Concierge Option for a Service Offering: Design, Analysis, Impact, and Adoption

32 Pages Posted: 25 Jun 2011

See all articles by Srinagesh Gavirneni

Srinagesh Gavirneni

Cornell University - Samuel Curtis Johnson Graduate School of Management

V. G. Kulkarni

University of North Carolina (UNC) at Chapel Hill

Date Written: June 21, 2011

Abstract

Concierge Medicine is the most visible implementation of a new trend of introducing a fee-based premier option in a service offering. This is usually done for the purposes of segmenting customers based on their willingness or ability to wait for the service. Using a realistic yet representative model setup, we perform a detailed analysis to (i) determine the conditions (fees, cost structure, etc.) under which the concierge option is profitable for the service provider, (ii) quantify benefits accrued by the premier customers; and (iii) evaluate the resulting impact on the other customers. We show that, under a wide range of system parameters, introducing a concierge option benefits every one and also compute the magnitude of these benefits. These benefits are larger when the variance in the customer waiting costs is high and the system utilization is high. We complement these results with data on the adoption of MDVIP (the most popular concierge medical service in the US) service and show that the service has been adopted in areas where the median income is significantly larger and the population is older. Both income and age are good proxies for the waiting cost that a customer attributes to waiting for receiving medical service.

Keywords: Queues, Healthcare

JEL Classification: L84

Suggested Citation

Gavirneni, Srinagesh and Kulkarni, V. G., Concierge Option for a Service Offering: Design, Analysis, Impact, and Adoption (June 21, 2011). Available at SSRN: https://ssrn.com/abstract=1869373 or http://dx.doi.org/10.2139/ssrn.1869373

Srinagesh Gavirneni (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

V. G. Kulkarni

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

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