UNDERSTANDING CUSTOMER CHOICES IN SERVICE OUTSOURCING AND REVENUE MANAGEMENT

This dissertation investigates customer behavior modeling in service outsourcing and revenue management in the service sector (i.e., airline and hotel industries). In particular, it focuses on a common theme of improving firms’ strategic decisions through the understanding of customer preferences. Decisions concerning degrees of outsourcing, such as firms’ capacity choices, are important to performance outcomes. These choices are especially important in high-customer-contact services (e.g., airline industry) because of the characteristics of services: simultaneity of consumption and production, and intangibility and perishability of the offering. Essay 1 estimates how outsourcing affects customer choices and market share in the airline industry, and consequently the revenue implications from outsourcing. However, outsourcing decisions are typically endogenous. A firm may choose whether to outsource or not based on what a firm expects to be the best outcome. Essay 2 contributes to the literature by proposing a structural model which could capture a firm’s profit-maximizing decision-making behavior in a market. This makes possible the prediction of consequences (i.e., performance outcomes) of future strategic moves. Another emerging area in service operations management is revenue management. Choice-based revenue systems incorporate discrete choice models into traditional revenue management algorithms. To successfully implement a choice-based revenue system, it is necessary to estimate customer preferences as a valid input to optimization algorithms. The third essay investigates how to estimate customer preferences when part of the market is consistently unobserved. This issue is especially prominent in choice-based revenue management systems. Normally a firm only has its own observed purchases, while those customers who purchase from competitors or do not make purchases are unobserved. Most current estimation procedures depend on unrealistic assumptions about customer arriving. This study proposes a new estimation methodology, which does not require any prior knowledge about the customer arrival process and allows for arbitrary demand distributions. Compared with previous methods, this model performs superior when the true demand is highly variable.

A Ride-Sharing System with High Capacity Vehicles and Flexible Meeting Points

In many major cities, fixed route transit systems such as bus and rail serve millions of trips per day. These systems have people collect at common locations (the station or stop), and board at common times (for example according to a predetermined schedule or headway). By using common service locations and times, these modes can consolidate many trips that have similar origins and destinations or overlapping routes. However, the routes are not sensitive to changing travel patterns, and have no way of identifying which trips are going unserved, or are poorly served, by the existing routes. On the opposite end of the spectrum, personal modes of transportation, such as a private vehicle or taxi, offer service to and from the exact origin and destination of a rider, at close to exactly the time they desire to travel. Despite the apparent increased convenience to users, the presence of a large number of small vehicles results in a disorganized, and potentially congested road network during high demand periods. The focus of the research presented in this paper is to develop a system that possesses both the on-demand nature of a personal mode, with the efficiency of shared modes. In this system, users submit their request for travel, but are asked to make small compromises in their origin and destination location by walking to a nearby meeting point, as well as slightly modifying their time of travel, in order to accommodate other passengers. Because the origin and destination location of the request can be adjusted, this is a more general case of the Dial-a-Ride problem with time windows. The solution methodology uses a graph clustering algorithm coupled with a greedy insertion technique. A case study is presented using actual requests for taxi trips in Washington DC, and shows a significant decrease in the number of vehicles required to serve the demand.