Abstract:
Capacity decisions in service operations often involve a trade-off between the operating cost and the service level offered to customers. Although the cost of attaining a pre-specified service level has been well-studied, there isn’t much research studying how customer service levels affect revenue and profit. This paper conducts an empirical study to analyze how waiting in queue in the context of a retail store affects customer purchasing behavior. Our methodology uses a novel technology based on digital imaging to record periodic information about the queuing system. Our econometric method uses queuing theory combining these data with point-of-sales information to estimate the effect of queues on purchases. We find that waiting in queue has a
non-linear impact on purchase incidence and that customers appear to focus mostly on the length of the queue, without adjusting enough for the speed at which the line moves. We also find that customers’ sensitivity to waiting is heterogeneous and negatively correlated with price sensitivity. We discuss the implications of these results in the context of service
design, staffing and category pricing.
rimunozc
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