Why Customer Service Frustrates Consumers: Using a Tiered Organizational Structure to Exploit Hassle Costs
49 Pages Posted: 3 Sep 2016 Last revised: 18 Nov 2017
Date Written: November 8, 2017
Many Customer Service Organizations (CSOs) reflect a tiered 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 be restricted in their payout authority. Only by escalating a claim to 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: Suggested Citation