Growth of the sharing economy has prompted an increase in the number and usage of on-demand service apps such as Wag, Zeel, and Amazon Home Services. However, a new Journal of Marketing study suggests that these apps, which serve as a platform for connecting customers and contractors, risk having their customers stolen by their very own contractors. The purpose of this opportunistic behavior by the contractors is to avoid paying the platform fee, a practice we call platform exploitation, and it is an increasing concern of platform managers. In these situations, the contractors meet the customers using the app, but then work out private deals for future purchases, even when the apps have clear rules prohibiting this behavior. In private deals, both contractors and customers can split the savings from avoiding the platform’s fees, plus save time and effort in not having to use the app to find someone else they like working with.
In this research, our team explores why and when this practice occurs. In order to understand platform exploitation, we first interview contractors, customers, and employees of these on-demand service apps to understand their reasons for leaving the apps and transacting privately. We find that platform exploitation is pervasive, with the majority of contactors on the app actively stealing app customers. We also find that platform exploitation creates other spillover effects that are potentially harmful to the platform. For example, some potential customers never try the platform because when a contractor has a good relationship with a client, the client often introduces relatives and friends to them directly, bypassing the platform app. Further, the best contractors reduce their usage of the app as they build up their own customer base outside the platform. This trend decreases platform profit and increases platform recruiting costs to maintain enough high-quality contractors. Recruiting and on-boarding new contractors (e.g., conducting background checks) is expensive, and retention and repeat ordering are critical to the platform’s profitability.
We then analyze a large dataset from a healthcare platform that connects nurses and patients. Our findings confirm our expectations: (1) The best quality contractors have more opportunity to steal customers because customers prefer to work with high-quality contactors; and (2) those contractors that have used the app the longest are more confident in stealing customers because they have the best understanding of how to exploit the platform’s rules. We also find that platform exploitation increases when specific contractors and customers interact more frequently on the app and build stronger relationships. Further, because higher prices equate to more fee savings (because fees are usually a percentage of price), we find that these effects strengthen as service price increases. Platform exploitation worsens when the contractor’s on-platform customer portfolio has a high number of attractive target customers (e.g., customers that live close to the contractor; repeat customers). That is, contractors strategize carefully and wait to accept the risk of breaking the app’s rules until they have enough attractive on-platform customers.
What can on-demand service apps do about the problem? Strict rules will not work because it is nearly impossible to catch offenders in the act. From the contractors’ perspective, there is less value in continuing to use the platform to serve a customer once they know that customer well. We find that it takes additional benefits to keep contractors (and customers) using the platform. Our research investigates two strategies that apps can use to combat the probability of contractors stealing customers. First, a sliding-scale fee, which decreases the fee contractors pay to the platform as they do more jobs on the app, increases the likelihood that contractors keep their future transactions on the platform. For example, if an app’s standard fee is 30% of the sales price, the app could decrease this to 20% after the contractor performs 10 work orders on the app. Without an offsetting financial incentive, the contractor is very motivated to move off platform. This intervention strategy is especially effective for retaining contractors that already have strong relationships with customers. Second, apps can build programs that provide valued social benefits, such as helping the contractor feel a sense of community and create stronger connections with other platform-affiliated contractors and with the platform itself. They can do this by applying airline-like loyalty programs that offer enticing perks (community status and offline social events) to those contractors who use the platform the most. Our research shows that both these strategies significantly reduce the likelihood a contractor takes customers off platform.
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From: Qiang Zhou, B.J. Allen, Richard Gretz, and Mark Houston, “Platform Exploitation: When Service Agents Defect with Customers from Online Service Platforms,” Journal of Marketing.
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Qiang (Kris) Zhou is Assistant Professor of Marketing, Renmin University of China, China.
B.J. Allen is Assistant Professor of Marketing, University of Arkansas, USA.
Richard T. Gretz is Associate Professor of Marketing, University of Texas at San Antonio, USA.
Mark B. Houston is Professor of Marketing and Eunice and James L. West Chair in Marketing, Texas Christian University, USA.