Product co-design with consumer participation in a service-oriented manufacturing system

Product co-design which connects the firm and consumers to achieve value co-creation is widely applied in the service-oriented manufacturing system (SOMS) to improve service quality. One of the key challenges in practice is to understand how the product co-design affects the performance of SOMS under different business models. This study considers a SOMS in which the firm optimises its product co-design effort and consumers decide whether to participate in product co-design under the selling and leasing models. The results show that the firm can always benefit from implementing the product co-design, even though consumers do not participate in product co-design under some specific circumstances. However, it does not always hold for consumers. Interestingly, we find that the free rider effect occurs when the participation cost is high. We further elaborate on the firm's business model selection strategy, introducing a threshold-based policy designed to assist the firm in making decisions when confronted with varying residual values and participation costs. Lastly, our findings indicate a lack of clear-cut pros and cons between the two business models in terms of the firm's product co-design efforts and consumer surplus.