Price and speed decisions in customer-intensive services with two classes of customers

In many customer-intensive services, the perceived quality of service decreases in the speed of service. Usually, an increase in service speed induces different marginal reductions in quality for heterogeneous customers. To bring insight into the managerial implications of this difference, we classify customers in terms of intensity parameters, and investigate the behavior of each class of customers in a queueing framework. The optimal service speed and price are derived to maximize service provider’s revenue. Our results demonstrate that no class is always attractive to the provider, and thus there are usually several combinations of service price and speed reaching the same maximal revenue. Moreover, under some mild conditions, the provider could gain more revenue by treating different classes with discrimination than by adopting uniform treatment.

► We make price and speed decision in customer-intensive services.
► There are two kinds of customers classified in terms of intensive parameters.
► The optimal service price and speed are derived.
► There are usually several different optimal combinations of price and speed.
► Sometimes, discrimination may increase revenue.