industry. In 2014, newly installed wind
turbines in China accounted for 45.2 percent of the total number in the world, and equated to
be more than any other country (the data sources from http://windpower.of week.com).
Having been the driver of global market growth for most of the last decade, China installed
19.7 gigawatts of wind capacity in 2017, which is more than twice as much as any other
market (GWEC, 2017). It is reasonable to expect continuous growth for the Chinese wind
industry in the future.
1.1 Motivation
The rapid growth of wind turbine manufacturers’profit has come despite two problems.
First, competition in the market is fierce and the increasing rate is tending toward stability,
which indicates that the wind turbine market is approaching saturation. Second, turbine
failures happen frequently, since a significant number of wind turbines’guarantee periods
have passed or are soon to pass. There exists an urgent demand for more effort to enhance
the aftermarket maintenance service. Statistics show that the number of wind turbines that
have passed their guarantee period equates about 14–18 gigawatts for each year in China
from 2014 to 2016. In 2022, the number of wind turbines that have passed the guarantee
period will equate to 187 gigawatts, while the total amount of installed wind turbines in the
country equate to just 250 gigawatts. If these turbines are not maintained properly,
accidents may happen. For example, a serious accident of tripping off in Jiuquan, Gansu
Province in 2011 caused an energy loss of 0.84 kilowatts, which was the highest economic
loss in the Chinese energy industry. The accident stemmed from the fact that wind turbine
manufacturers have tried to dominate the market using a low-price policy while ignoring the
quality of the equipment. According to a statistic from wpein.com, operation and
maintenance of wind turbines accounts for the main cost (39 percent) in the establishment of
a wind farm. The size of the wind turbine aftermarket in China equates to more than $10b
and is expected to rise to $30b in 2022 (the data sources from http://windpower.ofweek.com).
The operation and maintenance services for wind turbines represent a tremendous
commercial opportunity. Therefore, the balance in demand and supply of the wind turbine
aftermarket service is worthy of study.
At present, about 75 percent of turbines in China are maintained by unprofessional
wind farms, while 90 percent of turbines are maintained in Europe by professional service
providers and manufacturers. The low efficiency of the maintenance significantly affects
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IMDS
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