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Setting Customer Expectation in Service Delivery: An Integrated Marketing-Operations Perspective

  • Teck H. Ho


    (Haas School of Business, University of California, Berkeley, Berkeley, California 94720)

  • Yu-Sheng Zheng


    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

Service firms have increasingly been competing for market share on the basis of delivery time. Many firms now choose to set customer expectation by announcing their maximal delivery time. Customers will be satisfied if their perceived delivery times are shorter than their expectations. This gap model of service quality is used in this paper to study how a firm might choose a delivery-time commitment to influence its customer expectation, and delivery quality in order to maximize its market share. A market share model is developed to capture (1) the impact of delivery-time commitment and delivery quality on the firm's market share and (2) the impact of the firm's market share and process variability on delivery quality when there is a congestion effect. We show that the choice of the delivery-time commitment requires a proper balance between the level of service capacity and customer sensitivities to delivery-time expectation and delivery quality. We prove the existence of Nash equilibria in a duopolistic competition, and show that this delivery-time commitment game is analogous to a Prisoners' Dilemma.

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Article provided by INFORMS in its journal Management Science.

Volume (Year): 50 (2004)
Issue (Month): 4 (April)
Pages: 479-488

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Handle: RePEc:inm:ormnsc:v:50:y:2004:i:4:p:479-488
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  1. McFadden, Daniel, 1980. "Econometric Models for Probabilistic Choice among Products," The Journal of Business, University of Chicago Press, vol. 53(3), pages S13-29, July.
  2. So, Kut C. & Song, Jing-Sheng, 1998. "Price, delivery time guarantees and capacity selection," European Journal of Operational Research, Elsevier, vol. 111(1), pages 28-49, November.
  3. Ziv Carmon & J. George Shanthikumar & Tali F. Carmon, 1995. "A Psychological Perspective on Service Segmentation Models: The Significance of Accounting for Consumers' Perceptions of Waiting and Service," Management Science, INFORMS, vol. 41(11), pages 1806-1815, November.
  4. Noah Gans, 2002. "Customer Loyalty and Supplier Quality Competition," Management Science, INFORMS, vol. 48(2), pages 207-221, February.
  5. Greenleaf, Eric A & Lehmann, Donald R, 1995. " Reasons for Substantial Delay in Consumer Decision Making," Journal of Consumer Research, Oxford University Press, vol. 22(2), pages 186-99, September.
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