IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v228y2013i2p427-436.html
   My bibliography  Save this article

Price and speed decisions in customer-intensive services with two classes of customers

Author

Listed:
  • Ni, Guanqun
  • Xu, Yinfeng
  • Dong, Yucheng

Abstract

In many customer-intensive services, the perceived quality of service decreases in the speed of service. Usually, an increase in service speed induces different marginal reductions in quality for heterogeneous customers. To bring insight into the managerial implications of this difference, we classify customers in terms of intensity parameters, and investigate the behavior of each class of customers in a queueing framework. The optimal service speed and price are derived to maximize service provider’s revenue. Our results demonstrate that no class is always attractive to the provider, and thus there are usually several combinations of service price and speed reaching the same maximal revenue. Moreover, under some mild conditions, the provider could gain more revenue by treating different classes with discrimination than by adopting uniform treatment.

Suggested Citation

  • Ni, Guanqun & Xu, Yinfeng & Dong, Yucheng, 2013. "Price and speed decisions in customer-intensive services with two classes of customers," European Journal of Operational Research, Elsevier, vol. 228(2), pages 427-436.
  • Handle: RePEc:eee:ejores:v:228:y:2013:i:2:p:427-436
    DOI: 10.1016/j.ejor.2013.01.053
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377221713001161
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.ejor.2013.01.053?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Itay Gurvich & Mor Armony & Constantinos Maglaras, 2009. "Cross-Selling in a Call Center with a Heterogeneous Customer Population," Operations Research, INFORMS, vol. 57(2), pages 299-313, April.
    2. Wallace J. Hopp & Seyed M. R. Iravani & Gigi Y. Yuen, 2007. "Operations Systems with Discretionary Task Completion," Management Science, INFORMS, vol. 53(1), pages 61-77, January.
    3. Van Houdt, Benny, 2012. "Analysis of the adaptive MMAP[K]/PH[K]/1 queue: A multi-type queue with adaptive arrivals and general impatience," European Journal of Operational Research, Elsevier, vol. 220(3), pages 695-704.
    4. Wang, Qinan, 2004. "Modeling and analysis of high risk patient queues," European Journal of Operational Research, Elsevier, vol. 155(2), pages 502-515, June.
    5. Xiaofang Wang & Laurens G. Debo & Alan Scheller-Wolf & Stephen F. Smith, 2010. "Design and Analysis of Diagnostic Service Centers," Management Science, INFORMS, vol. 56(11), pages 1873-1890, November.
    6. Mor Armony & Constantinos Maglaras, 2004. "Contact Centers with a Call-Back Option and Real-Time Delay Information," Operations Research, INFORMS, vol. 52(4), pages 527-545, August.
    7. Armony, Mor & Haviv, Moshe, 2003. "Price and delay competition between two service providers," European Journal of Operational Research, Elsevier, vol. 147(1), pages 32-50, May.
    8. Francis de Véricourt & Yong-Pin Zhou, 2005. "Managing Response Time in a Call-Routing Problem with Service Failure," Operations Research, INFORMS, vol. 53(6), pages 968-981, December.
    9. Wang, Xiaofang & Zhuang, Jun, 2011. "Balancing congestion and security in the presence of strategic applicants with private information," European Journal of Operational Research, Elsevier, vol. 212(1), pages 100-111, July.
    10. Levhari, David & Luski, Israel, 1978. "Duopoly pricing and waiting lines," European Economic Review, Elsevier, vol. 11(1), pages 17-35, February.
    11. William S. Lovejoy & Kannan Sethuraman, 2000. "Congestion and Complexity Costs in a Plant with Fixed Resources that Strives to Make Schedule," Manufacturing & Service Operations Management, INFORMS, vol. 2(3), pages 221-239, February.
    12. Mor Armony & Constantinos Maglaras, 2004. "On Customer Contact Centers with a Call-Back Option: Customer Decisions, Routing Rules, and System Design," Operations Research, INFORMS, vol. 52(2), pages 271-292, April.
    13. Krishnan S. Anand & M. Faz{i}l Paç & Senthil Veeraraghavan, 2011. "Quality-Speed Conundrum: Trade-offs in Customer-Intensive Services," Management Science, INFORMS, vol. 57(1), pages 40-56, January.
    14. Reitman, David, 1991. "Endogenous Quality Differentiation in Congested Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 39(6), pages 621-647, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhong, Yuanguang & Pan, Qi & Xie, Wei & Cheng, T.C.E. & Lin, Xiaogang, 2020. "Pricing and wage strategies for an on-demand service platform with heterogeneous congestion-sensitive customers," International Journal of Production Economics, Elsevier, vol. 230(C).
    2. Jalili Marand, Ata & Tang, Ou & Li, Hongyan, 2019. "Quandary of service logistics: Fast or reliable?," European Journal of Operational Research, Elsevier, vol. 275(3), pages 983-996.
    3. Kai Li & Yuqian Pan & Bayi Cheng & Bohai Liu, 2018. "The Setting and Optimization of Quick Queue," Journal of Optimization Theory and Applications, Springer, vol. 178(3), pages 1014-1026, September.
    4. Yu, Jianjun & Fang, Yanli & Zhong, Yuanguang & Zhang, Xiong & Zhang, Ruijie, 2022. "Pricing and quality strategies for an on-demand housekeeping platform with customer-intensive services," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Vasiliki Kostami & Sampath Rajagopalan, 2014. "Speed–Quality Trade-Offs in a Dynamic Model," Manufacturing & Service Operations Management, INFORMS, vol. 16(1), pages 104-118, February.
    2. Mor Armony & Efrat Perel & Nir Perel & Uri Yechiali, 2019. "Exact analysis for multiserver queueing systems with cross selling," Annals of Operations Research, Springer, vol. 274(1), pages 75-100, March.
    3. Xiaofang Wang & Laurens G. Debo & Alan Scheller‐Wolf & Stephen F. Smith, 2012. "Service design at diagnostic service centers," Naval Research Logistics (NRL), John Wiley & Sons, vol. 59(8), pages 613-628, December.
    4. Yu, Jianjun & Fang, Yanli & Zhong, Yuanguang & Zhang, Xiong & Zhang, Ruijie, 2022. "Pricing and quality strategies for an on-demand housekeeping platform with customer-intensive services," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).
    5. Krishnan S. Anand & M. Faz{i}l Paç & Senthil Veeraraghavan, 2011. "Quality-Speed Conundrum: Trade-offs in Customer-Intensive Services," Management Science, INFORMS, vol. 57(1), pages 40-56, January.
    6. Saed Alizamir & Francis de Véricourt & Peng Sun, 2013. "Diagnostic Accuracy Under Congestion," Management Science, INFORMS, vol. 59(1), pages 157-171, December.
    7. Wang, Jian-Jun & Zhang, Xinmou & Shi, Jim Junmin, 2023. "Hospital dual-channel adoption decisions with telemedicine referral and misdiagnosis," Omega, Elsevier, vol. 119(C).
    8. Philipp Afèche & Mojtaba Araghi & Opher Baron, 2017. "Customer Acquisition, Retention, and Service Access Quality: Optimal Advertising, Capacity Level, and Capacity Allocation," Manufacturing & Service Operations Management, INFORMS, vol. 19(4), pages 674-691, October.
    9. Dongyuan Zhan & Amy R. Ward, 2019. "Staffing, Routing, and Payment to Trade off Speed and Quality in Large Service Systems," Operations Research, INFORMS, vol. 67(6), pages 1738-1751, November.
    10. Ryan W. Buell & Michael I. Norton, 2011. "The Labor Illusion: How Operational Transparency Increases Perceived Value," Management Science, INFORMS, vol. 57(9), pages 1564-1579, February.
    11. Jalili Marand, Ata & Tang, Ou & Li, Hongyan, 2019. "Quandary of service logistics: Fast or reliable?," European Journal of Operational Research, Elsevier, vol. 275(3), pages 983-996.
    12. Cary Deck & Erik O Kimbrough & Steeve Mongrain, 2014. "Paying for Express Checkout: Competition and Price Discrimination in Multi-Server Queuing Systems," PLOS ONE, Public Library of Science, vol. 9(3), pages 1-13, March.
    13. repec:zbw:rwirep:0277 is not listed on IDEAS
    14. Dongyuan Zhan & Amy R. Ward, 2014. "Threshold Routing to Trade Off Waiting and Call Resolution in Call Centers," Manufacturing & Service Operations Management, INFORMS, vol. 16(2), pages 220-237, May.
    15. Saghafian, Soroush & Hopp, Wallace J. & Iravani, Seyed M. R. & Cheng, Yao & Diermeier, Daniel, 2017. "Workload Management in Telemedical Physician Triage and Other Knowledge-Based Service Systems," Working Paper Series rwp17-035, Harvard University, John F. Kennedy School of Government.
    16. Kuntz, Ludwig & Mennicken, Roman & Scholtes, Stefan, 2011. "Stress on the Ward – An Empirical Study of the Nonlinear Relationship between Organizational Workload and Service Quality," Ruhr Economic Papers 277, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    17. Carri W. Chan & Galit Yom-Tov & Gabriel Escobar, 2014. "When to Use Speedup: An Examination of Service Systems with Returns," Operations Research, INFORMS, vol. 62(2), pages 462-482, April.
    18. Ying Xu & Alan Scheller-Wolf & Katia Sycara, 2015. "The Benefit of Introducing Variability in Single-Server Queues with Application to Quality-Based Service Domains," Operations Research, INFORMS, vol. 63(1), pages 233-246, February.
    19. Ludwig Kuntz & Roman Mennicken & Stefan Scholtes, 2011. "Stress on the Ward – An Empirical Study of the Nonlinear Relationship between Organizational Workload and Service Quality," Ruhr Economic Papers 0277, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    20. Maxim Afanasyev & Haim Mendelson, 2010. "Service Provider Competition: Delay Cost Structure, Segmentation, and Cost Advantage," Manufacturing & Service Operations Management, INFORMS, vol. 12(2), pages 213-235, May.
    21. Randall Berry & Michael Honig & Thành Nguyen & Vijay Subramanian & Rakesh Vohra, 2020. "The Value of Sharing Intermittent Spectrum," Management Science, INFORMS, vol. 66(11), pages 5242-5264, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:228:y:2013:i:2:p:427-436. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.