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

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Teck H. Ho & Yu-Sheng Zheng, 2004. "Setting Customer Expectation in Service Delivery: An Integrated Marketing-Operations Perspective," Management Science, INFORMS, vol. 50(4), pages 479-488, April.
  • Handle: RePEc:inm:ormnsc:v:50:y:2004:i:4:p:479-488
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    File URL: http://dx.doi.org/10.1287/mnsc.1040.0170
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    References listed on IDEAS

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    1. 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.
    2. McFadden, Daniel, 1980. "Econometric Models for Probabilistic Choice among Products," The Journal of Business, University of Chicago Press, vol. 53(3), pages 13-29, July.
    3. 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.
    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 186-199, September.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Tang, Christopher S., 2010. "A review of marketing-operations interface models: From co-existence to coordination and collaboration," International Journal of Production Economics, Elsevier, vol. 125(1), pages 22-40, May.
    2. Kut C. So, 2000. "Price and Time Competition for Service Delivery," Manufacturing & Service Operations Management, INFORMS, pages 392-409.
    3. Ruth N. Bolton & Katherine N. Lemon & Matthew D. Bramlett, 2006. "The Effect of Service Experiences over Time on a Supplier's Retention of Business Customers," Management Science, INFORMS, pages 1811-1823.
    4. repec:eee:touman:v:59:y:2017:i:c:p:349-362 is not listed on IDEAS
    5. Salunke, Sandeep & Weerawardena, Jay & McColl-Kennedy, Janet R., 2013. "Competing through service innovation: The role of bricolage and entrepreneurship in project-oriented firms," Journal of Business Research, Elsevier, vol. 66(8), pages 1085-1097.
    6. Altendorfer, Klaus & Jodlbauer, Herbert, 2011. "Which utilization and service level lead to the maximum EVA?," International Journal of Production Economics, Elsevier, vol. 130(1), pages 16-26, March.
    7. Weixin Shang & Liming Liu, 2011. "Promised Delivery Time and Capacity Games in Time-Based Competition," Management Science, INFORMS, pages 599-610.
    8. Yeh, Chien Chi & Ku, Edward C.S. & Ho, Ching Hua, 2016. "Collaborating pivotal suppliers: Complementarities, flexibility, and standard communication between airline companies and travel agencies," Journal of Air Transport Management, Elsevier, vol. 55(C), pages 92-101.
    9. Tong Wang & Beril L. Toktay, 2008. "Inventory Management with Advance Demand Information and Flexible Delivery," Management Science, INFORMS, pages 716-732.
    10. Xu, He & Yao, Nian & Tong, Shilu, 2013. "Sourcing under cost information asymmetry when facing time-sensitive customers," International Journal of Production Economics, Elsevier, vol. 144(2), pages 599-609.
    11. Urban, Timothy L., 2009. "Establishing delivery guarantee policies," European Journal of Operational Research, Elsevier, vol. 196(3), pages 959-967, August.
    12. Ryan W. Buell & Michael I. Norton, 2011. "The Labor Illusion: How Operational Transparency Increases Perceived Value," Management Science, INFORMS, pages 1564-1579.
    13. Praveen K. Kopalle & Donald R. Lehmann, 2006. "Setting Quality Expectations When Entering a Market: What Should the Promise Be?," Marketing Science, INFORMS, vol. 25(1), pages 8-24, 01-02.
    14. Dennis Campbell & Frances Frei, 2011. "Market Heterogeneity and Local Capacity Decisions in Services," Manufacturing & Service Operations Management, INFORMS, pages 2-19.
    15. repec:eee:apmaco:v:250:y:2015:i:c:p:580-592 is not listed on IDEAS
    16. Zhu, Xiaowei, 2016. "Managing the risks of outsourcing: Time, quality and correlated costs," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 90(C), pages 121-133.

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