After-sales service competition in a supply chain: Does uncertainty affect the conflict between profit maximization and customer satisfaction?

Abstract

After-sales services are a key strategic tool in the durable consumer product market. They allow a manufacturer and a retailer to capture more sales and profit. Less obvious, however, is how the uncertainty of the customer's needs for after-sales services influences after-sales service decisions. As an extension of Kurata and Nam's (2010) work, in this paper we explore the effect of uncertainty on after-sales service decisions by comparing several information structures in a two-stage supply chain. The model presented in this paper demonstrates that uncertainty may temporally alleviate the discrepancy between customers' optimal service level and a firm's service decisions based on maximizing profits (referred to here as accidental outperformance). However, ultimately, uncertainty will never improve supply chain performance. We determine probabilities that such accidental outperformance may mislead the firm into making erroneous after-sales service decisions due to misunderstandings regarding uncertainty. In addition, our analysis shows that a firm's effort to provide efficient service operations will increase the chance of accidental outperformance. Based on the analytical results, we also provide several practical insights for business. 3 IntroductionAfter-sales service is a strategic tool in the durable consumer product market used to gain more sales, revenue, and profit (e.g., Cohen et al., 2006;Cohen and Kunreuther, 2007). Research on after-sales service covers maintenance and replacement (e.g., Bensoussan and Sethi, 2007), repair services (Amini et al., 2005), spare parts supply (e.g., Thonemann et al., 2002), warranties (e.g., Chukova et al. 2004;Balachandran and Radhakrishnan, 2005;Chu and Chintagunta, 2009), service guarantees (e.g., Hart, 1988;Baker and Collier 2005), customer relationships (e.g., Gupta and Lehmann, 2007), and competition between new and remanufactured products (Wu, 2012) among other things. Another critical issue in supply chain management is the ability to cope with uncertainty in business environments. Uncertainty makes supply chain management difficult, and managing uncertainty is among the most critical supply chain challenges (Simchi-Levi, et al., 2008). In marketing, understanding the target market's needs and wants is a major concern, as often even customers are unaware of their real needs.Kurata and Nam (2010) studied after-sales service competition, considering profit maximization and customer satisfaction while using the deterministic model in which firms are assumed to understand customers' needs perfectly. However, this assumption has a limitation. In reality, customers' real preferences for services are unknown to businesses. Firms often estimate customers' real needs by conducting market research. Based on the estimations, the firm makes managerial decisions, including those aimed at ensuring the most profitable after-sales service plan. In fact, marketing researchers claim that understanding what the target segment prefers the most is important (Aaker et al., 199...

Service supply chain management: A review of operational models

“…They find that the profit maximizing "optimal service plans" are different from the ones which most satisfy customers. Kurata and Nam (2013) further investigate the effect of uncertainty on after-sales service and find that information uncertainty can seriously harm the optimal after-sales service. They also explore a case under which efficient service increases the chance of accidental outperformance under uncertainty.…”

Performance measurement of the after-sales service network: Evidence from the automotive industry

“…Dombrowski and Engel (2014) developed a method, which could help the stakeholders of the automotive aftermarket understand their existing strategy and detect alternative strategies to modify their existing strategy. Kurata and Nam (2013) investigated the impact of uncertainty on after-sales service decisions by comparing different information structures in a two-stage supply chain. The model showed that uncertainty may temporally reduce the discrepancy between customers' optimal service level and a company's service decisions according to profit maximization.…”

Extended Warranty: An Approach via Stackelberg Game

“…In [Kurata, Nam, 2013;Wei, Zhao, Li, 2015;Li, Mallik, Chhajed, 2012] incorporated the retailer into the after-sales service modeling. These authors developed the SG as a supply chain where both the retailer and the manufacturer can sell the after-sales services.…”

“…This game has been adapted to many situations, especially to extended warranty, maintenance outsourcing, maintenance service contracts and lease contracts [Ashgarizadeh, Murthy, 2000;Esmaeili, Gamchi, Asgharizadeh, 2014;Hamidi, Liao, Szidarovszky, 2016;Kurata, Nam, 2013;Li, Mallik, Chhajed, 2012;Murthy, Asgharizadeh, 1998;Murthy, Asgharizadeh, 1999;Murthy, Yeung, 1995;Wei, Zhao, Li, 2015].…”