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Customer Bill of Rights Under No-Fault Service Failure: Confinement and Compensation

Author

Listed:
  • Rachel R. Chen

    (Graduate School of Management, University of California, Davis, Davis, California 95616)

  • Eitan Gerstner

    (Industrial Engineering and Management, Technion-Israel Institute of Technology, Haifa 32000, Israel)

  • Yinghui (Catherine) Yang

    (Graduate School of Management, University of California, Davis, Davis, California 95616)

Abstract

Service providers and their customers are sometimes victims of failures caused by exogenous factors such as unexpected bad weather, power outages, or labor strikes. When such no-fault failures occur in confined zones, service providers may confine customers against their will if making arrangements for them to leave is very costly. Such confinements, however, can result in severe pain and suffering, and customer complaints put regulators under pressure to pass a customer bill of rights that allows captive customers to abort failed services. This paper shows that service providers are better off preempting such laws by voluntarily allowing customers to escape the service under failure. Moreover, service providers can profit by targeting compensation to customers based on whether they use or leave the service under failure.

Suggested Citation

  • Rachel R. Chen & Eitan Gerstner & Yinghui (Catherine) Yang, 2012. "Customer Bill of Rights Under No-Fault Service Failure: Confinement and Compensation," Marketing Science, INFORMS, vol. 31(1), pages 157-171, January.
    • Handle: RePEc:inm:ormksc:v:31:y:2012:i:1:p:157-171
    DOI: 10.1287/mksc.1110.0683
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    References listed on IDEAS

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    Cited by:

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    2. Chen, Rachel R. & Gerstner, Eitan & Halbheer, Daniel & Roma, Paolo, 2023. "Managing service shutdowns: Cash refunds or vouchers?," International Journal of Research in Marketing, Elsevier, vol. 40(2), pages 294-315.
    3. Roland T. Rust & Ming-Hui Huang, 2014. "The Service Revolution and the Transformation of Marketing Science," Marketing Science, INFORMS, vol. 33(2), pages 206-221, March.
    4. Chow, Clement Kong Wing, 2014. "Customer satisfaction and service quality in the Chinese airline industry," Journal of Air Transport Management, Elsevier, vol. 35(C), pages 102-107.
    5. Junbin Wang, 2022. "In‐store service decisions under consumer disappointment aversion," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(3), pages 681-695, April.
    6. Chow, Clement Kong Wing, 2015. "On-time performance, passenger expectations and satisfaction in the Chinese airline industry," Journal of Air Transport Management, Elsevier, vol. 47(C), pages 39-47.
    7. Halbheer, Daniel & Gärtner, Dennis L. & Gerstner, Eitan & Koenigsberg, Oded, 2018. "Optimizing service failure and damage control," International Journal of Research in Marketing, Elsevier, vol. 35(1), pages 100-115.

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