Losses Loom Longer Than Gains: Modeling the Impact of Service Crises on Perceived Service Quality over Time

Service providers sometimes face mass service failures. These problems occur across service industries, ranging from severe Internet outages to severe delays for airlines or trains. A key question that has not been addressed in the literature is: how do service crises impact perceived service quality (PSQ) over time? To address 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 dataset 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 not only loom larger than gains in the short run, but in the long run they also have permanent negative effects on PSQ. 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.