We will be right with you: Managing customer expectations with vague promises and cheap talk

Gad Allon*, Achal Bassamboo, Itai Gurvich

*Corresponding author for this work

Research output: Contribution to journalArticle

59 Scopus citations

Abstract

Delay announcements informing customers about anticipated service delays are prevalent in service-oriented systems. How delay announcements can influence customers in service systems is a complex problem that depends on both the dynamics of the underlying queueing system and on the customers' strategic behavior. We examine this problem of information communication by considering a model in which both the firm and the customers act strategically: the firm in choosing its delay announcement while anticipating customer response, and the customers in interpreting these announcements and in making the decision about when to join the system and when to balk. We characterize the equilibrium language that emerges between the service provider and her customers. The analysis of the emerging equilibria provides new and interesting insights into customer-firm information sharing. We show that even though the information provided to customers is nonverifiable, it improves the profits of the firm and the expected utility of the customers. The robustness of the results is illustrated via various extensions of the model. In particular, studying models with incomplete information on the system parameters allows us also to highlight the role of information provision in managing customer expectations regarding the congestion in the system. Further, the information could be as simple as "high congestion"/"low congestion" announcements, or it could be as detailed as the true state of the system. We also show that firms may choose to shade some of the truth by using intentional vagueness to lure customers.

Original languageEnglish (US)
Pages (from-to)1382-1394
Number of pages13
JournalOperations Research
Volume59
Issue number6
DOIs
StatePublished - Nov 1 2011

Keywords

  • Balking and reneging
  • Dynamic programming/optimal control: applications
  • Games/group decisions: noncooperative
  • Probability: stochastic model applications
  • Queues: applications

ASJC Scopus subject areas

  • Computer Science Applications
  • Management Science and Operations Research

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