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Quality-Speed Conundrum: Tradeoffs in Labor-Intensive Services

By Krishnan S. An


In labor-intensive services such as primary health care, hospitality and education, the quality or value provided by the service increases with the time spent with the customer (with diminishing returns). However, longer service times (i.e., slower speed of service) also result in longer waits for customers. Thus, labor-intensive services need to make the tradeoff between service quality and service speed. The interaction between quality and speed remains unaddressed and is critical for the design of labor-intensive services. In a queueing framework, we parameterize the degree of labor-intensity of the service. The service speed chosen by the service-provider affects the quality of the service through its labor-intensity. Customers queue for the service based on the quality of the service, delay costs and price. We study how a service provider can make the optimal “quality-speed tradeoff ” in the face of such self-interested, rational customers. Our results demonstrate that the labor-intensity of the service is a critical driver of equilibrium price, service speed, demand, congestion in queues and service provider revenues. We also model service rate competition among multiple servers, whose effects, we find, are very different from price competition. For instance, as the number of servers increases, the price increases and the servers become slower

Topics: Service Quality, Customer Behavior, Labor-Intensive Services, Queues, Cost Disease
Year: 2009
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