Seminar: Design and Pricing of Discretionary Service Lines

Monday, May 29, 2017 12:00 pm - 1:00 pm EDT (GMT -04:00)

Laurens G. Debo

Associate Professor of Operations Management
Tuck School of Business, Dartmouth College
Hanover, New Hampshire


We study the offering of discretionary services, services for which longer processing times yield higher quality, but, also create more system congestion. Facing delay-sensitive customers that are heterogenous in their sensitivity to service quality, firms offer a service line, i.e., a menu of service variants defined by their durations with associated prices, for customers to self-select from. We characterize the optimal service line design under two well-known service operations strategies: First In First Out (FIFO) and Shortest Processing Time (SPT), with the latter giving priority to service variants of shorter duration. We find that, under FIFO, the service line collapses to a single service in absence of customer heterogeneity, but, with SPT, it is optimal to offer a service line with a variety of service variants even when customers are homogeneous. Thus, there exists an operational driver for service variety. In addition, while the price increases convexly in the service duration under FIFO, implying a quality premium structure, it can be concave under SPT, exhibiting a quality discount structure. Furthermore, the corresponding price structures induce a uniform distribution of demands for the service variants under FIFO, but higher demand for lower-quality services under SPT, where the distribution can have a long tail (based on a uniform distribution of customer types). For both FIFO and SPT, we find that increasing customer waiting cost may improve the low-end quality though always reduces the high-end quality offered in the service line, with the variability of the service times (measured by the coefficient of variation) exhibiting different patterns between FIFO and SPT. Finally, by examining the impact of customer heterogeneity, we find that the quality offered at the high-end of the service line is always higher, while the quality at the low-end can be higher or lower, with the variability of service times always higher, than the first-best solution.

This is a joint work with Cuihong Li, School of Business, University of Connecticut.

Biographical Sketch

Laurens Debo’s research focuses the consumer’s as well as the provider’s behavior in different service settings.  On the consumer side, he investigated how strategic consumer behavior shapes the demand for services.  On the supply side, Debo studied the management of “discretionary services,” services whose value to the consumer increases with the actual service time.  Debo's research has been appeared in Manufacturing & Service Operations Management, Management Science and Production and Operations Management, among other journals.

Debo is an Associate Professor of Operations Management at the Tuck School of Business at Dartmouth College.  He earned a PhD in Operations Management from INSEAD, France. Before joining the Tuck faculty, he was with the faculty of the Tepper School of Business of Carnegie Mellon University and the Booth School of Business of the University of Chicago.  Debo is currently serving on the editorial board of Management Science, Production and Operations Management, Manufacturing Services and Operations Management, Service Science and IIE Transactions.  In the past, he frequently served as a judge of the MSOM student paper competition and received the 2008 and 2010 MSOM meritorious service award.