A theoretical framework for modeling sales-service relationships in the transportation industry

This paper presents a theoretical framework for estimating the functional form of the relationship between sales and service performance for transportation providers. We introduce a method of improving model performance by utilizing a concept of human behavior that has never been incorporated into the models of sales-service relationships. This concept, called the loss aversion property, claims that customers (shippers) react more strongly when they experience service performance below their reference point (expectation) than when they experience service performance above their reference point. Using this concept, we posit that a one unit decrease in service quality from the customer's reference point would decrease a carrier's sales more than an equivalent-sized increase in service quality would increase sales. To incorporate an asymmetric pattern of the sales-service relationship, we develop a model that makes a key distinction between sales response to service increase and to service decrease. The model is demonstrated using hypothetical data. The discussion addresses multiple service quality measures as well as data implementation issues.