“We Will Be Right with You”: Managing Customer Expectations with Vague Promises and Cheap Talk

Gad Allon (), Achal Bassamboo () and Itai Gurvich ()
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Gad Allon: Kellogg School of Management, Northwestern University, Evanston, Illinois 60208
Achal Bassamboo: Kellogg School of Management, Northwestern University, Evanston, Illinois 60208
Itai Gurvich: Kellogg School of Management, Northwestern University, Evanston, Illinois 60208

Operations Research, 2011, vol. 59, issue 6, 1382-1394

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.

Keywords: dynamic programming/optimal control; applications; games/group decisions; noncooperative; probability; stochastic model applications; queues; applications; balking and reneging (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (28)

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