Service Diversity and Service Quality: Differentiation Strategy as a Strategic Boundary Condition

Abstract background and purpose Service diversity and differentiation strategy are widely viewed as routes to superior service quality, yet their joint effects remain unclear. Grounded in contingency theory, this study examines whether service diversity and differentiation strategy are positively associated with service quality and whether differentiation strategy conditions the diversity-quality relationship. Design/methodology/approach: Survey data from 204 business units in the UK non-manufacturing sector were analysed using hierarchical moderated ordinary least squares regression. Heteroscedasticity-robust HC3 standard errors, simple-slope analysis, and the Johnson-Neyman technique were used to assess and probe the interaction. Multi-item measures demonstrated good internal consistency, and measurement validity and common method variance were assessed. Findings: Service diversity and differentiation strategy were each positively and significantly associated with service quality. However, differentiation strategy significantly and negatively moderated the service diversity-service quality relationship. The positive effect of service diversity was strongest at low-to-moderate levels of differentiation and became statistically indistinguishable from zero beyond the Johnson-Neyman threshold. Value added and limitations: The study identifies differentiation strategy as a strategic boundary condition rather than a uniform enabler of the diversity-quality relationship and extends contingency-based service research by distinguishing additive from interaction effects. The findings offer managers guidance on balancing service-portfolio breadth with differentiation-based capabilities. The cross-sectional, single-respondent design and UK non-manufacturing setting limit causal inference and generalisability. JEL classification: L84, M10, M31