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Dynamic quality and pricing decisions in customer-intensive service systems with online reviews

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  • Cui Zhao
  • Yao Zhang

Abstract

In this paper, we investigate dynamic quality and pricing decisions for customer-intensive service systems with online reviews. We construct a dynamic programming model to determine the optimal quality and pricing strategies. We find that with online reviews, the supplier is forced to provide a higher quality at a higher price for fewer customers, especially when the customer intensity is high. Interestingly, although online reviews deliver quality information for later consumers, the provided quality may decrease over time. Next, we compare the optimal strategies with those of models of either quality flexibility or pricing flexibility, respectively, to examine the merits of our developed model of both quality and pricing flexibilities. The comparison results demonstrate that our model can achieve higher profits, and the advantages of our model increase with the number of periods. In addition, quality (pricing) flexibility is more valuable when consumers are more sensitive to service price (quality). Furthermore, we compare our formulated model with the model for a regular service system, and we illustrate that the optimal quality and pricing strategies in our system are quite different from those of the regular service system.

Suggested Citation

  • Cui Zhao & Yao Zhang, 2019. "Dynamic quality and pricing decisions in customer-intensive service systems with online reviews," International Journal of Production Research, Taylor & Francis Journals, vol. 57(18), pages 5725-5748, September.
    • Handle: RePEc:taf:tprsxx:v:57:y:2019:i:18:p:5725-5748
    DOI: 10.1080/00207543.2018.1543972
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    Citations

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    Cited by:

    1. Lin, Xuxun & Wang, Haiyan, 2022. "Dynamic pricing for online information services considering service duration and quality level," Omega, Elsevier, vol. 109(C).
    2. Wei Peng & Baogui Xin & Yekyung Kwon, 2019. "Optimal Strategies of Product Price, Quality, and Corporate Environmental Responsibility," IJERPH, MDPI, vol. 16(23), pages 1-24, November.
    3. Cui Zhao & Xiaoshuai Peng & Zhendong Li, 2023. "The influence of online customer reviews on two-stage product strategy in a competitive market," Annals of Operations Research, Springer, vol. 326(1), pages 411-503, July.
    4. Cui Zhao & Xiaojun Wang & Yongbo Xiao & Jie Sheng, 2022. "Effects of online reviews and competition on quality and pricing strategies," Production and Operations Management, Production and Operations Management Society, vol. 31(10), pages 3840-3858, October.
    5. Yu, Jianjun & Fang, Yanli & Zhong, Yuanguang & Zhang, Xiong & Zhang, Ruijie, 2022. "Pricing and quality strategies for an on-demand housekeeping platform with customer-intensive services," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).
    6. Shushu Xie & Yingxue Zhao & Lin Zhao & Xingyuan He, 2024. "Do Online Reviews Always Incentivise Remanufacturers to Improve Quality in a Competitive Environment?," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 26(67), pages 903-903, August.
    7. Qiao, Haike & Su, Qin, 2021. "Distribution channel and licensing strategy choice considering consumer online reviews in a closed-loop supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 151(C).

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