Losses loom longer than gains: Modeling the impact of service crises on perceived service quality over time

Abstract

Service providers sometimes face mass service failures. These problems occur across service industries, ranging from severe Internet outages to major delays for airlines or trains. The literature has not yet addressed the following key question: How do service crises affect perceived service quality (PSQ) over time? To answer this question, the authors introduce a Double-Asymmetric Structural Vector Autoregressive model. It captures not only the short- and long-term effects of objective service performance on PSQ but also the differential effects of service crises versus service restoration. The authors analyze a unique data set from a major European railway company, spanning seven years of monthly observations. During this period, severe winter weather caused dramatic service crises. The authors find that performance losses loom larger than gains in the short run and also have permanent negative effects on PSQ in the long run. Consequently, a crisis followed by a restoration will result in a net negative long-term effect on PSQ. The impact of a crisis also depends on the prior trend in objective service performance.