Essays on Service Operations Management

This dissertation studies three different problems service firms can face. The first chapter looks at the optimal way to price reservations and services when customers make reservations in advance, while they are uncertain about the future value of service, to avoid waiting on the day of service. We show that charging customers the full price as non-refundable deposit when they make reservations and charging zero for service when they show up to claim their reservations is optimal for the firm. When the firm faces very large potential market, then it is better for the firm to not take reservations and accept only walk-ins. The second chapter looks at a problem of how to mitigate worker demotivations due to fairness concerns, when workers have intrinsic difference in quality, and higher quality server tends to be overcrowded by customers willing to receive higher quality service. We suggest distributing workload fairly between workers and compensating workers per workload as potential remedies and show which remedy works well under what operational conditions. We show that compensating workers per customer they serve results in high customer expected utility and expected quality. However, when customers also care about fairness and dislike receiving inferior service compared to other customers, then there does not exist a single remedy that results in both high customer expected utilization and high expected quality. In the third chapter, we study how a service firm should choose its advertising strategy when the service quality is not perfectly known to the customers. We model customers\u27 learning process using a Markov chain, and show that when customers do not perfectly learn the quality of service from advertisements, then the firm is better off by advertising actively when customers\u27 initial belief about service quality is low. Oppositely, when customers initially believe the service quality to be high, then it is better for the firm to stay silent and not use advertisement to signal its quality. In all three chapters, we use game theory to model the interactions among the participants of the problem and find the equilibrium outcomes

Optimal trade-in strategy for advance selling with strategic consumers proportion

Purpose This study aimed to optimize the trade-in pricing strategy. To leverage market share, many sellers adopt trade-in strategy for advance selling, Customers can return their old products at a discount price when they buy new products. This can help increase the market share and decrease natural resource consumption. Design/Methodology/Approach We consider a seller who sells new-generation products over two periods: advance selling and regular selling. Based on the rational expectation equilibrium, we adopt dynamic programming to construct a two-period pricing model with three different trade-in strategies–only in period 2, in both periods, and not at all–explaining the trade-in strategy as a promotion tool used by a monopolist to discriminate for advance selling between new and old customers. Findings The results suggest that the optimal price is determined by the proportion of old customers, discount factor and product innovation level. Whether and when to give a trade-in rebate to old customers depends on these parameters. The seller’s choice of optimal trade-in strategy depends on the threshold value of the new customer demand and trade-in demand. Originality/Value Most existing literature focuses on advance selling strategies and trade-in strategies. To the best of our knowledge, this is a pioneering study that adopts trade-in as part of the advance selling strategy

Online marketing:When to offer a refund for advanced sales

Advance selling is a marketing strategy commonly used by online retailers to increase sales by exploiting consumer valuation uncertainty. Recently, some online retailers have started to allow refunds on products sold in advance. On the one hand this reduces the net advance sales, but on the other hand it allows a higher advance sales price. This research is the first to explore the overall effect of allowing a refund on profits from advance sales, identifying conditions where advance selling with or without refunds (or no advance selling at all) is best. We analytically compare the profits of three advance selling strategies: none, without refund, and with refund. We show that selling in advance and allowing a refund is optimal for products with a relatively small profit margin and small strategic market size, and that the added profit can be considerable. Our results guide managers in selecting the right advance selling strategy. To facilitate this, we graphically display, based on the two dimensions of regular profit margin and strategic market size, under what conditions the different strategies are optimal

Optimal pricing strategy:How to sell to strategic consumers?

Technological advances are preparing consumers to plan their purchases strategically. Selling to strategic consumers at a fixed price forgoes the profit from salvaging inventory, whereas high-low pricing, as a ubiquitous pricing strategy, is costly due to the offered markdown discount. This research explores the overall impact of consumer's strategic buying behaviour on a pricing strategy, and identifies conditions where fixed pricing, strategic high pricing, or high-low pricing is the best approach by analytically comparing the profits of the three pricing strategies. Our results show that high-low pricing is appropriate only if the offered markdown discount is relatively small. If strategic consumers have a small population and the needed markdown discount is relatively large, retailers can ignore strategic buying behaviour and sell products at a fixed price. Our results emphasize that the markdown discount for clearance sales and the market structure of heterogeneous consumers play vital roles in determining the optimal pricing strategy

Economic Perspectives on Automated Demand Responsive Transportation and Shared Taxi Services - Analytical models and simulations for policy analysis

The automated demand responsive transportation (DRT) and modern shared taxi services provide shared trips for passengers, adapting dynamically to trip requests by routing a fleet of vehicles operating without any fixed routes or schedules. Compared with traditional public transportation, these new services provide trips without transfers and free passengers from the necessity of using timetables and maps of route networks. Furthermore, automated DRT applies real-time traffic information in vehicle routing and in formulating trip offers with travel time promises, which enables differentiated pricing based on travel times and thereby tailored service provision for personal passenger needs.  This work considers the potential economic impacts of automated DRT and shared taxi services on urban transportation, and explores the effects of various transport policies on these new transport services as an integral part of urban transportation system. Analytical models are presented to define welfare optimal policies for these services, which have different trip production cost structures and external costs compared to conventional bus and taxi services. Moreover, simulation models are developed to analyse cost-effectiveness and regulation policies.  Furthermore, alternative pricing models for these services are analysed from the viewpoint of transport companies, passengers and transport policy.  The publications presented in this dissertation provide theoretical foundations, models and insights based on empirical data for further policy analyses and empirical research on automated DRT and shared taxi markets. These markets are evolving due to the advances in intellingent transportation technologies adopted by innovative and even revolutionary companies, and due to the increasing political pressures for sustainable transportation.Automatisoitu kysyntäohjautuva joukkoliikenne ja modernit jaetut taksipalvelut tarjoavat jaettuja kyytejä matkustajille makautuen dynaamisesti matkapyyntöihin reitittämällä operoivat ajoneuvot reaaliaikaisesti ilman ennalta määrättyjä reittejä ja aikatauluja. Verrattuna perinteiseen julkiseen liikenteeseen nämä uudet liikennepalvelut tarjoavat matkoja ilman vaihtoja ja vapauttavat matkustajat käyttämästä aikatauluja ja linjastokarttoja. Tämän lisäksi automatisoitu kysyntäohjautuva joukkoliikenne hyödyntää reaaliaikaista liikennetietoa ajoneuvojen reitityksessä ja muodostaessaan matka-aikalupauksia sisältäviä matkatarjouksia, mikä mahdollistaa matka-aikoihin perustuvan hintadifferoinnin ja siten yksilöllisemmän palvelutarjonnan matkustajien tarpeisiin.  Tämä työ tarkastelee automatisoidun kysyntäohjautuvan joukkoliikenteen ja jaettujen taksipalvelujen potentiaalisia vaikutuksia urbaanille liikenteelle sekä tutkii erilaisten liikennepolitiikkojen vaikutusta näihin palveluihin kiinteänä osana urbaania liikennesysteemiä. Työssä esitetään analyyttisiä malleja, joilla määritellään yhteiskunnan hyvinvoinnin optimoivia politiikkoja näille palveluille, joilla on perinteisiin bussi- ja taksipalveluihin verrattaessa erilaiset palvelutuotannon kustannusrakenteet sekä ulkoiskustannukset. Lisäksi työssä kehitetään simulointimalleja kustannustehokkuuden ja säännöstelypolitiikkojen analysointiin. Tämän lisäksi vaihtoehtoisia hinnoittelumalleja tarkastellaan liikenneyritysten, matkustajien ja liikennepolitiikan näkökulmasta.  Väitöskirjassa esitetyt julkaisut tarjoavat teoreettisen pohjan, malleja ja empiiriseen aineistoon pohjautuvia näkymyksiä automatisoidun kysyntäohjautuvan joukkoliikenteen ja jaettujen taksipalvelujen politiikkanalyysiin sekä empiirisen tutkimuksen tarpeisiin. Näiden uusien liikennepalveluiden markkinat ovat kehittymässä älyliikennneteknologioiden edistysaskelten ja niitä hyödyntävien innovatiivisten yritysten myötä sekä liikenteen kestävyyteen kohdistuvan kasvavan poliittisen paineen ja vaatimusten myötävaikutuksesta

Improving firm performance through sustainable operations

As concerns over environmental sustainability rise, corporations must extend their efforts to improve their environmental performance while at the same time realizing economic growth. The endeavor represents challenges on both strategic and operational fronts, in particular regarding supply chains. This dissertation is thus motivated by the opportunity for businesses to improve their overall performance through their supply chain strategies and operations. In the first research project, we address the strategic opportunities by developing a theoretical framework to identify the dynamic capabilities required to obtain environmentally sustainable supply chains. We break down the internal and external capabilities in three hierarchical levels of organizational structure, and illustrate an application of the framework with a case study on the "Zero waste to disposal" initiative of Nestlé. In the second research project, we focus on the operational opportunities by analytically optimizing the replenishment frequency of perishable products between two supply chain levels. We model the manufacturer-retailer relationship as a Stackelberg game and show that raw material and finished goods lifetimes are interrelated through the replenishment cycle, and that they significantly impact supply chain costs. In the final project, we address both strategic and operational opportunities by empirically modelling the drivers of spoilage for days-fresh products, in our case fruits and vegetables, using daily supply chain data from Migros, Switzerland's largest retailer. We quantify to what extent inventory, promotions, delivery type, commitment changes, order variations, order cycle, and quality issues influence spoilage, and emphasize the necessity for specialized supply chain processes, tracking inventory age, and collaboration with supply chain partners for this fundamental product category

The role of crowdfunding in promoting entrepreneurship

Crowdfunding is a collaborative initiative, usually via internet, where people network to collectively raise funds in order to invest in and support projects delivered by other people or organizations. Tools such as crowdfunding are born and thrive in a grassroots environment, with a strong potential to positively disrupt the entrepreneurial generation setting and grow to a position of significant relevance in society, namely at a time when alternatives to traditional forms of finance are welcome and the technology to deliver them is abundant. Entrepreneurship is the act of transforming ideas and projects into economic products or services. Entrepreneurship related to starting new businesses is better known as start‐up ventures. Entrepreneurs face a series of challenges, from idea conception and business plan design, to obtaining finance, promoting new products and services, generating revenues and profits and generally growing and sustaining a business for the long‐run. These challenges can be overwhelming, namely in the start‐up phase of a new venture, leaving several ideas on paper without them having a chance to “grow legs and walk”. This paper and its analysis offer important insights about the contribution of crowdfunding to facilitate the attainment of critical factors for successful entrepreneurship. With extensive use of real practical examples, leveraging previous analytical studies of other crowdfunding implications and reviewing expert literature, by interviewing entrepreneurs, crowdfunding platform owners and by benefitting from hands on experience of working in such an organization, we intend to clarify the impact of crowdfunding in what we considered to be 7 key entrepreneurial requirements detailed further in the introduction section and later in the body of the paper. The findings have implications for entrepreneurs, naturally, and for business generation theory, extending current entrepreneurial guidelines with innovative tools and methodologies capable of sustaining successful ventures in a newly highlighted cooperative world. We live in innovative times where the channels for the transfer of funds and resources suffer disruptive changes with the potential to significantly improve the ability to generate new initiatives for the well‐being of entrepreneurs and all related communities

Three Essays at the Interface of Operations Management, Accounting and Entrepreneurship

This dissertation is a study on the role that metrics and measures serve to incentivize actions by stakeholders whose payoffs are related to how these metrics perform relative to a goal. Specifically, stakeholders maximizing individual payoffs by affecting these measures, may lead to actions that jeopardizes the larger system objective. I study this phenomenon (referred as Goodhart's Law) in the areas of Crowdfunding and Supply Chains. In crowdfunding an entrepreneur sets a target amount to raise, through the duration of a live ``campaign." Unless the target is reached, the entrepreneur does not get the investments put forth by investors (``backers," in crowdfunding parlance). If the target amount is raised, the entrepreneur is obligated to deliver the physical product to the investors. The intended purpose of having the target as threshold is to incentivize the entrepreneurs to set a target amount that is large enough to cover for the product development cost, so that the entrepreneur does not find itself in a position where the campaign manages to reach the target, and yet does not have enough to start production. In chapter 2 we find that an entrepreneur, responding rationally to a platform's rule of ``campaign promotion," sets a target amount that is lower than the product development cost and exposes backers to the risk of non-delivery. In chapter 3, the entrepreneur can choose to not pursue production after observing the subscription level of the crowdfunding campaign. The investors are exposed to the risk of non-delivery when the crowdfunding campaign manages to reach the target, and yet the entrepreneur chooses to not pursue production. To exercise its right to not produce, the entrepreneur pays a premium to the supplier who supplies the parts to the entrepreneur. In chapter 4, I critique the Cash Conversion Cycle, a measure for operational efficiency. Including individual firm differences of sales growth rates, fiscal year endings and seasonality can significantly alter the interpretations. We show that a lower cash conversion cycle can merely be a result of firm specific differences which, if unaccounted, can be mistaken for better operational efficiency

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