Optimizing service failure and damage control

Halbheer, D, Gartner, D, Gerstner, E and Koenigsberg, O (2018) Optimizing service failure and damage control. International Journal of Research in Marketing, 35 (1). pp. 100-115. ISSN 0167-8116

Abstract

Should a provider deliver a reliable service or should it allow for occasional service failures? This paper derives conditions under which randomizing service quality can
benefit the provider and society. In addition to cost considerations, heterogeneity in customer damages from service failures allows the provider to generate profit
from selling damage prevention services or offering compensation to high-damage customers. This strategy is viable even when reputation counts and markets are
competitive.