34 Pages Posted: 20 Aug 2011 Last revised: 8 Mar 2017
Date Written: March 03, 2017
What do a Mongolian stir-fry restaurant, a discount broker, and a lab specializing in home-test kits have in common? They are all innovative services that base their success on customers' participation in the service delivery. These providers, determine whether service tasks are controlled by them or by the customers as a means of shaping the overall customer experience and not as a means of achieving cost savings. Motivated by such practices, we explore how providers allocate the control of different stages of their service to the customers. We model services as multi-step processes. Customers differ in their ability to perform each step. When customers' abilities are heterogeneous, the provider may offer a service line; a concept not explored in the literature. We distinguish between routine services, where the valuation of the service outcome must conform to standardized specifications, and non-routine services, where the service outcome is evaluated along subjective dimensions. We find that the provider's control priority is guided by a practical index rule. Regardless of the service context, providers prefer to control steps that are inexpensive to provide and for which they have an expertise advantage in performing. Yet the resulting optimal design exhibits interesting properties. For example, in routine services, the provider may benefit from controlling steps that she does not hold an expertise advantage. This implies that routine services ought to be managed holistically as "blocks" of steps. Instead, in non-routine services providers should focus on the "core provision" even if this implies that they will forgo control of steps for which they have an expertise advantage. Finally, we characterize the conditions under which a heterogeneous market should be served through a common service, or a portfolio of services differentiated based on the number of steps that the provider controls.
Keywords: service design, service line design, service provider, customer experience, customer control
JEL Classification: D81, D82, L8, M10, O32
Suggested Citation: Suggested Citation
Bellos, Ioannis and Kavadias, Stelios, When Should Customers Control Service Delivery? Implications for Service Design (March 03, 2017). Available at SSRN: https://ssrn.com/abstract=1912166 or http://dx.doi.org/10.2139/ssrn.1912166