36 Pages Posted: 3 Sep 2016 Last revised: 23 Nov 2016
Date Written: November 12, 2016
Can a firm limit the amount of redress it pays out to dissatisfied customers by forcing them to endure hassle costs? We examine how a Customer Service Organization (CSO) can be designed to exploit consumer hassle costs and reduce redress payouts to complaining customers. We find that a tiered organizational structure embeds hassle costs for those dissatisfied customers who seek the highest levels of redress claims. The optimal tiered-structure specifies that first level CSO agents are empowered with lower payout authority than higher level agents. Only by escalating her complaint to an upper level agent, and thereby incurring additional hassle costs, can a dissatisfied customer obtain more redress from the firm. Next, we explore the heterogeneity of hassle costs motivate by studies suggesting that some consumers (e.g. elderly and minorities) have a higher hassle cost when dealing with a CSO. Larger hassle costs imply higher prices, more profits and worse product design. Finally, implementing a tiered CSO is profitable if consumers have sufficient hassle costs. This research suggests that consumer frustration may be systematically embedded in the firm’s design of its CSO through the deliberate exploitation of consumer hassle costs.
Keywords: Hassle Costs, Consumer Service, Customer Complaint Management, Organizational Structure, Sequential Search Model
JEL Classification: L12, L81, M30
Suggested Citation: Suggested Citation
Dukes, Anthony J. and Zhu, Yi, Why Customer Service Frustrates Consumers: Exploiting Hassle Costs by a Tiered Customer Service Organization (November 12, 2016). Available at SSRN: https://ssrn.com/abstract=2832927