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In recent years, increasing interests have arisen in adding product value through the provision of service. This study considers the problem in which a demand‐enhancing service can be provided by different supply chain parties, resulting in four alternative service channels: (a) manufacturer undertaking service, namely M‐channel, (b) retailer undertaking service, namely R‐channel, (c) manufacturer outsourcing service to third‐party (3P), namely M‐3P‐channel, and (d) retailer outsourcing service to 3P, namely R‐3P‐channel. We quantitatively model these service channels and derive the optimal decisions with the following observations: When the service costs are equal for the different parties, there is a conflict in service channel choice since both the manufacturer and the retailer prefer to undertake the service or hire the 3P by themselves, although M‐channel generates the highest market demand and system …