Proactive Customer Service: Operational Benefits and Economic Frictions

Problem definition: We study a service setting where the provider has information about some customers’ future needs and may initiate for such customers proactively, if they agree to be flexible with respect timing of delivery. Academic/practical relevance: Information customer-service is becoming increasingly available through remote monitoring systems data analytics. However, literature not systematically examined proactive as tool that can used better match demand supply when are strategic. Methodology: combine (i) queueing theory, in particular diffusion approximation developed specifically this problem allows us derive analytic approximations customer waiting times, (ii) game which captures incentives adopt service. Results: show reduce even only relatively small proportion flexible, lead time limited, system makes occasional errors providing service—in fact, we system’s ability tolerate increases (nominal) utilization. Nevertheless, these benefits fail materialize equilibrium because economic frictions: Customers will underadopt (due free-riding) overjoin negative congestion-based externalities). also incentivize optimal behavior appropriate pricing. Managerial implications: Our results suggest offer substantial operational benefits, but caution it fulfill its potential due self-interested behavior.