Abstract

http://ssrn.com/abstract=2267549
 
 

References (22)



 


 



Service Quality Variability and Termination Behavior


S. Sriram


The Stephen M. Ross School of Business at the University of Michigan

Pradeep K. Chintagunta


University of Chicago

Puneet Manchanda


University of Michigan, Stephen M. Ross School of Business

January 2014

Ross School of Business Paper No. 1224

Abstract:     
While researchers have documented a positive relationship between the average quality of a service and customer retention, the effect of variability on customer retention has been viewed more ambiguously in the literature. We investigate the roles of the level and variability in quality in the context of a new video on demand service in driving customer retention. We find that while high average quality helps in retaining customers, high variability leads to higher termination rates. Apart from these main effects, we empirically document the presence of an interaction effect between average service quality and its variability on termination rates; customers who experience low variability are more responsive to mean quality compared to those experiencing high variability. As an extreme outcome, at the lower end of the quality spectrum, customers experiencing high variability have a higher retention rate than those experiencing low variability; this is contrary to what the main effect of variability would imply. We postulate a mechanism involving risk aversion and learning, which can induce this interaction effect and test this against several alternative explanations. Our results reinforce the notion that high service quality is associated with lower termination rates. Moreover, our estimates suggest that households exhibit risk aversion, implying that, on average, variability increases termination. Based on the model and estimation results, we document that in the context of new services where customers are likely to learn about their quality, households that experience low variability in service are likely to be more responsive to the quality level. This differential responsiveness results in an interaction effect between service quality level and its variability. In terms of managerial implications, we show that while increasing the average quality might be effective in retaining customers at low quality levels, lowering variability is likely to be more appropriate at high quality levels.

Number of Pages in PDF File: 52

Keywords: Service quality, customer retention, Bayesian learning, dynamic models

JEL Classification: M31, C10, C50, D81, D83, D90

working papers series


Download This Paper

Date posted: May 22, 2013 ; Last revised: March 20, 2014

Suggested Citation

Sriram, S. and Chintagunta, Pradeep K. and Manchanda, Puneet, Service Quality Variability and Termination Behavior (January 2014). Ross School of Business Paper No. 1224. Available at SSRN: http://ssrn.com/abstract=2267549 or http://dx.doi.org/10.2139/ssrn.2267549

Contact Information

S. Sriram (Contact Author)
The Stephen M. Ross School of Business at the University of Michigan ( email )
Ann Arbor, MI 48109
United States
Pradeep K. Chintagunta
University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8015 (Phone)
773-702-0458 (Fax)
Puneet Manchanda
University of Michigan, Stephen M. Ross School of Business ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-936-2445 (Phone)
734-936-8716 (Fax)
Feedback to SSRN


Paper statistics
Abstract Views: 448
Downloads: 92
Download Rank: 165,859
References:  22

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo3 in 0.453 seconds