Offering a downgraded service to enhance profit?

As market competition is intensified, many firms compete through service. In this paper, we develop a model to examine whether a service supplier should offer a downgraded service as a complement to its high-level service, to compete with a provider of low-level service. We find that only when the s...

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Bibliographic Details
Published in:The Journal of the Operational Research Society 2016-02, Vol.67 (2), p.302-311
Main Authors: Li, Shaorui, Chen, Jing, Chen, Bintong
Format: Article
Language:English
Subjects:
Beauty salons
Brand loyalty
Business and Management
Competition
Competitive advantage
Consumers
Cost efficiency
Customer services
Customers
Decision making
Economic competition
Efficient markets
game
General Paper
Hotels & motels
Management
Manufacturing
Market prices
Market segmentation
Market segments
Marketing strategies
Operations research
Operations Research/Decision Theory
Price efficiency
Prices
pricing
Pricing policies
Product lines
Profitability
Profits
Quality of service
Sales
service
Service design
Studies
Suppliers
Supply chain management
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Summary:As market competition is intensified, many firms compete through service. In this paper, we develop a model to examine whether a service supplier should offer a downgraded service as a complement to its high-level service, to compete with a provider of low-level service. We find that only when the service efficiency of the downgraded service is competitively efficient can the service supplier enhance profit by offering the downgraded service. We identify the conditions under which these services can coexist, and when the service supplier should offer the downgraded service. We also show the impact of the downgraded service on pricing decisions, as well as on demands and profits, in such a supply chain. Managerial implications are discussed and numerical examples are included to illustrate the major results in this paper.
ISSN:0160-5682
1476-9360
DOI:10.1057/jors.2015.24