Les Cahiers de Recherche - HEC Paris
The Protection Economy: Occasional Service Failure as a Business Model
(), Eitan Gerstner and Oded Koenigsberg
Abstract: Conventional wisdom holds that service failure creates
customer misery and reduces firm profitability. This paper challenges this
view and shows that occasional service failure can be profitable for the
firm when optional protection against the resulting customer misery can be
marketed. It also shows that a firm that uses such a protection strategy
inflicts a calculated misery on unprotected customers and wastes resources
to provide the protection. Despite these inefficiencies, using the
protection strategy can lead to market expansion and social welfare gains
due to lower prices.
Keywords: Service Failure; Customer Damage; Random Versioning; (follow links to similar papers)
22 pages, December 17, 2015
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