Do you know what the customer you penalized yesterday is doing today? A pilot analysis

Abstract

Given the growing and widespread use of consumer penalties, there is little doubt business considers them an effective way to get customers to follow through on commitments. Yet no one really knows how people, as individuals, respond when they are penalized by banks, airlines, cell phone companies or other vendors. What types of behavioral reactions do penalties elicit from consumers? What is the impact on the businesses that charged them? The authors turn a spotlight on these previously unexamined issues by analyzing the reactions of 44 randomly selected consumers who faced 66 different consumer penalties. Key findings, from a pilot analysis, include the fact that in 38 of the 66 penalty cases examined, study participants thought that the penalties that they incurred were both unfair charges and the amounts unjustified. Overall, a third of all penalties resulted in customers changing vendors. Additional findings show word‐of‐mouth communication to others was significant, and that over half of penalized consumers challenged their penalties, with 50 percent of them having some success. Study results strongly indicate companies should be taking a closer look at their penalty policies in light of building long‐term customer relationships.

Customer Dissemination of Negative Word-of-Mouth: Influence of Expected or Unexpected Events

“…The results indicated that punishments are effective; however, they result in negative influences and increase the dissemination of negative WOM (Fram & McCarthy, 1999). Numerous researchers have examined the perceived fairness of punishments, the circumstances in which customers perceive punishments as being unfair, and relevant influential factors (Fram & Callahan, 2001;Fram & McCarthy, 1999). Customer reactions to punishment have also been discussed (Fram & Callahan, 2001;Gneezy & Rustichini, 2000;Kim, 2006;Smith, 2005).…”

“…Numerous researchers have examined the perceived fairness of punishments, the circumstances in which customers perceive punishments as being unfair, and relevant influential factors (Fram & Callahan, 2001;Fram & McCarthy, 1999). Customer reactions to punishment have also been discussed (Fram & Callahan, 2001;Gneezy & Rustichini, 2000;Kim, 2006;Smith, 2005). Conflict ensues when rules that have not been established in advance are used for customer punishment.…”

Causes and consequences of grudge‐holding in service relationships

“…But, grudges can be held regardless of the interpersonal interaction between service representative and customer. For example, airline penalties resulted in "resigned" bitterness, and one customer reportedly expressed disappointment with the penalty up to a year after the penalty occurred (Fram and Callahan, 2001). Thus, we will take poor service failure recovery, whether a result of interpersonal interaction or not, as the main cause of grudge-holding.…”

Consumers' resistance to discontinuing a familiar technology, the paper bill

“…Consumers have direct and ongoing experiences with the way in which banks introduce new technology and other services (Benamati & Serva, 2007). Problems encountered in dealing with new bank technologies, such as time spent waiting to have service failures dealt with, repetitively explaining problems, or being misunderstood, have been shown to reduce satisfaction and trust toward banks (Dully et al, 2006;Fram & Callahan, 2001).…”