Dynamic Formation of Customers’ Quality Expectations

In this paper, based on well-established behavioral theories, we propose a new model for dynamic formation of customer’ quality expectations. The model is described by a one-dimensional non-linear discrete dynamical system which depends on several parameters with links to behavioral theories. Applying stability analysis, we investigate the dynamic properties of the non-linear system. We find those domains in the parameter space in which the equilibrium point of the system (the fixed point) and the periodic orbits are stable and in which they are unstable. These domains correspond to the cases customers will converge to a specific expectation of the offering, while in other cases their expectations will oscillate between a small number of points periodically. These results can help identify target segments for companies and pave the way for interventions that foster more accurate customer expectations.