Introduction to Business Models & TCO

The CV industry is unique as a market, which is highly volatile and sensible to business cycle fluctuations, because of its revenue and profit landscape; while after sales services contribute to roughly 20% of revenues for OEMs, they make up more than 50% of profits [1]. Furthermore, after sales services pose a much more stable income source for OEMs, since they do not fluctuate as much with the business cycle as CV sales do [2]. Therefore, in order for OEMs to stay competitive in a changing business landscape, and for newcomers to have a fighting chance in surviving this market, innovation and reliability for after sales services are necessary for all involved firms. A huge aspect controlling the CV industry is the Total Cost of Ownership of CVs (TCO hereafter). Classically, the TCO is the purchase price of an asset plus the costs of operation. For CVs in particular, TCO plays such an important role because of the high costs involved for both products and operation; personnel, fuel, maintenance, insurance, as well as tolls and taxes can run extremely high for an already large and expensive asset such as a CV. Therefore, customers want to see an economic benefit and a TCO advantage to exceed their large investments. Technical innovations, especially, require a high amount of investments in the future [1]. It can thus be difficult to convince consumers to undertake such investments for innovation in an uncertain future where it cannot be clearly said when and how the benefits outweigh the costs.

Sources

[1] Renschler, A. (2020). The commercial vehicle industry at a glance. Munich.

[2] Jentzsch, A., Janda, J., Xu, G., Wiedenhoff, P., Girisch, A. (2019). The Future of Commercial Vehicles — How New Technologies Are Transforming The Industry. The Boston Consulting Group.