 Managing Retention in Service RelationshipsSam Aflaki and
Ioana Popescu
Working Papers from HAL Abstract: Consider a firm that can actively manage and customize the service offered to customers in a repeat business context. What is the long-term value of such flexibility, and how should firms manage the service relationship over time? We propose a dynamic model of the firm-client relationship that relies on behavioral theories and empirical evidence to model the evolution of service quality expectations and their impact on customer retention and profitability. We find that firms can extract higher long-term value by managing service experiences and expectations over time. Varying service in the long run is not optimal, however. We characterize the optimal dynamic service policy and show that it converges to a steady-state service level. Loss aversion expands the range of constant optimal service policies, suggesting that behavioral asymmetries limit the value of responsive service. Sensitivity results characterize the effect of customer margin, loyalty, and memory on policies and profits. Keywords: customer relations; management; customer retention; quality of service; expectation; customer loyalty (search for similar items in EconPapers) Published in 2011, p. 1-32 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-00632076 Access Statistics for this paper More papers in Working Papers from HAL |
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