Integrating Gap Analysis and Utility Theory in Service Research

Conventional utility theory models customer preferences in terms of actual performance and does not use benchmarks. But empirical work in gap analysis shows that customer preferences clearly depend upon the disparity between performance and some benchmark. To resolve this apparent discrepancy between theory and experiment, this paper shows that a simple reinterpretation of utility makes utility a function of the uncertainty-discounted gap between actual performance and a benchmark. We interpret the benchmark as reflecting customer product expectations. The resulting formulation is used to derive a consumer choice model where customer choice depends upon how perceived performance compares to expectations and upon customer uncertainty about performance and expectations. In this model, increasing information on a product or service `tends' to increase its sales if its performance is above customer expectations and to decrease its sales if its performance is below customer expectations.