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The Protection Economy: Occasional Service Failure as a Business Model

Author

Listed:
  • Eitan Gerstner
  • Daniel Halbheer

    (HEC Paris - Ecole des Hautes Etudes Commerciales)

  • Oded Koenigsberg

    (School of Business [London] - LSBU - London South Bank University)

Abstract

Should a provider deliver a reliable service or should it allow for occasional service failures? This paper derives conditions under which randomizing service quality can benefit the provider and society. In addition to cost considerations, heterogeneity in customer damages from service failures allows the provider to generate profit from selling damage prevention services or offering compensation to high-damage customers. This strategy is viable even when reputation counts and markets are competitive.

Suggested Citation

  • Eitan Gerstner & Daniel Halbheer & Oded Koenigsberg, 2015. "The Protection Economy: Occasional Service Failure as a Business Model," Working Papers hal-02002693, HAL.
    • Handle: RePEc:hal:wpaper:hal-02002693
    as

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    Cited by:

    1. Anthony Dukes & Yi Zhu, 2019. "Why Customer Service Frustrates Consumers: Using a Tiered Organizational Structure to Exploit Hassle Costs," Marketing Science, INFORMS, vol. 38(3), pages 500-515, May.

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