The Agency Problems Due to Service Delayed Performance and the Marketing Strategies in Multi-level Marketing Relationships
Author
Abstract
Services often are characterized by experience quality, in the sense that the supplier's performance is delayed. Similarly, many service firms incur the complainants due to their misfited employees' poor performance that could not be found immediately. So service delayed performance might exist in the both kinds of marketing relationships: customers vs. firms and firms vs. employees. Customers (firms) pay for firms (employees) to supply service but firms' (employees') performance could not be revealed at the time. Based on agency theory, principals' inability to assess agents' real service quality immediately must face with two problems. First, firms (employees) that do not possess the skills required to provide certain performance levels might mispresent themselves by making false performance claims as an “adverse selection” problem. Second, in some service markets, a “moral hazard” problem also might exist, because firms (employees) easily can influence the level of quality provided for each transaction (customers vs. firms and firms vs. employees).
In service markets, adverse selection and moral hazard problems are perceived by both of customers and firms. Customers (firms) cannot evaluate the object of an exchange (buy a service or hire a personnel) easily, and for those firms (employees) whose claims are based on quality but whose offerings are indistinguishable from lower-quality ones. This study is based on agency theory to analyze the impact of delayed service performance on multi-level marketing relationships. The external marketing relationship (customers vs. firms) and the internal marketing relationship (firms vs. employees) are explored by case study and survey research. We choose kindergartens, cram schools, safeguard service, and investment consultants whose performances are delayed as the samples of our empirical analysis.
The results show that delayed service performance does make customers and firms perceive adverse selection and moral hazard significantly. Customers who face to delayed performance will consider a firm's brand, physical surrounding, and warranty as its quality signals to avoid agency problems. Firms might adopt the management mechanisms include motivation screen, ability screen, customer-oriented compensation system, customer-oriented and collectivism culture to reduce agency costs result from the misfiled employees. Finally, it is interesting to illustrate that when a service firm uses the quality signals, it will reinforce its internal management mechanisms simultaneously. On the other hand, a firm can select and encourage its employees based on the good internal management, its quality signals will be creditable in market. There is the interaction between the external marketing and the internal marketing in service sector.
The basic conclusion of this study is that delayed service performances give rise to agency problems at two different marketing relationship levels. Our research adds to existing literature on service marketing and agency relationships by showing how the strategies used to manage relationships with end customers influence how a firm manages its employee relationships. By focusing only on service quality problems with regard to customers, most of the existing literature implicitly assumes that affirm has complete control over the delivery process. However, To the extent that delivery takes place through third-party providers, additional agency problems must be solved in its employee relationships. For management decision making, when a strategy is deployed toward customers, the next step involves assessing whether the strategies used to provide quality to customers can be compromised by employees or service providers. Overall, this study proposes the external and the internal marketing strategies to develop a complete strategic framework for service firms to manage the agency relationships in different marketing levels.
