Why Customer Service Frustrates Consumers: Using a Tiered Organizational Structure to Exploit Hassle Costs

54 Pages Posted: 3 Sep 2016 Last revised: 30 Jun 2018

Anthony J. Dukes

University of Southern California - Marshall School of Business

Yi Zhu

University of Minnesota - Carlson School of Management

Date Written: June 18, 2018

Abstract

Many Customer Service Organizations (CSOs) reflect a tiered, or multi-level, organizational structure, which we argue imposes hassle costs for dissatisfied customers seeking high levels of redress. The tiered structure specifies that first-level CSO (e.g. a call center agent) be restricted in its payout authority. Only by escalating a claim to a higher level (e.g. a manager), and incurring extra hassles, can a dissatisfied customer obtain more redress from the firm. We argue that the tiered structure helps the firm to control redress costs by (1) screening less severe claims so that such customers do not escalate their claims to a manager, and (2) screening illegitimate claims. Our main result is that a firm can be more profitable if it uses a tiered CSO to induce consumer hassles. This result is moderated by the firm’s concern for its reputation but not necessarily by competition.

Keywords: Hassle Costs, Customer Service Organization, Customer Complaints, Organizational Structure, Sequential Search Model

JEL Classification: L12, L81, M30

Suggested Citation

Dukes, Anthony J. and Zhu, Yi, Why Customer Service Frustrates Consumers: Using a Tiered Organizational Structure to Exploit Hassle Costs (June 18, 2018). Available at SSRN: https://ssrn.com/abstract=2832927 or http://dx.doi.org/10.2139/ssrn.2832927

Anthony J. Dukes (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States
213-740-3846 (Phone)

HOME PAGE: http://www-bcf.usc.edu/~dukes/

Yi Zhu

University of Minnesota - Carlson School of Management ( email )

321 - 19th Ave. South, Suite 3-150
Minneapolis, MN 55455
United States

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