Journal of Service Research

Service firms seek customers with high revenues, profits, or lifetime value. However, they frequently ignore variations in consumption that lead to cash flow variability and adversely influence service operations and financial performance. This study shows that variation in individual customers' consumption or spending on services can be decreased in ways that are actionable by most managers, without decreasing revenues or profits. First, customer satisfaction has a ``double-whammy'' effect: lower cash flow variability and higher cash flow levels. This finding is important because firms can increase satisfaction in many ways. Second, customers who participate in loyalty programs have more variable cash flows, but not higher average cash flows. Hence, firms should design loyalty programs to improve customer satisfaction or intangible benefits (e.g., membership recognition), rather than offering economic incentives. Third, customers who purchase many different offerings, or allocate a large share of their purchases to the firm, have higher cash flow variability and higher average cash flows. Firms can optimize the customer portfolio by combining customers with high variability with customers who have different, offsetting cash flow patterns. Fourth, personal characteristics, such as age and income, also influence cash flow variability. Empirical findings are robust across two settings: telecommunications and financial services. The study describes sensitivity analyses of how different service and relationship marketing strategies influence a firm's business outcomes. The article concludes with insights into how to integrate service management principles, which emphasize consistency or low variability in processes, with customer relationship management principles that emphasize growing relationships and cash flows.

Building long-term, profitable, customer relationships has become a strategic mandate for service firms. In this research, the authors present a modeling framework for understanding the decision of a noncontractual customer to strengthen the relationship with the firm by migrating to a contractual relationship. Drawing upon expected utility theory, the customer migration decision is modeled as a function of expected gains (actual expectations of service usage) and losses (price of the noncontractual service). In addition, the authors investigate the direct and indirect effects of the age of the noncontractual relationship and propose a model to understand the process of expectations formation. The framework is tested empirically in a business-to-consumer context in mobile communications services. The findings provide strong support for the proposed model and they reveal that actual expected service usage and noncontractual price increase the probability of the customer migrating to a contract, and that relationship age has both direct (positive) and indirect (through expected service usage) effects on the studied behavior. The present study also provides new theoretical and empirical insights into the formation of actual customer usage expectations. Finally, the study findings have several important implications for service managers to strengthen their relationships with their current noncontractual customers. For example, they need to proactively manage customers’ actual expectations about future service usage in order to increase a customer’s probability to migrate to a contract.

Drawing from signaling theory, this study investigates the processes through which corporate image (CI) for quality affects attitudinal loyalty. The research hypotheses are examined using data from a cross-sectional survey and two scenario-based experiments. Overall, findings across these three studies suggest that the effects of CI upon loyalty are channeled through customer satisfaction and perceived value. The effects of CI on perceived value and loyalty are stronger relative to the effects of employee interaction quality (IQ) when IQ is measured as an overall evaluation. However, when employee IQ is measured in reference to a specific service encounter, it becomes a stronger driver of perceived value and loyalty relative to CI. Regardless of the context of measurement (i.e., overall evaluation vs. a specific service encounter), employee IQ exerts a stronger influence on customer satisfaction than CI. CI negatively moderates the effect of employee IQ on customer satisfaction and loyalty, rendering the effect of employee IQ upon customer evaluations less critical for service providers with stronger CIs. The findings highlight the relevance and importance of CI as a signal of unobservable quality, which should be measured and closely monitored by management. Managers should also recognize the central role of customer satisfaction, especially in channeling the effects of IQ upon loyalty, and therefore, design policies that enhance frontline employee ability and motivation to deliver satisfying customer experiences.

In this study, we investigate why companies intend to use nonownership services by conducting qualitative interviews with 10 experts to develop our hypotheses, then using a survey to test them. Our findings show that, as hypothesized, firms’ intentions to use nonownership services are affected by both financial (i.e., tax efficiency and cash and liquid asset management) and nonfinancial (i.e., control over assets and access to the latest technology and tools) factors, with access to the latest technology and tools being the most important driver. Furthermore, we show that the effect that the desire to gain access to the latest technology and tools has on intentions to use nonownership services is enhanced (i.e., moderated) when firms wish to reduce the risk of obsolescence. The hypothesized moderation effect of firm size on the importance of cash and liquid asset management is marginally significant. These findings are an important contribution to the literature, as previous studies have almost exclusively focused on the financial drivers of nonownership service use.

This article introduces nature-inspired modeling to strategic service management. It determines optimal service diversification through an evolutionary mechanism of natural selection and population genetics as well as a model of cooperative behavior and collective intelligence in swarms. Specifically, we design and implement Genetic and Particle Swarm Optimization algorithms to stated-preference data derived from a conjoint experiment measuring consumer preferences for service attributes in a retail setting. The proposed procedure provides key insights to strategic service management such as optimal service design, optimal mix of service offerings in terms of consumer demand, and local adaptation of service portfolios. It demonstrates how diversification meets heterogeneous customer preferences and how localized solutions address cross-country differences. The findings suggest that variation in service portfolios elevates customer utility, in the sense that diversified offerings better match heterogeneous customer needs. In an intuitive fashion, consumer diversity is such that a uniform service portfolio is inferior to differentiated offerings, especially with regard to salient service attributes. The results also illustrate that localized diversification strategies are necessary for multistore, multimarket operations. Our method has valuable implications for managers aiming to improve how they design their services. A new tool is introduced which handles tangible and intangible service elements and allows service design optimization by predicting which elements create the most compelling service contexts from a customer perspective. The tool also facilitates localized diversification decisions by adapting critical service attributes to local markets. Bio-inspired models shed new light on marketing phenomena and reveal opportunities for empirical research.

This article examines the influence of temporal distance on consumer responses to different types of service guarantees. Four studies revealed that the effectiveness of service guarantees depends on whether their elements match the time frame of consumer purchase decisions. Full-satisfaction guarantees more strongly influence decisions in the distant future, while attribute-specific guarantees more strongly influence decisions in the near future. Combined guarantees are as effective as attribute-specific guarantees for temporally close consumer decisions, but less effective than full-satisfaction guarantees for temporally distant decisions. Attribute-specific guarantees that are easy to invoke are more persuasive for purchases in the near future, while full-satisfaction guarantees with high compensation are more effective for purchases in the distant future. The finding that the construal fit between guarantee elements and the purchase time frame significantly enhances a guarantee’s effectiveness contributes to the service literature by identifying the time-contingent effects of service guarantees. Service firms can improve a guarantee’s effectiveness by ensuring that its scope, compensation level, and invocation process match the consumer’s purchase time frame.

Flat rates are a dominant pricing scheme in many consumer service industries that largely benefit service providers: Many customers exhibit a bias and choose flat rates even though a pay-per-use plan would be less expensive for them. Yet, whereas the degree of flat-rate bias varies strongly across services, no study has determined whether consumers’ consumption goals might influence its extent. The authors argue and show that consuming services to attain hedonic gratification leads to a significantly higher flat-rate bias than using services to fulfill utilitarian needs. The three well-known flat-rate bias effects (taximeter, insurance, and overestimation) fully mediate the relationship between the consumption goal and flat-rate bias. In three experimental studies, the authors consistently show that these findings apply across different services, for a service that relies on natural variance in customers’ consumption goals, and for the same service framed as hedonic, utilitarian, or a hybrid. These findings show that managers need to be aware of major “natural” industry differences in the level of flat-rate bias. However, service providers can also actively manage and increase consumers’ hedonic consumption goals for their services and thus increase their share of flat-rate contracts. A further experiment shows that the hedonization tactic has no negative side effects on consumers’ price perceptions in terms of willingness to pay (WTP). Service providers can benefit from hedonizing their services as long as it is compatible with their value proposition.

Electronic service quality (ESQ) is essential for explaining consumer value perceptions in B2C e-commerce contexts. However, we argue that focusing too narrowly on ESQ without considering consumer knowledge-related resources could lead managers to devise myopic strategies. Our research is inspired by, and intends to contribute to, service-dominant logic, service logic, and service science. These perspectives suggest that firms and consumers cocreate value by integrating their resources. However, the literature in these areas relies on conceptual development, and further empirical research is needed. The empirical study reported here is the first cross-sectional test that confers similar salience to both consumer resources, in the form of consumer expertise (and its antecedents), and firm resources, as represented by ESQ (and its antecedents), to explain value perception in a B2C e-commerce context. We provide evidence that both consumer expertise and ESQ directly and positively affect value perception, the magnitude of the effect of consumer expertise (ESQ) on value perception being smaller as ESQ (consumer expertise) increases, and vice versa. Our results offer interesting insights for designing successful e-commerce strategies. For instance, the negative interaction effect we found suggests that consumer expertise and ESQ behave as substitutes to some extent. Therefore, firms might reduce the expert/nonexpert value gap by incorporating in their websites tools addressed to palliate nonexperts’ disadvantages, or by upgrading these tools when available. Thus, recommender systems might be upgraded using information derived from experts’ e-buying behavior and opinions, instead of considering only overall data from consumers with a similar taste profile.