Customer-Oriented Employees: Blessing or Curse for Firms?

Abstract

I investigate whether the presence of customer-oriented employees benefi ts fi rms in a competitive environment. Employees are defi ned as customer-oriented if they are interested not only in their wage but also in the well-being of their customers. I find that fi rms may obtain higher profi ts by hiring self-interested rather than customer-oriented employees. This is because the employees' customer orientation has opposing effects on the profi ts obtained by the fi rms. 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 fi nd 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 fi rms. If motivated employees are merely interested in the quality of the good provided, the effect on the price outlined before disappears.