Managing customer relationship channels through pricing and service quality

Abstract

The present dissertation focuses on how firms should interact with their customers. The emergence of new technologies such as the Internet give firms new ways to communicate with their customers and raise a number of questions: Which channels should the firm make available to their customers? What level of service should it provide at each of the channels? What types of incentives should the firm offer to encourage customers to use a specific channel? What are the effects of these decisions on customer retention and the firm's revenues and profits? We investigate the effect of service quality and fee structures on customers' behavior and on the long-term value of the relationship for the firm. We consider a firm that charges its customers a periodic membership foe plus an access or usage fee. Customers select the frequency of interaction with the firm based on their level of satisfaction. After every interaction, customers update their perception of service level and stay with the firm as long as the utility they expect to obtain from the relationship is above a certain threshold. Based on this model of customer behavior we model the aggregate system as a queueing network from which we derive structural properties. We first analyze the case of a firm that provides a service through a unique channel with the objective of understanding the basic underlying dynamics in these systems and developing an analytically tractable methodology that can be extended to the more complex multi-channel settings. We then extend the approach to multiple channels by considering the case of complementary services where each service is delivered through a unique channel. We finally analyze the case of services that are provided through alternative or substitute channels.