Quality and Capacity Decisions in Service Industry

Abstract

In this research we provide different analytical models that capture the effects of quality of service. We consider quality of service as a measure separate from capacity decision and analyze the effects of these decisions on costumers' behavior. The first part of research investigates the continuity of the customer experience across various stages. We provide a contract that can coordinate this system. We also analyze the scenarios when the outsourcer pools the demand from multiple clients and show that although pooling in some cases can mitigate the effects of non coordination, when the client's customers are different in attitude, it might be even suboptimal. The second part analyzes a model that considers the effect of quality of service on repeat purchase, perceived value of quality, and referral. We show that because of the behavior of the customers towards waiting and quality of service, a natural link between the two decisions exist. Depending on the optimal quality level either the two decisions are substitutes or complements. We also analyze a duopoly scenario and investigate the optimal decision of two identical and non-identical firms. The third part considers optimal brand equity as the measure of gain. We consider the effects of capacity and quality on the customers' value, repeat purchase, and brand choice. We compare this model with the existing models in the literature of marketing and service operations. We also investigate the effects of different marketing strategies on the decision levels and show that the existence of marketing strategy can result in lower quality levels.