Outsourced After-Sales Service Contracting in Consumer Markets

POMS Conference, 2009

18 Pages Posted: 20 Jan 2010

See all articles by Wei Zhang

Wei Zhang

The University of Hong Kong - Faculty of Business and Economics

Date Written: March 7, 2009

Abstract

The problem of how to effectively and efficiently increase customer satisfaction in outsourced after-sales services by contracting is discussed in this paper. In this setting, the uniqueness of the problem is that the service provider serves both the principal’s customers and his own with the same facilities. Firstly, customer waiting time is chosen to be the effective indicator of customer satisfaction. Then, through theoretical modeling, three kinds of after-sales service outsourcing contracts in consumer markets are analyzed and compared: 1) "fixed-reimbursements" in the current practice, 2) “performance-based”, and 3) “cost-sharing”. It is proved that: The first type of contract is effective only when the service provider is risk-averse and the arrivals of the two types of customer are correlated; under the risk-neutral assumption, the latter two contract forms are effective to overcome the moral hazard issue, but the first-best solution could only be achieved under the performance-based contract.

Keywords: after-sales service, outsourcing, contracting, consumer market

Suggested Citation

Zhang, Wei, Outsourced After-Sales Service Contracting in Consumer Markets (March 7, 2009). POMS Conference, 2009, Available at SSRN: https://ssrn.com/abstract=1538756

Wei Zhang (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

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