Customer segmentation and ex ante fairness: A queueing perspective

Abstract

In this study, we analyze how customer perceptions of ex ante unfairness affect a service provider that offers a priority service option. Customers differ in their waiting time costs, but that information is private to each customer. To address this issue and maximize revenue, the service provider offers a regular queue and a priority queue with an additional fee, thereby inducing the self‐selection of customers into those two queues. The customers make their service‐joining decision, based on the publicized queue terms, before entering the queue. In such a service system, the priority customers pay to reduce their waiting time, which increases the average waiting time for regular customers, as compared with a “first come, first served” (FCFS) queue. This increase in the waiting time can lead to a perception of unfairness by the regular customers. In this paper, we model this ex ante unfairness perception as a negative utility for the regular customers that is proportional to the difference in the expected waiting times between the segmented regular queue and a nonsegmented FCFS queueing system and investigate the service provider's optimal decisions regarding segmentation and pricing. We find that, in a service system where customers can balk, the service provider should focus on only one service offering through a lower priority fee or differentiated services under certain conditions and charge a higher priority fee once the perception of unfairness is taken into consideration. An equilibrium sensitivity study provides guidance on how best to design, construct, and operate queues. Finally, we examine two extension cases in which (1) the customer ex ante unfairness perception is defined as proportional to the waiting time difference between regular and priority queues or (2) priority customers exhibit either a “negative ex ante unfairness perception” or “positive ex ante unfairness perception” of queueing. Our results are robust, and we identify conditions under which a heightened unfairness perception could be beneficial or detrimental to the service provider.