Service Design Strategies for On-Demand Operations

Abstract

As the service industry accelerates, companies face significant operational challenges in designing service strategies that optimize efficiency while enhancing customer and worker experiences. This dissertation explores key operational decisions in last-mile delivery and on-demand fulfillment, focusing on how service design choices impact customers' and service providers' performance outcomes. Through field experiments and observational data, I examine the effects of communication strategies, customer location heterogeneity, and the design of monetary incentives on the efficiency of on-demand operations. The first chapter investigates how the choice of communication channel affects delivery success rates. In collaboration with a logistics platform that uses decentralized residential inventory storage for same-day fulfillment, I study the outcomes of a field experiment comparing email-based (informational) and WhatsApp-based (interactive) delivery notifications. Contrary to expectations, although the interactive channel increases engagement, it also leads to a higher rate of failed deliveries. This effect is driven by customers attempting to coordinate the delivery times and locations, despite the channel not being monitored in real time. These findings highlight the importance of channel norms when designing services and using customer communication to improve operational efficiency. The second chapter examines how customer proximity to fulfillment centers (FCs) influences purchasing behavior and service costs. Using data from an on-demand grocery delivery company in Latin America, I show that small differences in delivery promise times significantly impact order frequency and that--beyond the promise--actual delivery time matters as well: customers farther from FCs experience longer delivery times and purchase less frequently. This spatial effect can lead to a "catchment area shrinking effect", where FCs predominantly serve nearby customers while losing engagement from those further away. The impact of proximity in an online-only service suggests that managers should incorporate distance into service design decisions--such as their network design, pricing, and delivery promise times. The third chapter focuses on the supply side of on-demand services, analyzing how incentive design can increase gig workers’ retention. Using data from a platform that provides B2B delivery services in which drivers choose their daily routes, I study how the change in incentive structure from a bonus that compensates drivers on taking an extra route (extensive margin) to one that compensates them for the number of deliveries on the extra route (intensive margin) increases both the effectiveness of the incentive and long-term driver retention. I discuss monetary and non-monetary mechanisms that may drive the persistent effects of short-lived incentives, such as goal setting and learning. These results highlight the value of incentive design, a short-term lever, for worker retention in the long run. Together, these studies contribute to the field of service operations management by offering empirical insights into service design strategies for on-demand fulfillment. The findings inform platform-based businesses on how to improve customer interactions, manage geographic service distribution, and enhance worker retention--ultimately improving the operational efficiency of on-demand service models.