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

Service ̄rms have been increasingly competing for market share on the basis of delivery-time. Many ̄rms now choose to set customer expectation by announcing their maximal delivery-time. Customers will be satis ̄ed 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 ̄rm might choose a delivery-time commitment to in°uence 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 ̄rm's market share and (2) the impact of the ̄rm's market share and process variability on delivery quality when there is a congestion e®ect. 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.