Optimizing Service Failure and Damage Control

30 Pages Posted: 18 Dec 2015 Last revised: 11 Nov 2017

See all articles by Daniel Halbheer

Daniel Halbheer

HEC Paris - Marketing

Dennis L. Gärtner

University of St. Gallen

Eitan Gerstner

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

Oded Koenigsberg

London Business School - Department of Marketing

Date Written: November 6, 2017

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.

Keywords: Service Quality, Service Reliability, Service Failure, Damage Control

Suggested Citation

Halbheer, Daniel and Gärtner, Dennis L. and Gerstner, Eitan and Koenigsberg, Oded, Optimizing Service Failure and Damage Control (November 6, 2017). HEC Paris Research Paper No. MKG-2015-1124. Available at SSRN: https://ssrn.com/abstract=2704861 or http://dx.doi.org/10.2139/ssrn.2704861

Daniel Halbheer (Contact Author)

HEC Paris - Marketing ( email )

Paris
France

Dennis L. Gärtner

University of St. Gallen ( email )

Bodanstrasse 6
St Gallen, 9000
Switzerland

Eitan Gerstner

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

Haifa 32000
Israel

Oded Koenigsberg

London Business School - Department of Marketing ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

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