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Managing Retention in Service Relationships

Author

Listed:
  • Sam Aflaki

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Ioana Popescu

    (INSEAD - Institut Européen d'administration des Affaires)

Abstract

In a repeat business context, past experiences with a service provider affect customers' decisions to renew their contract. How should a strategic firm manage customized service over time to maximize the long-term value from each customer relationship? We propose a dynamic model that relies on behavioral theories and empirical evidence to capture the effect of past service experiences on service quality expectations, customer satisfaction, and retention. Although firms can benefit from managing service expectations at the beginning of a relationship, we find that varying service in the long run is not optimal. Behavioral regularities explain the structure of optimal service policies and limit the value of responsive service. Loss aversion expands the range of optimal constant policies; however, if satisfying experiences are more salient, then firms should constantly vary service levels. Loyal or high-margin customers need not warrant better service; those who anchor less on past service experiences do--provided that retention is improved by better past experiences. The effect of customer memory on service levels is determined by whether habituation or rather goodwill drives defection decisions.

Suggested Citation

  • Sam Aflaki & Ioana Popescu, 2013. "Managing Retention in Service Relationships," Post-Print hal-00960794, HAL.
    • Handle: RePEc:hal:journl:hal-00960794
    DOI: 10.1287/mnsc.2013.1775
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    Citations

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    Cited by:

    1. Tingliang Huang & Zhe Yin & Ying-Ju Chen, 2017. "Managing Posterior Price Matching: The Role of Customer Boundedly Rational Expectations," Manufacturing & Service Operations Management, INFORMS, vol. 19(3), pages 385-402, July.
    2. Chenavaz, Régis, 2016. "Dynamic pricing with reference price dependence," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 10, pages 1-17.
    3. Guillaume Roels, 2020. "High-Performance Practice Processes," Management Science, INFORMS, vol. 66(4), pages 1509-1526, April.
    4. Qiuping Yu & Gad Allon & Achal Bassamboo, 2021. "The Reference Effect of Delay Announcements: A Field Experiment," Management Science, INFORMS, vol. 67(12), pages 7417-7437, December.
    5. Çavdar, Bahar & Erkip, Nesim, 2023. "Word-of-Mouth on Action: Analysis of Optimal Shipment Policy When Customers are Resentful," Omega, Elsevier, vol. 118(C).
    6. Klein, Robert & Kolb, Johannes, 2015. "Maximizing customer equity subject to capacity constraints," Omega, Elsevier, vol. 55(C), pages 111-125.
    7. Aletta Sophia Tolmay, 2018. "An Investigation Into the Personal Interaction Items Which Best Explain the Variation in Trust Within Automotive Supply Chains," International Journal of Information Systems and Supply Chain Management (IJISSCM), IGI Global, vol. 11(2), pages 77-91, April.
    8. Aparupa Das Gupta & Uday S. Karmarkar & Guillaume Roels, 2016. "The Design of Experiential Services with Acclimation and Memory Decay: Optimal Sequence and Duration," Management Science, INFORMS, vol. 62(5), pages 1278-1296, May.

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