Customer Bill of Rights under No-Fault Service Failure: Confinement and Compensation

Posted: 24 Oct 2012

See all articles by Rachel R. Chen

Rachel R. Chen

University of California, Davis - Graduate School of Management

Eitan Gerstner

Technion-Israel Institute of Technology - The William Davidson Faculty of Industrial Engineering & Management

Yinghui (Catherine) Yang

Graduate School of Management, UC Davis

Date Written: 2012

Abstract

Service providers and their customers are sometimes victims of failures caused by exogenous factors such as unexpected bad weather, power outages, or labor strikes. When such no-fault failures occur in confined zones, service providers may confine customers against their will if making arrangements for them to leave is very costly. Such confinements, however, can result in severe pain and suffering, and customer complaints put regulators under pressure to pass a customer bill of rights that allows captive customers to abort failed services. This paper shows that service providers are better off preempting such laws by voluntarily allowing customers to escape the service under failure. Moreover, service providers can profit by targeting compensation to customers based on whether they use or leave the service under failure.

Keywords: service failure, customer bill of rights, advanced selling, targeted compensation

Suggested Citation

Chen, Rachel R. and Gerstner, Eitan and Yang, Yinghui (Catherine), Customer Bill of Rights under No-Fault Service Failure: Confinement and Compensation (2012). Marketing Science, Vol. 31, No. 1, 2012; pp. 157-171; DOI: 10.1287/mksc.1110.0683. Available at SSRN: https://ssrn.com/abstract=2161171

Rachel R. Chen (Contact Author)

University of California, Davis - Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States
530-752-7619 (Phone)
530-752-2924 (Fax)

Eitan Gerstner

Technion-Israel Institute of Technology - The William Davidson Faculty of Industrial Engineering & Management ( email )

Haifa 32000
Israel

Yinghui (Catherine) Yang

Graduate School of Management, UC Davis ( email )

One Shields Avenue
Apt 153
Davis, CA 95616

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