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Publications
Publications
  • Fall 2016
  • Article
  • Manufacturing & Service Operations Management

How Do Customers Respond to Increased Service Quality Competition?

By: Ryan W. Buell, Dennis Campbell and Frances X. Frei
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Abstract

When does increased service quality competition lead to customer defection, and which customers are most likely to defect? Our empirical analysis of 82,235 customers exploits the varying competitive dynamics in 644 geographically isolated markets in which a nationwide retail bank conducted business over a five-year period. We find that customers defect at a higher rate from the incumbent following increased service quality (price) competition only when the incumbent offers high (low) quality service relative to existing competitors in a local market. We provide evidence that these results are due to a sorting effect, whereby firms trade off service quality and price, and in turn, the incumbent attracts service (price) sensitive customers in markets where it has supplied relatively high (low) levels of service quality in the past. Furthermore, we show that it is the high-quality incumbent's most profitable customers who are the most attracted by superior quality alternatives. Our results appear to have long-run implications whereby sustaining a high level of service quality is associated with the incumbent attracting and retaining more profitable customers over time.

Keywords

Service Operations; Service Quality Competition; Retail Banks; Empirical Operations; Retention; Service Operations; Quality; Competition; Banking Industry; United States

Citation

Buell, Ryan W., Dennis Campbell, and Frances X. Frei. "How Do Customers Respond to Increased Service Quality Competition?" Manufacturing & Service Operations Management 18, no. 4 (Fall 2016): 585–607.
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About The Authors

Ryan W. Buell

Technology and Operations Management
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Dennis Campbell

Accounting and Management
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Frances X. Frei

Technology and Operations Management
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More from the Authors
  • Zeynep Ton: The Good Jobs Strategy By: Francesca Gino and Frances X. Frei
  • Last Place Aversion in Queues By: Ryan W. Buell
  • The Customer May Not Always Be Right: Customer Compatibility and Service Performance By: Ryan W. Buell, Dennis Campbell and Frances X. Frei
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