This paper aims to determine the service rate and pricing decisions in an experience service where customers first experience the product before making a purchase decision, and to examine how customers’ perception ability influences these decisions. Overall, the purpose of the study is to understand how customer understanding affects service operations.
A two-stage queueing game model is developed in which customers first decide whether to join an experience service, modeled as an unobservable M/M/1 queue and subsequently make their purchase decisions. The provider’s optimal service rate and pricing strategy are derived by formulating and solving a revenue-maximization problem.
Service providers benefit from improving efficiency to serve all customers, even when product understanding is incomplete. The experience fee varies with market size, product price, waiting cost and customer perception ability, and its regulation can enhance overall revenue. Revenue impacts from misestimating perception ability depend on market size, highlighting the need to take customer perception ability into operational decisions.
This paper extends the traditional service operations literature on the quality–speed trade-off to the context of experience services. The authors further reveal that the optimal experience-service price can be negative and explicate the underlying mechanisms – an aspect that has not been clearly examined in prior research and that broadens the theoretical scope of service pricing strategies. The findings provide actionable guidance for service providers and demonstrate that understanding customers’ learning and perception capabilities is critical for effective operational decisions.
