Service delivery system design in the era of developed technology : the impact of self-service technology

Abstract

Self-service technologies have been widely adopted in industries that require the delivery of physical products by services, in which consumers evaluate a product for both the product value and the service value. A typical service delivery system usually involves sales agents and/or self-service technologies, such as online services and kiosks, to provide services to consumers through an in-purchase co-production process. In other words, both the sales agent (or self-service machine) and the consumer should exert effort, with corresponding service costs.

By modeling the in-purchase co-production output with a Cobb-Douglas production function, we establish a principal-agent model to study the value of self-service technologies in designing a service delivery system wherein the sales agent's service cost is private information. We first characterize the main trade-off between the sales agent and the self-service machine when the firm provides only one service channel. Then, we analyze the value of the self-service machine when the firm can provide both service channels. We find that, interestingly, the firm may possibly provide both service channels, i.e., services offered by the sales agent and the self-service machine, when the level of information uncertainty is high, and the self-service machine's service cost is intermediate. Moreover, when both service channels are offered, only the efficient sales agent will be contracted, and the inefficient sales agents are screened out of the market by the self-service machine; that is, the self-service machine can help the firm eliminate the information rent. We also investigate how the firm's service weight in the in-purchase co-production process and information uncertainty influence the consumer surplus, firm's choices, contract parameters, and resulting profits.

Meanwhile, under the mechanism of contracting on output, sales agents provide customized services to consumers, while provide homogeneous service when contracting on effort. The comparison of the two contract mechanisms can help managers decide the optimal contract mechanism and service system. Furthermore, when the firm adopts single-contract strategies, pooling strategy outperforms efficient-type only strategy if information uncertainty is insignificant, and vice versa. With the introduction of self-service machine, single-contract strategy is not better off than separating strategy. In addition, when the substitution effect between sales agent (self-service machine) and consumer is significant, self-service machine should be installed to serve consumers.