Service Design Under Acclimation and Non-Homogeneous Memory Decay
41 Pages Posted: 15 Jun 2018 Last revised: 5 Feb 2019
Date Written: January 31, 2019
Problem Definition: In today’s “experience economy,” service providers increasingly emphasize creating memorable, delightful service experiences. In this paper, we study the optimal sequencing and selection of activities a service package comprises to maximize user utility.
Academic/Practical Relevance: Empirical literature shows an ideal schedule often entails an interior peak; that is, the most engaging activity (aka peak activity) is scheduled neither at the beginning nor the end of the package. Theoretic literature, on the other hand, points to a U-shaped schedule such that the peak activity should be scheduled either at the beginning or the end. Our paper bridges the gap in the literature by showing heterogeneity in memory decay, a well-documented psychological phenomenon, provides theoretic support for empirical findings of interior peaks. It also generates practical implications for choosing and sequencing activities in designing service packages.
Methodology: We characterize structural properties of the optimal service schedule, building on which we develop a novel dynamic-programming algorithm that optimally solves the service-design problem in pseudo-polynomial time.
Results: We find, surprisingly, the heterogeneity in memory-decay processes is sufficient to explain the phenomenon of interior peaks, which has been observed in practice but remains to be explained by the extant behavioral models. An interior peak is optimal when the memory-decay rate of the peak activity is neither too high nor too low. Furthermore, we show that when an interior peak is optimal, the service provider can schedule a low point immediately before the peak activity, creating an unexpectedly pleasant service experience. We also analyze the problem of activity selection, and show it can be optimal to choose a portfolio of activities with both the highest and lowest utility values, but not those with medium utility values.
Managerial Implications: In addition to explaining the phenomenon of interior peaks and other empirically observed service-design patterns, our model sheds light on service design in the presence of the heterogeneity in memory processes. For instance, as the peak activity becomes more memorable, one might expect its optimal start time to monotonically decrease. Our results, by contrast, show such a start time may either increase or decrease.
Keywords: service design, memory decay, acclimation, service operations, dynamic programming
JEL Classification: C61, D24, L21, M11, Z31
Suggested Citation: Suggested Citation