Customer loyalty and supplier quality competition

Customer loyalty and supplier quality competition

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Article ID: iaor20032257
Country: United States
Volume: 48
Issue: 2
Start Page Number: 207
End Page Number: 221
Publication Date: Feb 2002
Journal: Management Science
Authors:
Keywords: service
Abstract:

We develop a model of customer choice in response to random variation in quality. The choice model yields closed-form expressions which reflect the effect of competing suppliers' service quality on the long-run fraction of purchases a customer makes at the various competitors. We then use the expressions as the basis of simple normative models for suppliers seeking to maximize their long-run average profits. The results provide insight into the effect of switching behavior on the service levels offered by competing suppliers.

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