The total cost of ownership of durable consumer goods: A conceptual model and an empirical application

This paper proposes a general model to evaluate the Total Cost of Ownership (TCO) of durable consumer goods (e.g. cars, household appliances). The TCO approach has been developed to support purchasing decisions in the business-to-business domain: here we use similar principles to consider the business-to-consumer context. The new customer-oriented activity-based model includes 37 activities, classified by process and temporal phase. The model allows computing the costs incurred by the customer from the search and selection phase to the end of the product life. Furthermore, the paper discusses four modes of application of the model: One-to-one TCO evaluation, Average Product TCO evaluation, Average Customer TCO evaluation, and Average TCO. An empirical test on a sample of washing machines shows that customer habits (e.g. the usage frequency or the detergents used) are the most relevant factor affecting the TCO, with a far greater impact than the purchasing price. Thanks to the resolution of a number of gaps pointed out by a literature review on TCO research, the new model can be used as a decision support tool by enabling product comparisons and cost structure analysis.

[1]  Martin Maier,et al.  Total Cost of Ownership and Risk Analysis of Collaborative Implementation Models for Integrated Fiber-Wireless Smart Grid Communications Infrastructures , 2014, IEEE Transactions on Smart Grid.

[2]  William J. Kolarik,et al.  Life cycle costing: Concept and practice , 1981 .

[3]  Thomas H. Bradley,et al.  Total cost of ownership, payback, and consumer preference modeling of plug-in hybrid electric vehicles , 2013 .

[4]  Dirk Bunke,et al.  Integrated Environmental and Economic Assessment of Products and Processes , 2005 .

[5]  D. Vigo,et al.  Supplier's total cost of ownership evaluation: a data envelopment analysis approach , 2016 .

[6]  John C. Cherniavsky,et al.  Validation, Verification, and Testing of Computer Software , 1982, CSUR.

[7]  F. Wynstra,et al.  The adoption of total cost of ownership for sourcing decisions--a structural equations analysis , 2005 .

[8]  Kishor S. Trivedi,et al.  Stochastic Model Driven Capacity Planning for an Infrastructure-as-a-Service Cloud , 2014, IEEE Transactions on Services Computing.

[9]  Khurrum S. Bhutta,et al.  Supplier selection problem: a comparison of the total cost of ownership and analytic hierarchy process approaches , 2002 .

[10]  Gilberto De Martino Jannuzzi,et al.  Life cycle cost analysis of energy efficiency design options for refrigerators in Brazil , 2009 .

[11]  Horst E. Friedrich,et al.  Optimizing battery sizes of plug-in hybrid and extended range electric vehicles for different user types , 2014 .

[12]  Erwin Schmid,et al.  Analysis of alternative policy instruments to promote electric vehicles in Austria , 2011 .

[13]  Elsa Henriques,et al.  Life cycle cost for technology selection: A Case study in the manufacturing of injection moulds , 2010 .

[14]  David G. Woodward,et al.  Life cycle costing—Theory, information acquisition and application , 1997 .

[15]  Matthias Deutsch,et al.  Life Cycle Cost Disclosure, Consumer Behavior, and Business Implications , 2010 .

[16]  Thomas H. Johnson,et al.  Relevance Lost: The Rise and Fall of Management Accounting , 1987 .

[17]  So Young Sohn,et al.  Cost of ownership model for the RFID logistics system applicable to u-city , 2007, Eur. J. Oper. Res..

[18]  Giovanni Miragliotta,et al.  Complexity management and supply chain performance assessment. A field study and a conceptual framework , 2004 .

[19]  Christoph Herrmann,et al.  Eco-efficiency of disposable and reusable surgical instruments—a scissors case , 2013, The International Journal of Life Cycle Assessment.

[20]  Frank Teuteberg,et al.  Evaluating cloud computing services from a total cost of ownership perspective , 2013 .

[21]  L. Warlop,et al.  Effects of Providing Total Cost of Ownership Information on Attribute Weights in Purchasing Decisions , 2011 .

[22]  D. Luzzini,et al.  Total cost of ownership along the supply chain: a model applied to the tinting industry , 2015 .

[23]  Hyung Chul Kim,et al.  LIFE CYCLE OPTIMIZATION OF OWNERSHIP COSTS AND EMISSIONS REDUCTION IN US VEHICLE RETIREMENT DECISIONS , 2005 .

[24]  Antonio Focacci,et al.  A techno-economic analysis of the results of product diversification in household appliance durables—evaluating concreteness , 2003 .

[25]  Finn Wynstra,et al.  Total Cost of Ownership in the Services Sector: A Case Study , 2006 .

[26]  D. Luzzini,et al.  Total cost of ownership along the supply chain: a model applied to the tinting industry , 2012 .

[27]  L. Ken Keys,et al.  A cost analysis model for heavy equipment , 2009, Comput. Ind. Eng..

[28]  Romeo Danielis,et al.  Total cost of ownership, social lifecycle cost and energy consumption of various automotive technologies in Italy , 2015 .

[29]  Enrico Cagno,et al.  Reducing the total cost of supply through risk-efficiency-based supplier selection in the EPC industry , 2009 .

[30]  John C. Narver,et al.  Responsive and proactive market orientation and new-product success. , 2004 .

[31]  David Schuff,et al.  Managing your total IT cost of ownership , 2002, CACM.

[32]  Ettore Settanni,et al.  A through-life costing methodology for use in product–service-systems , 2014 .

[33]  Pejman Goudarzi,et al.  Stochastic total cost of ownership optimization for video streaming services , 2014, Telematics Informatics.

[34]  T S Baines,et al.  State-of-the-art in product-service systems , 2007 .

[35]  Hewu Wang,et al.  Battery Sizing for Plug-in Hybrid Electric Vehicles in Beijing: A TCO Model Based Analysis , 2014 .

[36]  Ibrahim Dogan,et al.  Analysis of facility location model using Bayesian Networks , 2012, Expert Syst. Appl..

[37]  B Lycette,et al.  The real “Total Cost of Ownership” of your test equipment , 2011, IEEE Aerospace and Electronic Systems Magazine.

[38]  Averill M. Law,et al.  Simulation Modeling and Analysis , 1982 .

[39]  Andre Kleyner,et al.  Minimizing life cycle cost by managing product reliability via validation plan and warranty return cost , 2008 .

[40]  L. Ellram.  Total cost of ownership: an analysis approach for purchasing , 1995 .

[41]  N. Saccani,et al.  The relationship between customer value and pricing strategies: an empirical test , 2012 .

[42]  Zeger Degraeve,et al.  Improving the efficiency of the purchasing process using total cost of ownership information: The case of heating electrodes at Cockerill Sambre S.A , 1999, Eur. J. Oper. Res..

[43]  O. Rentz,et al.  Low cost country sourcing and its effects on the total cost of ownership structure for a medical devices manufacturer , 2010 .

[44]  Achim Kampker,et al.  Developments of CO2-emissions and costs for small electric and combustion engine vehicles in Germany , 2015 .

[45]  Geng Wu,et al.  Total cost of ownership of electric vehicles compared to conventional vehicles: A probabilistic analysis and projection across market segments , 2015 .

[46]  Rolf Wüstenhagen,et al.  The influence of eco‐labelling on consumer behaviour – results of a discrete choice analysis for washing machines , 2006 .

[47]  Chris Manzie,et al.  Conventional, hybrid and electric vehicles for Australian driving conditions – Part 1: Technical and financial analysis , 2012 .

[48]  Peter Sandborn,et al.  A part total cost of ownership model for long life cycle electronic systems , 2012, Int. J. Comput. Integr. Manuf..

[49]  Nezir Aydin,et al.  Combining Bayesian Networks and Total Cost of Ownership method for supplier selection analysis , 2011, Comput. Ind. Eng..