Customer‐oriented employees: Blessing or curse for firms?

Ester Manna

Journal of Economics & Management Strategy, 2017, vol. 26, issue 4, 842-875

Abstract: I investigate whether the presence of customer‐oriented employees benefits firms in a competitive environment. Employees are defined as customer‐oriented if they are interested not only in their wage but also in the well‐being of their customers. I find that firms may obtain higher profits by hiring self‐interested rather than customer‐oriented employees. This is because the employees' customer orientation has opposing effects on the profits obtained by the firms. On the one hand, customer‐oriented employees provide a given level of quality for a lower wage. On the other hand, the employees' customer orientation increases competition reducing prices. If the second effect dominates, firms find themselves trapped in a prisoners' dilemma as the strategy of hiring self‐interested employees is strictly dominated by that of hiring customer‐oriented employees. Hence, the very presence of customer‐oriented employees may hurt firms. If motivated employees are merely interested in the quality of the good provided, the effect on the price outlined before disappears.

Date: 2017
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