Demand Postponement with Strategic Service Customers

Demand Postponement with Strategic Service Customers

Dual Channel Management with Strategic Customers

Analysis of Product Rollover Strategies in the Presence of Strategic Customers

A Simple Monotonic Dynamic Pricing Policy We consider a canonical revenue management setting in which a monopolist seeks to maximize expected total revenues by selling a fixed inventory of product to customers who arrive sequentially over time. It is known in the literature that a simple dynamic pricing policy can perform reasonably well in such setting. However, the literature typically assumes that price can move freely over time (i.e., it can either go up or down). In practice, firms often impose certain restrictions on price movement. In this paper, we consider the setting in which price can only move monotonically over time (either only decreasing or only increasing). We devise a simple provably near-optimal dynamic pricing policy. Aside from markdown applications, our policy can also be applied to the setting with strategic customers.

Problem definition: We study customer-centric privacy management in service systems. Academic/practical relevance: We explore the consequences of extended control over personal information by customers in such systems. Methodology: We adopt a stylized queueing model to capture a service environment that features a service provider and customers who are strategic in deciding whether to disclose personal information to the service provider—that is, customers’ privacy or information disclosure strategy. A customer’s service request can be one of two types, which affects service time but is unknown when customers commit to a privacy strategy. The service provider can discriminate among customers based on their disclosed information by offering different priorities. Results: Our analysis reveals that, when given control over their personal data, strategic customers do not always choose to withhold them. We find that control over information gives customers a tool they can use to hedge against the service provider’s will, which might not be aligned with the interests of customers. More importantly, we find that under certain conditions, giving customers full control over information (e.g., by introducing a privacy regulation) may not only distort already efficiently operating service system but might also backfire by leading to inferior system performance (i.e., longer average wait time), and it can hurt customers themselves. We demonstrate how a regulator can correct information disclosure inefficiencies through monetary incentives to customers and show that providing such incentives makes economic sense in some scenarios. Finally, the service provider itself can benefit from customers being in control of their personal information by enticing more customers joining the service. Managerial implications: Our findings yield insights into how customers’ individually rational actions concerning information disclosure (e.g., granted by a privacy regulation) can lead to market inefficiencies in the form of longer wait times for services. We provide actionable prescriptions, for both service providers and regulators, that can guide their choices of a privacy and information management approach based on giving customers the option of controlling their personal information.

Purpose: The main focus of the study was to establish how strategic customer retention practices influences performance of automotive firms in Nairobi City County, Kenya. The study specifically focused on establishing the influence of customer support programs, technological advancements, and strategic communication practices and customer’s motivation programs on performance of automotive firms in Nairobi City County, Kenya. The study was anchored on Expectancy Theory, Diffusion of Innovation Theory, Communication Theory and Customer Service Theory. Methodology: The study employed a descriptive survey research design and targeted 18 franchised automotive firms registered by Kenya Motor Industry Association. The unit of observation comprised of employees in strategic, marketing and IT departments. A total of 80 respondents were involved in the study. Primary data was utilized in the study and was gathered through 5-point Likert scale structured questionnaires. Both descriptive and inferential statistics were adopted in analyzing the collected data. The statistics were generated by help of SPSS software and results presented in form of tables and figures. The study conducted a pilot test before the main study on two randomly selected automotive firms to assess the reliability and validity of questionnaires. Respondents involved in the pilot study was not be included in the main study. Findings: The study established that strategic customer retention practices accounts for 61.8% in variations of performance of automotive firms in Nairobi County. The study further established that strategic customer retention practices comprising of customer support programs, technological advancements, and strategic communication practices and customer’s motivation programs positively and significantly influences performance of the firm. This was depicted by beta values of 0.508, 0.324, 0.216, and 0.196 and significant values of 0.000, 0.000, 0.007, and 0.012. Unique Contribution to theory, Policy and Practice: The study concluded that enhancing the strategic customer retention practices leads to enhanced performance levels of the firms. The study provided recommendations to the management of the automotive firms to enhance aspects of customer support programs, technological advancements, and strategic communication practices and customer’s motivation programs since the practices leads to enhanced performance levels of the firms.

Companies in a variety of industries (e.g., airlines, hotels, theaters) often use last-minute sales to dispose of unsold capacity. Although this may generate incremental revenues in the short term, the long-term consequences of such a strategy are not immediately obvious: More discounted last-minute tickets may lead to more consumers anticipating the discount and delaying the purchase rather than buying at the regular (higher) prices, hence potentially reducing revenues for the company. To mitigate such behavior, many service providers have turned to opaque intermediaries, such as Hotwire.com, that hide many descriptive attributes of the service (e.g., departure times for airline tickets) so that the buyer cannot fully predict the ultimate service provider. Using a stylized economic model, this paper attempts to explain and compare the benefits of last-minute sales directly to consumers versus through an opaque intermediary. We utilize the notion of rational expectations to model consumer purchasing decisions: Consumers make early purchase decisions based on expectations regarding future availability, and these expectations are correct in equilibrium. We show that direct last-minute sales are preferred over selling through an opaque intermediary when consumer valuations for travel are high or there is little service differentiation between competing service providers, or both; otherwise, opaque selling dominates. Moreover, contrary to the usual belief that such sales are purely mechanisms for disposal of unused capacity, we show that opaque selling becomes more preferred over direct last-minute selling as the probability of having high demand increases. When firms randomize between opaque selling and last-minute selling strategies, they are increasingly likely to choose the opaque selling strategy as the probability of high demand increases. When firms with unequal capacities use the opaque selling strategy, consumers know more clearly where the opaque ticket is from and the efficacy of opaque selling decreases.

Service Segment Competition with Strategic Customers: Size or Value, Which Matters?

Problem definition: Classical models of queueing systems with rational and strategic customers assume queues to be either fully visible or invisible, while service parameters are known with certainty. In practice, however, people only have “partial information” on the service environment, in the sense that they are not able to fully discern prevalent uncertainties. This is because assessing possible delays and rewards is costly, as it requires time, attention, and cognitive capacity, which are all limited. On the other hand, people are also adaptive and endogenously respond to information frictions. Methodology: We develop an equilibrium model for a single-server queueing system with customers having limited attention. Following the theory of rational inattention, we assume that customers optimize their learning strategies by deciding the type and amount of information to acquire and act accordingly while internalizing the associated costs. Results: We establish the existence and uniqueness of a customer equilibrium when customers allocate their attention to learn uncertain queue lengths and delineate the impact of service characteristics. We provide a complete spectrum of the impact of information costs on throughput and show numerically that throughput might be nonmonotone. This is also reflected in social welfare if the firm’s profit margin is high enough, although customer welfare always suffers from information costs. Managerial implications: We identify service settings where service firms and social planners should be most cautious for customers’ limited attention and translate our results to advisable strategies for information provision and service design. For example, we recommend firms to avoid partial hindrance of queue-length information when a low-demand service is not highly valued by customers. For a popular service that customers value reasonably highly, however, partial hindrance of information is particularly advisable. Academic/practical relevance: We propose a microfounded framework for strategic customer behavior in queues that links beliefs, rewards, and information costs. It offers a holistic perspective on the impact of information prevalence (and information frictions) on operational performance and can be extended to analyze richer customer behavior and complex queue structures, rendering it a valuable tool for service design. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2021.1032 .

Inventory Decisions in the Presence of Strategic Customers: Theory and Behavioral Evidence

We study the effect of strategic customer behavior on pricing and rationing decisions of a firm selling a single product over two periods. The seller may limit the availability of the product (that is, ration) in the second (clearance) period. Some customers are strategic and respond to the firm's decisions by timing their purchases. When capacity is nonconstraining and the seller has pricing flexibility, we show that rationing in the clearance period cannot improve revenue. However, when prices are fixed in advance, rationing can improve revenue. In the latter case, we conduct a detailed analysis for linear and exponential demand curves and derive explicit expressions for optimal rationing levels. We find that the policy of doing the better of not restricting availability at the clearance price or not offering the product at the clearance price is typically near optimal. Our analysis also suggests that rationing—although sometimes offering considerable benefit over allowing unrestricted availability in the clearance period—may allow the seller to obtain only a small fraction of the optimal revenue when the prices are chosen optimally without rationing. We extend the analysis to cases where the capacity is constraining and obtain similar results.

We study the dynamic pricing problem of a monopolist firm in presence of strategic customers that differ in their valuations and risk preferences. We show that this problem can be formulated as a static mechanism design problem, which is more amenable to analysis. We highlight several structural properties of the optimal solution, and solve the problem for several special cases. Focusing on settings with low risk-aversion, we show through an asymptotic analysis that the ‘two-price point’ strategy is near-optimal, offering partial validation for its wide use in practice, but also highlighting when it is indeed suitable to adopt it.

The proposed framework first clarifies the concept of customer service in a manufacturing context. Then the key strategic choices associated with emphasizing a customer service–oriented strategy are specified. Next, the organizational arrangements necessary to implement these strategic choices are described. Finally, alternative effective configurations of the strategic choices, organizational arrangements, and customer service activities are proposed. Research propositions are presented that focus on the relationship between central contingencies in the strategic management literature and customer service in manufacturing.

In Internet transactions, customers and service providers often interact once and anonymously. To prevent deceptive behavior a reputation system is particularly important to reduce information asymmetries about the quality of the offered product or service. In this study we examine the effectiveness of a reputation system to reduce information asymmetries when customers may make mistakes in judging the provided service quality. In our model, a service provider makes strategic quality choices and short-lived customers are asked to evaluate the observed quality by providing ratings to a reputation system. The customer is not able to always evaluate the service quality correctly and possibly submits an erroneous rating according to a predefined probability. Considering reputation profiles of the last three sales, within the theoretical model we derive that the service provider’s dichotomous quality decisions are independent of the reputation profile and depend only on the probabilities of receiving positive and negative ratings when providing low or high quality. Thus, a service provider optimally either maintains a good reputation or completely refrains from any reputation building process. However, when mapping our theoretical model to an experimental design we find that a significant share of subjects in the role of the service provider deviates from optimal behavior and chooses actions which are conditional on the current reputation profile. With respect to these individual quality choices we see that subjects use milking strategies which means that they exploit a good reputation. In particular, if the sales price is high, low quality is delivered until the price drops below a certain threshold, and then high quality is chosen until the price increases again.

Webs of Resistance in Transnational Call Centres: Strategic Agents, Service Providers and Customers