In this article we will discuss about:- 1. Introduction to Service Guarantee 2. Meaning and Definitions of Service Guarantee 3. Features 4. Benefits 5. Types 6. Impacts of Guarantees on Customer Perceptions 7. Design 8. Service Guarantees Expedite Service Recovery 9. Organizational Impacts 10. Theoretical Perspectives for Investigating the Service Guarantee.
- Introduction to Service Guarantee
- Meaning and Definitions of Service Guarantee
- Features of a Good Guarantee
- Benefits of Service Guarantee
- Types of Service Guarantees
- Impacts of Guarantees on Customer Perceptions
- Design of Service Guarantees
- Service Guarantees Expedite Service Recovery
- Organizational Impacts of Service Guarantee
- Theoretical Perspectives for Investigating the Service Guarantee
1. Introduction to Service Guarantee:
Service offerings are largely intangible in nature. Customers are thus unable to assess the purchase outcome prior to experience, rendering the risk of possible customer dissatisfaction very high. It is argued that the concept of service guarantees proposed by services management theory can be effectively utilised to reduce the perceived risk of dissatisfaction for the customer in service organisations.
Additionally, it is suggested that service guarantees force management to undertake activities which elevate the superiority of the organisation in the eyes of the customer and, thus, the opportunity to transform one-time customers into loyal ones. The purpose of this text is twofold – first, to illustrate how customers’ behavioural intentions can be influenced by the use of a service guarantee; and second, to outline a systematic process that can help service business managers to develop and implement an effective service guarantee.
Various definitions of service guarantees can be found in the literature. For instance, Hart, Schlesinger and Maher define a service guarantee as ‘…a statement explaining the service customers can expect (the promise) and what the company will do if it fails to deliver (the payout).’ Evans, Clark, and Knutson define a service guarantee as … ‘a policy, express or implied, advertised or unadvertised, that commits the operation to making its guests happy.’ Callan and Moore (1998) state that, ‘a service guarantee can be represented as a promise to the customer and is often advertised as such.’
As per the dictionary definition ‘service guarantee’ as defined, “an assurance of the quality of or length of use to be expected from product offered for sale, often with a promise of reimbursement.” A guarantee is a particular type of recovery tool. Although guarantees are relatively common for manufactured products, they have only recently been used for services.
Traditionally, many people believed that services simply could not be guaranteed given their intangible and variable nature. What would be guaranteed? With a product, the customer is guaranteed that the product will perform as promised and if doesn’t, that it can be returned. With services, it is generally not possible to take returns or to “undo” what has been performed. Again, this raised the question for many of what could be guaranteed, and how.
The skepticism about service guarantees is being dispelled; however, as more and more companies find they can guarantee their services and that there are tremendous benefits for doing so. Companies are finding that effective service guarantees can complement the company’s service recovery strategy—serving as one tool to help accomplish the service recovery strategies.
Inconsistencies in Definitions:
Currently, a lack of consensus about what exactly constitutes a guarantee is evident. While some researchers view it as a policy, others suggest it is a firm promise. Also, confusing the scope with its elements has led to inconsistent definitions of different guarantee types. For instance, an unconditional guarantee has sometimes been used to refer to the circumstances under which a guarantee may be invoked.
Others have used it to refer to the firm goal of assuring complete customer satisfaction, or assume that it implies compensation in full. This confusion has led to idiosyncratic operationalisation of concepts in studies define “Satisfaction guaranteed” as a selling policy when no customer is worse off after purchase and all costs are refunded if the guarantee is invoked. This makes it difficult for researchers to compare results across studies, raises concerns about construct validity, and hinders replication.
We suggest that a guarantee contains two typical elements:
(i) A service promise or pledge that expresses the firm’s willingness to engage in behaviours considered desirable by its customers and
(ii) A compensation offer in case of service failure. Thus, unconditional and specific may be used to represent the service promise (about all or specific attributes of the service respectively) guaranteed by the firm, while compensation is separately specified. Empirical evidence shows that firms provide full refunds (e.g., money-back guarantees), partial refunds (e.g., assessment based upon damage or use, exchanges less restocking fees or shipping charges), or award punitive damages (e.g., token credits or payouts) when guarantees are invoked.
Compensation and claim procedures may be either implied or explicitly stated in the guarantee. In addition to resolving definitional problems, this distinction potentially increases the combinations of promises and compensation schemes available for study. This allows for a richer investigation of the effects of service guarantees.
A good guarantee has the following features:
(i) Easy to Collect – The remedy should be supplied immediately. For example, a dis-satisfied customer at Hampton Inn should receive an immediate credit for the price of the dissatisfying service. The customer should not have to drive across town to obtain payment, nor should the customer have to fill out a laborious form or accumulate a tedious amount of documentation.
(ii) Easy to Invoke – Let us consider the Hampton Inn guarantee, for example – Suppose the customer’s air conditioning did not work on a hot summer night, and the problem could not be rectified, in spite of bringing it to the management’s attention. For the guarantee to be effective, management should make that night free, without waiting for the customer to ask. If it evident that the customer is dissatisfied, and the problem has not been solved, then management should invoke the guarantee itself.
In most cases, management does not really trust the guarantee, and, therefore, puts up barriers to invoking it. Management may be concerned about loss of revenues, which may be linked to management compensation. This creates a natural tension between the intended corporate culture, as desired by top management, and the actual corporate culture, as implemented by middle management, may be the front line. Counteracting an employee’s natural reluctance to invoke or carry out the guarantee requires careful training.
(iii) Easy to Understand – If the customer does not understand the guarantee, then that customer will not see any benefit. For maximum effectiveness, the guarantee should be specific. For example, Domino’s pizza guaranteed delivery in 30 minutes. That is much better than guaranteeing “fast delivery,” which is hard to pin down. Be specific.
(iv) Meaningful – The guarantee must be about things that customers care about. A fast-food restaurant guaranteeing 10-minute service at lunch will probably do better than one guaranteeing to address customers by their first name. This is because fast service at lunch is important to fast-food customers, whereas personal familiarity is not.
(v) Unconditional – If a guarantee applies only to left-handed people on Friday in a leap year when there is a full moon, few customers will be very interested. By comparison, consider the Hampton Inn guarantee. It says simply, “If you’re not completely satisfied, we don’t expect you to pay.
This is unconditional and you don’t need to be a lawyer to understand it. A guarantee loses power as conditions are placed on it. Consider the Lufthansa on-time guarantee, for example. The conditions exempted 95% of the cases to which it might be applied, reducing its effectiveness by at least that percentage.
The benefits to the company of an effective service guarantee are as follows:
(i) Sets Clear Standards for the Organisation – It prompts the company to clearly define what it expects of its employees and to communicate that to them. The guarantee gives employees service-oriented goals that can quickly align employee behaviours around customer strategies.
(ii) Forces the Company to Focus on its Customers – To develop a meaningful guarantee, the company must know what is important to its customers — what they expect and value. In many cases “satisfaction” is guaranteed, but in order for the guarantee to work effectively, the company must clearly understand what satisfaction means for its customers (what they value and expect).
(iii) A Good Service Guarantee Studies the Impact on Employee Morale and Loyalty – A Guarantee generates pride among employees. Through feedback from the guarantee, improvements can be made in the service that benefits customers, and indirectly employees.
(iv) Immediate and Relevant Feedback from Customers – It provides an incentive for customers to complain and, thereby, provides more representative feedback to the company than simply relying on the relatively few customers who typically voice their concerns. The guarantee communicates to customers that they have the right to complain.
(v) Reduces their Sense of Risk and Builds Confidence in the Organisation for Customers – Because services are intangible and often highly personal or ego involving, customers seek information and cues that will help reduce their sense of uncertainty.
Further, previous research has identified four types of service guarantees:
(iii) Implicit and
(i) A Specific Guarantee — Signals firm commitment on specific attribute performance such as delivery time or price. Specific guarantees allow customers to evaluate service by disconfirming attribute performance expectations. From the firm’s perspective, a specific guarantee can serve not only as a benchmark to guide employee efforts and firm process design, but also as a performance measure. However, the narrow focus on some attributes may not be highly valued or appreciated by a heterogeneous customer base, although it may appeal to certain segments.
(ii) An Unconditional Guarantee — Promises performance on all aspects of service, and “in its pure form, promises complete customer satisfaction, and at a minimum, a full refund or complete, no cost problem resolution for the payout.” Unconditional guarantees require a slightly different firm approach since variables that determine customer satisfaction such as effect and cognitive evaluations of attribute performance (Oliver) are not within the firm’s control.
Implementation of unconditional guarantees requires firms to focus efforts on managing customer interactions instead of specific service attributes. The distinction between specific or overall (unconditional) performance is important as it defines the scope of the marketing effort required to communicate and support the guarantee, and has widely different implications for service guarantee design and management.
(iii) Implicit Guarantee — As the term suggests, it is an unwritten, unspoken guarantee that establishes an understanding between the firm and its customers. Customers may infer that an implicit guarantee is in place when a firm has an outstanding reputation for service quality. The focus of an implicit guarantee is customer satisfaction. Previous research suggests that customers are more likely to rely on explicit firm promises instead of implicit cues to make inferences about the firm.
(iv) An Internal Guarantee — Is “a promise or commitment by one part of the organization to another to deliver its products or services in a specified way or incur a meaningful penalty, monetary or otherwise.” Since implicit guarantees are unconditional guarantees (without formal expression of explicit commitment) and the focus of internal guarantees is limited to coordinating functions and employees, the subsequent discussion includes only specific and unconditional guarantees.
Service promises can foster and strengthen customer-firm relationships due to their attention to specific attributes such as price or delivery time, or because of unconditional assurances aimed at increasing customer satisfaction. Ostrom and Iacobucci suggest that service guarantees serve as external cues (just like price or brand reputation) that are used by Customers to evaluate service quality and reduce risk.
In an experimental study, they found that service guarantees improved customer evaluations only in the absence of other quality information. As expected, perceptions of risk were lower when a guarantee was offered. In the same study, they also found that service guarantees had a greater impact on customer evaluations when quality variation was perceived to be high among service providers. In addition, the uniqueness of a guarantee has been found to amplify its effect on customer evaluations.
Wirtz notes that in general, service guarantees favorably influence customer attitudes and beliefs, thereby increasing purchase intention. However, Tucci and Talaga found that service guarantees did not necessarily increase subject likelihood of choice. They found that guarantees increased choice likelihood for expensive services, but negatively influenced choice when prices were low.
In a later study, Wirtz et al. found that the impacts of service guarantees on customer evaluations of quality, risk, and purchase intention were significantly moderated by firm reputation. Specifically, they found that change in customer evaluations was higher for a good quality provider than for an outstanding quality provider when guarantee availability was varied. This may be due to information redundancy or a ceiling effect where a firm with a reputation for outstanding quality is unable to signal higher quality since it is already a quality leader.
Consequently, Wirtz et al proposed an inverted U hypothesis suggesting that firms with moderate or good quality reputation benefit the most from service guarantees, while those at the high or low ends gain the least. They also found that explicit guarantees did not lower customer evaluations of service quality for high or outstanding quality providers as proposed earlier in the literature.
In summary, these studies suggest that not all customers and firms benefit equally from service guarantees. The level of risk (which could be a function of price or degree of quality variation), availability of other information (e.g., brand, price), uniqueness of the guarantee, or firm reputation (low, high, or outstanding), may considerably moderate the ability of service guarantees to improve customer evaluations.
In a text summarizing past research, Wirtz proposed that well designed service guarantees should be unconditional, easy to understand and communicate, meaningful to customers, easy to invoke, easy to collect on and credible. McDougall, Levesque, and VanderPlaat found that survey respondents preferred a specific service guarantee to an unconditional guarantee when their attention was focused on invoking the guarantee. In this study, specific guarantees were preferred on three dependent measures – risk reduction, ease of obtaining refunds, and confidence in dealing with the firm.
However, when it came to selecting a firm based on the type of guarantee offered, firms offering unconditional guarantees were preferred. McDougall et al concluded that a guarantee that combined the best of both types, i.e., an unconditional guarantee with specific payout clauses would appeal to a broader audience. Chu et al. have shown that a no-questions-asked refund policy is superior to a verifiable-problems-only or no-refund policy.
They derived optimal refund policies for service firms under different conditions of salvage value, complaining costs, customer dissatisfaction, and frequency of use during trial, and price. Using theoretical modeling, Chu et al. showed that a partial refund policy was optimal when customer opportunism was high and an unrestricted money-back policy was appropriate when customer opportunism was low.
Fruchter and Gerstner have suggested that satisfaction-guaranteed (unconditional guarantee with a full refund plus hassle costs) is optimal from a theoretical standpoint when firms are able to set high prices that equal the willingness to pay of satisfied customers. They also showed that such a guarantee would be most profitable even when returned products had no salvage value.
The evidence suggests that both, specific and unconditional guarantees have positive effects on customer evaluations. However, their efficacy differs depending upon the task facing the customer, and size, type, and procedures for claiming compensation. Firms should decide refund policies based upon the level of customer opportunism and would do well to compensate customers for inconvenience as well as basic exchanges or repairs. Note that there is much scope to empirically validate the results obtained by Chu et al and Fruchter and Gerstner.
Callan and Moore used attribution theory to explain how customers evaluate service quality and failure. However, they did not discuss how service guarantees affect customer evaluations in the event of failure (or success) and how firms can design guarantees to assist in service recovery. Tax, Brown and Chandrashekharan have used social justice theory to explain how customers evaluate service complaint experiences.
While their work did not focus on service guarantees per se, they provided a comprehensive discussion of the variables that influence satisfaction with complaint handling. They found that customers seek fair outcomes, fair processes, and fair interactions. Their framework is very useful for reasoning how service guarantees might affect customer evaluations during service recovery.
In summary, previous research has identified theoretical approaches that explain how customers evaluate service failure and recovery. Attribution theory is useful for understanding customer reactions to service failure while social justice theory is well suited for explaining satisfaction with complaint experiences. However, there aren’t any studies that specifically investigate how service guarantees affect customer evaluations in the event of failure, or how they may be used to assist service recovery. Such knowledge can help firms not only conceive and design effective guarantees, but also assist in their implementation.
9. Organizational Impacts of Service Guarantee:
While much anecdotal evidence has been cited, little formal research has addressed how service guarantees affect employees and organizations. Wirtz has suggested that service guarantees force firms to identify performance expectations of customers and the importance they attach to different elements of the service process. Citing anecdotal evidence, Wirtz also contends that guarantees cause firms to improve their service delivery processes by identifying and working towards eliminating potential fail points.
Guarantees help firms set performance standards for employees. Therefore, service guarantees have positive impacts on personnel management by inducing firms to hire and train employees to deliver guaranteed service. Hart suggests that firms can improve internal quality problems by offering internal guarantees.
To summarize, the research on employee impacts and organizational benefits is based largely on anecdotal evidence. There is a lack of empirical research or theory to support the hypothesized positive impacts of service guarantees on firm processes and performance.
(i) Need for multiple theoretical perspectives.
(ii) Existing service guarantee research still leaves a number of important questions unanswered;
(iii) When do firms benefit from service guarantees and why?
(iv) How should guarantees be designed to minimize the effects of service failure?
(v) How do guarantees affect customer evaluations when service fails?
(vi) How do guarantees affect employees and firms?
It is apparent that these questions cut across a number of functions and disciplines, necessitating a variety of theoretical perspectives for investigation. We utilize four theoretical perspectives (below) to help researchers approach these questions more systematically and explain seemingly disparate findings of service guarantee effects. Each theoretical perspective is developed into a conceptual framework with an accompanying set of arguments and propositions.
The first three frameworks pertain to guarantee effects on external markets (customers), while the fourth explains impacts of guarantees on internal markets (firms and employees). By examining different stages and facets of the consumption process, the customer frameworks complement one another. Note that we do not advocate a specific perspective; rather we hope that these multiple viewpoints will provide richer insight into the domain of guarantees.
We expect these frameworks will advance existing knowledge by helping answer the following four questions:
From a firm’s perspective, it is necessary to understand why and how customers infer higher quality, value, and satisfaction when service is guaranteed. Although previous research has identified a number of benefits sought by customers of service firms (Gwinner et al.), not much attention has been given to specific relational benefits (or processes by which they are realized) of service guarantees.
Our framework utilizes signalling theory to explain when and how different types of guarantees communicate higher quality and lower risk perceptions. It provides a reasonable basis for reconciling the observed findings and can guide firms seeking to incorporate guarantees into their service strategy.
Guarantee design from the standpoint of choosing between service firms (McDougall et al.; Tucci and Talaga). Consequently, design impacts on customer expectations of procedures for invoking guarantees and compensation for service failure have been ignored.
Further, researchers have examined design from the firm perspective of managing resources (Chu et al.; Fruchter and Gerstner), paying scant attention to customer psychology and the need for restoring equity and justice. Therefore, social justice theory is used to develop a framework that explains how customers judge the fairness of outcomes and resolution procedures. This is valuable for designing guarantees to mitigate the effects of service failure.
Much work has focused on improvements in pre-purchase customer evaluations of quality and satisfaction. Service guarantees have been viewed almost exclusively as marketing tools and most research has focused on how customers use them to reduce risk perceptions, or choose between competing providers.
Failure to recognize post consumption guarantee effects has diminished their worth in the services research agenda. A framework using attribution theory is developed to reason the effects of specific and unconditional guarantees on customer evaluations after service has been experienced. This is important for understanding how guarantees assist service recovery or reinforce service success.
(iv) How do Guarantees Affect Employees and Firms?
While it is noteworthy that some researchers have recognized that service guarantees may have merit due to their beneficial impacts on both customers and firms, there has been a lack of systematic effort to utilize marketing or management theories to ground future empirical investigation. Several issues bear investigation. For instance, what type of guarantee improves the market orientation of a firm?
How do different types of guarantees affect the design of service delivery and recovery processes? The proposed framework uses previous research on market orientation, service recovery, and total quality management to elaborate the effects of guarantees on employees and organizations. This would help managers formulate service strategy by explaining process and resource requirements for effective support of guarantees.
Recognizing both customer and firm perspectives has two important advantages:
(i) It helps researchers recognize important interdependencies among customer evaluations and firm processes, and
(ii) It helps managers improve service design and better implement service guarantees through a more comprehensive understanding of service guarantee effects. Each customer framework utilizes a theoretical perspective to explain why (reasons), when (conditions), how (processes), and what effects (outcomes) guarantees have on customers.