Profiting from Service Failure and Recovery

Michael J. Howley, Jr., Drexel University
Cheryl Burke Jarvis, Southern Illinois University
Stephen W. Brown, Arizona State University
James Ward, Arizona State University

Studies have investigated the effect of customer-firm identification on customer loyalty, but little work investigates how service failures can disrupt this bond, how such disruptions can be amended and the resulting financial consequences for the firm.

This study addresses the following questions. First, do service failures adversely impact customer self-identities? Second, what types of failures impact what aspects of identity? Third, what (if any) are the financial consequences of identity failures and corresponding recoveries? Our data comes from a survey of a large sample of respondents who reported actual service failures and experienced later recoveries. Moreover, we relate their perceptions to financial outcome data supplied by access to longitudinal transactional data for the same customers.

This research contributes in several ways. We develop a theory of how service failures negatively impact customer identity enhancement goals. We also provide managers with an empirical demonstration of the impact of specific identity-focused service recoveries on actual customer profitability.

 

*This research was sponsored by LensCrafters.