ServiceFriday: Determining Compensation Size for Recovery Satisfaction

Herd mentality is a phenomena that can cause people to react irrationally and emotionally to situations they may not normally care about. In times of service failures, the same can occur with customers’ responses. In a setting where multiple customers are affected simultaneously, such as in delayed air travel, negative energy can spread quickly throughout a group. For businesses working to recover from these failures, consideration must be made for a difference in response caused by a group dynamic, rather than an individual one.

Financial compensation has been found to be one of the most effective and efficient recovery methods after service failures, with “greater compensation resulting in more favorable customer outcomes.” When the barista makes your coffee incorrectly, or your food order was forgotten and you are forced to scarf down your meal as quickly as possible so as to not hold everyone up, you appreciate receiving a discount or free item. Sometimes, you might refrain from complaining because you know human error happens and it is really not a big deal if your latte is not made exactly the way you want it. In a group however, if everyone else is upset and demands a refund, you might begin to take the same mentality, placing stronger blame on the barista or waiter. What strategy should service providers pursue in this situation? Does the level of compensation need to be higher or lower in group service failures?

In an article recently published in the Journal of Service Research, these two service recovery situations are examined in correlation to the amount of compensation deemed appropriate. In a group service recovery where customers’ reactions tend to be stronger, an individual affected can recognize that all affected customers receive the same level of compensation. However, in an individual service recovery, the individual only knows what their compensation is, and is unaware of what others customers receive. This level of “fairness” felt by an affected customer is important for a service provider to be aware of.

The studies conducted revealed important implications for managers. Contrary to popular belief, after a group service recovery, service providers can achieve “higher levels of satisfaction with lower compensation,” and “greater compensation levels are inefficient, as they do not substantially increase satisfaction.” Even though more blame may be placed on a provider and emotions may escalate significantly faster, as long as customers feel they have received the same amount of financial compensation as other customers involved, they will be satisfied with the recovery effort.

To read the full article go to The Journal of Service Research at this link. (A fee may apply.)