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

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 agents (e.g. call center operators) 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.

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

JEL Classification: L12, L81, M30