Revenue Management of Group Service Considering Different Quality Levels and Stochastic Customer Patience

Abstract

We consider a service that provides different quality levels to customers who are served in groups (referred to as “group service” (GS)). We consider stochastic customer patience and build a multitype service model to maximize service profit. First, we consider a fixed number of service personnel and decompose the model into several subproblems. We then transform the model into a service personnel allocation problem that can be efficiently solved. Furthermore, we use the water-filling theory, together with a dichotomy approach, to design the numerical algorithm to conduct a numerical test based on actual data. The main contributions of this study are as follows. First, we provide the service provider with a service capacity allocation mechanism that can determine the optimal choice of service quality levels, number of service groups of different quality levels, time length of the service registration period, and service prices. Second, we find that under scarce service capacity, the single-type service can be more profitable than the multitype service, and low-quality services have higher marginal profits than high-quality services. However, when service capacity increases to a certain level, the multitype service can be more profitable than the single-type service. Third, we construct a service capacity decision mechanism and demonstrate the influence of service quality on the total number of service personnel and service groups. The conclusions are potentially useful to GS service providers to effectively make better managerial decisions and improve service profits.