Integrated Segmentation of Supply and Demand with Service Differentiation

Benedikt Schulte ()
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Benedikt Schulte: Würzburg University

A chapter in Operations Research Proceedings 2016, 2018, pp 17-22 from Springer

Abstract: Abstract The presented research addresses the integrated segmentation of supply and demand with service differentiation by means of service-level menus. To this end, it establishes a joint perspective on the market side—that is, prices and service levels—and the operations side—that is, the inventory management policy and the corresponding parameters. This joint perspective comprises analyzing when the introduction of a service-level menu increases profits over those of a single undifferentiated offering and how to design optimal service-level menus. Surprisingly, in many cases service differentiation does not increase profits significantly. One way to interpret this finding is that differentiating customers based on service levels alone is a weak differentiation lever only, that is, the price differences between offerings with differing service levels need to be small in order to prevent customers from switching to offerings with lower prices and service levels. Therefore, successful price differentiation requires service differentiations being supported by presence of additional conditions or measures (e.g., pricing restrictions or further differentiation levers). Indeed, it is possible to show that service differentiation can significantly increase profits if the company experiences pricing restrictions.

Keywords: Differing Service Levels; Differentiation Lever; Critical Level Policy; Selling Period; Customer Classes (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:spr:oprchp:978-3-319-55702-1_3

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DOI: 10.1007/978-3-319-55702-1_3

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