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When should service firms provide free experience service?

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  • Zhou, Wenhui
  • Lian, Zhaotong
  • Wu, Jinbiao

Abstract

By providing a free experience service, a service firm can attract more uninformed customers. However, it could reversely effect the delay-sensitive, informed customers’ decision. In this paper, we study a priority queueing system with free experience services. We study the customer behavior in equilibrium after we derive the expected customer waiting time. We then construct the service firm’s revenue function and obtain an optimal strategy for the service firm. Our results suggest that when the market size of informed customers is relatively small, the firm should consider providing free experience services for uninformed customers. Conversely, if the demand rate of potential informed customers is quite high, the firm should ignore uninformed customers.

Suggested Citation

  • Zhou, Wenhui & Lian, Zhaotong & Wu, Jinbiao, 2014. "When should service firms provide free experience service?," European Journal of Operational Research, Elsevier, vol. 234(3), pages 830-838.
  • Handle: RePEc:eee:ejores:v:234:y:2014:i:3:p:830-838
    DOI: 10.1016/j.ejor.2013.10.036
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    References listed on IDEAS

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    Cited by:

    1. Ying Shi & Xin Li & Ping Fan, 2016. "Optimization of an M/M/∞ Queueing System with Free Experience Service," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 33(06), pages 1-17, December.
    2. Shi, Ying & Lian, Zhaotong, 2016. "Optimization and strategic behavior in a passenger–taxi service system," European Journal of Operational Research, Elsevier, vol. 249(3), pages 1024-1032.
    3. Lian, Zhaotong & Gu, Xinhua & Wu, Jinbiao, 2016. "A re-examination of experience service offering and regular service pricing under profit maximization," European Journal of Operational Research, Elsevier, vol. 254(3), pages 907-915.

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