Money for Nothing: The Impact of Compensation on Customers’ Bad-Mouthing in Service Recovery Encounters

Abstract

As one of the retailer’s most potent recovery tactics to offset disgruntled customers, firms invest heavily in compensation to increase customer satisfaction and improve loyalty. However, the effectiveness of this tactic remains unclear. This study examines whether firm-offered compensation affects customers’ emotional responses and bad-mouthing behavior (i.e., telling others about a particular problem). Importantly, the study investigates whether the level of collaboration during the recovery encounter moderates the link between compensation and customers’ emotional responses, and whether collaborative efforts influence the effectiveness of compensation. The findings indicate that collaboration during the recovery encounter is necessary if compensation is to mitigate negative emotional responses, with downstream effects on bad-mouthing behavior. In confirming the importance of collaboration during recovery encounters, the findings have critical managerial and financial implications.

The demand-what-you-want strategy to service recovery: achieving high customer satisfaction with low service failure compensation using anchoring and precision effects

“…A central purpose of compensating a service failure is to make the customer feel a sense of perceived fairness, as this impacts satisfaction (Albrecht et al ., 2019; Ma and Zhong, 2021; Orsingher et al ., 2010). Here, the collaboration process between the customer and the firm is of importance as collaboration in service recovery is positively related to a customer's emotional responses (Arsenovic et al ., 2022). Conversely, should an employee act in a way that is perceived negatively, despite offering fair compensation, the experience can still affect the customer negatively (Blodgett et al ., 1997).…”

“…The anchored demand-what-you-want strategy could thereby increase customer's levels of perceived fairness from the compensation, because the customer takes an active part in the recovery process by adjusting its size closer to what they feel is fair. If so, the strategy could have both short- and long-term benefits for the company and be used to mitigate some of the bad-mouthing behaviors sometimes associated with monetary compensations (Arsenovic et al ., 2022).…”

“…However, recent evidence also suggests that recovery that involves (Van Vaerenbergh et al ., 2018) and adapts compensation to (Nazifi et al ., 2021a) the individual customer may be more effective at increasing satisfaction. In particular, involvement in determining its outcome has been proposed as a promising way forward that needs further research (Arsenovic et al ., 2022).…”

“…First, our study adds to research on co-creative and adaptive service recovery, areas which remains under-researched (Khamitov et al ., 2020). Specifically, the study follows calls to investigate how involvement in the level of compensation can be used to manage the effectiveness of service recovery efforts (Arsenovic et al ., 2022). By using what we term a “demand-what-you-want technique” in combination with anchoring and precision effects, we demonstrate an effective and resource-efficient way to involve the customer in the outcome of service recovery (Van Vaerenbergh et al ., 2018).…”

Shortsighted sales or long-lasting loyalty? The impact of salesperson-customer proximity on consumer responses and the beauty of bodily boundaries

“…Moreover, postpurchase dissatisfaction may become an issue among consumers who sought to "buy their way out" under conditions of salesperson proximity, with these consumers possibly being more likely to return their purchased items at a later Shortsighted sales or longlasting loyalty point in time, require compensation and raise company complaints. Given that firm-based compensations are pricey and sometimes ineffective in mitigating negative consumer responses (Arsenovic et al, 2022;Gelbrich and Roschk, 2011), these results clearly suggest that salesperson proximity should be executed with caution. Indeed, store loyalty-which was found to decline as a function of salesperson proximity in the current research-is often considered a stronger predictor of firm performance than short-term profits (Liu, 2007).…”