FEATURE PAPER

A Note on Modeling Service Capacity Allocation Under Varying Intensities of Competition

The following paper was written by Hongkai Zhang and Jim Rauch from East Central University. It was presented at the Annual Meeting of the Association of Collegiate Marketing Educators (2009).

Abstract

Based on a linear deterministic price response function, sales revenue is analytically determined for five alternative policies for allocating service capacity over a two-period planning horizon for a service provider in a competitive environment, in which the intensity of competition varies over time. A numerical study is conducted to compare the performances of the considered policies and examine the impacts of competition and price sensitivity.

Introduction

Advance selling is widely practiced in service industries and there have been studies addressing service capacity allocation for a service provider (e.g., Png 1991; Lee and Ng 2001; Shugan and Xie 2005). In the marketing literature, a particularly important question still stands only partially answered. It is concerned with what is the best way of allocating a service capacity over time for spot and advance selling so that a certain performance measure is optimized. In this paper, we attempt to address the above question over a two-period planning horizon while taking varying intensities of competition into account.

In the next section, we first develop the models for the prices of service capacity over the advance and spot periods, respectively, and then the sales revenues of five alternative policies for service capacity allocation policies are analytically determined. The third section presents a numerical example to compare the performances of the five allocation policies and examine the impacts of price sensitivity and competition intensity. The paper concludes with a summary of its findings and managerial implications in the fourth section.

(Read Entire Paper)

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Key Variables Sought in Secondary Data Search

Demographics
Population growth: actual and projected
Population density
In-migration and out-migration patterns
Population trends by age, race, and ethnic background

Employment Characteristics
Labor force growth
Unemployment levels
Percentage of employment by occupation categories
Employment by industry

Economic Data
Personal income levels (per capita and median)
Type of manufacturing/service firms
Total housing starts
Building permits issued
Sales tax rates

Competitive Characteristics
Level of retail and wholesale sales
Number and types of competing retailers
Availability of financial institutions

Supply Characteristics
Number of distributions facilities
Cost of deliveries
Level of rail, water, air, and road transportation

Regulations
Taxes
Licensing
Wages
Zoning

International Market Characteristics
Transportation and exporting requirements
Trade barriers
Business philosophies
Legal system
Social customs
Political climate
Cultural patterns
Religious and moral backgrounds

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