Journal Article | JMR, Journal of Marketing Research | November 2007

A Model of Consumer Learning for Service Quality and Usage

by Raghuram Iyengar, Asim Ansari and Sunil Gupta

Abstract

In many services, e.g., the wireless service industry, consumers choose a service plan based on their expected consumption. In such situations, consumers experience two forms of uncertainty. First, consumers may be uncertain about the quality of their service provider and can learn about it after repeated use of the service. Second, consumers can be uncertain about their own usage of minutes and learn about it after observing their actual consumption. We propose a model to capture this dual learning process while accounting for the nonlinearity of the pricing scheme used in wireless services. Our results show that both quality and quantity learning are important. Several policy experiments are conducted to capture the effect of consumer learning, pricing and service quality on customer lifetime value (CLV). We find that consumer learning can result in a win-win situation for both consumers and firm -- consumers leave less minutes on the table while the firm sees an increase in overall customer lifetime value. For instance, we find that there is a 35% increase (about $75) in overall CLV with consumer learning than without. The key driver of this result is the change in the retention rate with and without learning.

Keywords: Experience and Expertise; Customer Value and Value Chain; Learning; Price; Knowledge Use and Leverage; Marketing Strategy; Consumer Behavior; Service Delivery; Quality; Risk and Uncertainty; Service Industry;

Citation:

Iyengar, Raghuram, Asim Ansari, and Sunil Gupta. "A Model of Consumer Learning for Service Quality and Usage." JMR, Journal of Marketing Research 44, no. 4 (November 2007): 529–544.