Ren, H; (2018) The Role of Consumer Behaviour in Service Operations Management. Doctoral thesis (Ph.D), UCL (University College London).

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Abstract

In this thesis, I study the impact of consumer behaviour on service providers’ operations. In the first study, I consider service systems where customers do not know the distribution of uncertain service quality and cannot estimate it fully rationally. Instead, they form their beliefs by taking the average of several anecdotes, the size of which measures their level of bounded rationality. I characterise the customers’ joining behaviour and the service provider’s pricing, quality control, and information disclosure decisions. Bounded rationality induces customers to form different estimates of the service quality and leads the service provider to use pricing as a market segmentation tool, which is radically different from the full rationality setting. When the service provider also has control over quality, I find that it may reduce both quality and price as customers gather more anecdotes. In addition, a high-quality service provider may not disclose quality information if the sample size is small. In the second study, I analyse the performance of opaque selling in countering the negative revenue impact from consumers’ strategic waiting behaviour in vertically differentiated markets. The advantage of opaque selling is to increase the firm’s regular price, whereas the disadvantage lies in the inflexibility of segmenting different types of consumers. Both the advantage and the disadvantage are radically different from their counterparts in horizontally differentiated markets, and this contrast generates opposite policy recommendations across the two settings. In the third study, I investigate an online store’s product return policy when competing with a physical store, in which consumers can try the product before purchase. I find that the online store should offer product return only if it is socially efficient. Moreover, it should allocate product return cost between the online store and the consumers to minimise the total return cost.

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