What is the price of a service failure? An analysis of the amount of compensation expected by consumers

Abstract

PURPOSE

This study aims to examine the role of compensation in service recovery. Based on the justice theory researchers have agreed on the importance of the distributive justice dimension. Our paper investigates the expected distributive justice, namely the tangible compensation after a service failure. It is hypothesized that the type of failure and the type of the service have direct effect on the amount of the expected compensation.

METHODOLOGY

A scenario based experimental design approach was utilized to test our hypotheses. Int he between study design type of failure and type of service was manipulated, resulting 8 manipulations. We used ANCOVA to test the results of the online questionnaire.

MOST IMPORTANT RESULTS

Based on our hypotheses test we proved that the type of failure and the tangibility of the service has direct effect on the expected compensation, while the direction of the service has significant interaction with the type of service. Consumers tolerate process failures better, thus in these cases they require less compensation than at outcome failures. This general statement, however, can be distracted by service characteristics. The more the service requires the consumer to be physically there (the more it is directed at the person), the easier customers can accept process failures, but the harder it is for them to accept outcome failures. This finding has serious consequences for service providers: if they fail in something related to the person of the customer (e.g. a bad haircut), it costs more.

IMPLICATIONS

Our results suggest that service companies should investigate the expectations of consumers concerning the exact compensation amount. Companies should also realize the failure type and they have to be aware of the service industry they are in to be able to determine the exact amount of compensation.