Sara Bjrlin Lidn and Per Skln

Service Research Center, Karlstad University, Karlstad, Sweden

Contact:

(Both authors)

Karlstad University,

Department of Business and Economics,

Service Research Center

SE-651 88 Karlstad

Sweden

E-mail

Sara Bjrlin Lidn: sara.bjorlin.liden@kau.se

Per Skln: per.skalen@kau.se

The Effect of Service Guarantees

on Service Recovery

Abstract

Service guarantees have been attributed the benefit of improving the overall service of a service

provider. However, little research has been carried out within the area. This article focus on one

aspect of the service guarantee, the effects that service guarantees may have on service recovery.

Critical incident data were collected using the critical incident interview technique with customers

of RadissonSAS, a worldwide hotel chain using a service guarantee. One contribution of this

article is that the interviews convey that the implicit guarantee may serve as a risk reducer, which

contradicts and adds to previous research. Previous research states that only the explicit

guarantee has these benefits. In this case, the guarantee does not reduce risk in the purchase or

consumption stage, but after the consumption when the service has failed, as the customer finds

out about the guarantee in the recovery situation. Another contribution of this article is that

service guarantees are found to influence the outcome of service recovery as it affects how

employees behave to recover the customer.

Keywords : Service guarantee, Service Recovery, RadissonSAS

Acknowledgment: The authors would like to thank Professor Bo Edvardsson, Karlstad university, Professor Tore

Strandvik, Swedish School of Economics and Business Administration in Helsinki and the two anonymous IJSIM

reviewers for their useful comments.

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Introduction

Service guarantees have been claimed to be a key to success in terms of improving the process of

service recovery, employee performance, providing data on service failures, developing measures

for customer satisfaction and setting performance standards (Hart, 1988; Maher, 1992; Ettorre,

1994). These statements are based on experiences from a few companies, such as Nordstrom,

Dominos Pizza, or Lands End Hotels, which successfully have implemented service guarantees

on their offerings (Hart, 1998). However, neither methodological approaches nor theoretical

standpoints are presented to authenticate the findings (Hart, 1988; 1995; 1998; Heskett et al.,

1990; Maher, 1992; Ettorre, 1994). Nevertheless, such anecdotes have become the archetype for

guarantee design and development.

Despite the mentioned shortcomings and academic rigidity in much research on service

guarantees, a few recent articles have presented in depth research on the service guarantee as a

quality signal (Tucci and Talaga, 1997; Wirtz et al., 2000) and guarantee design matters (Donath,

1997; McDougall et al., 1998; Hill et al., 2000). This research conveys insight into how the

guarantee may affect customers prior to purchase, in reducing the risks of an uncertain service.

However, post-purchase experiences of a service guarantee, i.e. in the recovery context, have not

yet been examined. Nevertheless, service guarantees are presumed to have a positive effect on

service recovery (Tax and Brown, 2000), especially as it may communicate to customers that

employees take responsibility for their failures, and may set performance standards that systemize

how employees deal with such failures. In this article, we view the service guarantee as tool to

systematize and formalize the recovery process. However, little empirical research confirms or

contradicts whether the guarantee affects these issues. Therefore, the aim of this article is to study the

possible effect that service guarantees may have on service recovery.

More specifically, we address an issue that has been called for in recent articles (Bolton and

Drew, 1995; Ostrom and Iacobucci, 1998): what role the guarantee has on customers subsequent

behavior in relation to the service provider. In order to do so, we focus on the guarantee in the

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situation when it is part of the service recovery efforts of aiding a negative critical incident.

However, the guarantee should not be separated from its service context and be assumed to be

the sole contributor to recovery. We argue that the service guarantee can be viewed as one tool to

aid a critical incident in the service recovery context. However, several additional matters may

affect customers future intentions, such as the length of relationship (Liljander and Strandvik,

1995), the criticality if the critical incident (Edvardsson and Strandvik, 2000) and the behavior of

front-line employees (Parasuraman et al., 1985; 1988; 1994; Zeithaml et al., 1990; Edvardsson,

1996). In this paper, the service recovery context refers to the process that begins when the

company becomes aware that dissatisfaction has occurred, to the situation when the problem has

been solved, and/or the customer has been reimbursed to achieve satisfaction. Because of the

complexity of such a process, we argue that it is important not to study service guarantees as an

isolated matter.

Empirically, this article is based on negative critical-incident interviews with customers of

RadissonSAS, which is a worldwide hotel chain serving mainly the business segment. The entire

organization has used a 100% Guest Satisfaction Guarantee for several years, with a focus on

improving the service and the guarantee to better serve customers.

The outline of the paper is as follows: First, we make a theoretical overview concerning

service guarantees and service recovery. Thereafter, our interpretative methodological standpoint

and qualitative methods are explained. Then, the empirical findings are presented, followed by an

analysis and interpretation of how a service guarantee can aid or obstruct in recovering customers

that have experienced service failures. We conclude the article by discussing our main findings

and directions for future research.

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Theoretical framework

The Nature of Services and the need for Service Recovery

The intangible nature of services makes the management of expectations very important as

service companies seek to influence customers perception of the service (Parasuraman et al.,

1985; 1988; 1994). In fact, when prospective customers cant experience the product [or service]

in advance, they are asked to buy what are essentially promises, so called promises of satisfaction.

Even tangible, testable, palpable, smellable products are, before they are bought, largely just

promises (Levitt, 1981:96). These promises are delivered to customers by front-line employees

in what is referred to as the moment of truth (Edvardsson, 1996; Grnroos, 2000). The moment

of truth is often characterized as a critical incident (Edvardsson and Strandvik, 2000) where

research has found that behavior of front personnel often influence whether the outcome is

positive or negative. A few traits significantly seem to influence customer perceived quality:

Empathy: Concerns the caring and individualized attention that the front-personnel

provide for its customers (Parasuraman et al., 1985; 1988; 1994).

Adaptability: The ability of the front personnel to meet the need of different customers

(Edvardsson, 1996).

Responsiveness: Regards the readiness to help customers and to provide prompt service.

The dimension emphasize attentiveness in dealing with the customer requests, complaints

and demands and seem to be of significant importance in a service recovery context

(Parasuraman et al., 1985; 1988; 1994).

Trust and reliability: The ability of the front personnel to behave in a way that customers

rely on them (Zeithaml et al., 1990; Morgan and Hunt 1994; Rousseau et al., 1998;).

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Customers expectations of the service are subjective and based on needs and desires that they

expect to fulfill using the service (Grnroos, 1992). The difficulty of actually delivering according

to these expectations creates a need for a support system for service failures, if there is a long-

term approach to the customer relationship. Service Recovery is consistent with recognizing that

service failures have occurred but also doing something to correct it (Sasser et al., 1990; Johnston,

1995), and its primary purpose is to handle the moments of truth (Edvardsson, 1996) as

efficiently as possible. Brown et al. (1996:32) propose a simple yet clarifying definition of service

recovery which is in accordance with the view of service recovery applied in the present article;

service recovery, they say, is consistent with fixing or compensating for service failure

In order to preserve or enhance the perceived service quality after a failure, companies

need a service recovery strategy. Empirical research on service recovery is, however, still scarce.

The most prominent conclusion is that the actions taken by the front-line employees will have a

significant effect on the outcome of service recovery (Zemke, 1995; Brown et al., 1996; Tax and

Brown, 1998; Webster and Sundaram, 1998; Boshoff and Leong, 1998; Boshoff and Allen, 2000).

Brown et al. (1996) argues that front-line employees should be provided with resources and

authority to handle the problem if the customer relationship after a service failure is to be

improved or unchanged in terms of customer perceived service quality and satisfaction. In

addition, Tax and Brown (1998) emphasize the importance of fair and just treatment of

customers when a service failure has occurred. Accordingly, Boshoff and colleagues (Boshoff and

Leong, 1998; Boshoff and Allen, 2000) have used quantitative methods to show that

empowerment of front-line employees have a positive impact on the outcome of service

recovery.

Previous research on service recovery also conclude that the customers reaction is highly

dependent on the graveness of service failure (Bitner et al., 1990; Hoffman et al., 1995; Barlow

and Mller, 1996; Webster and Sundaram, 1998; Blomqvist et al., 1999). Webster and Sundaram

(1998) have shown that the perceived importance of successful service delivery in a given service

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encounter will have a great impact of the service recovery outcome. In other words, a high-

critical situation will be harder to recover compare to a low-critical situation. In a relationship

context it can be argued that customers, which intend to interact with the company on more than

one occasion, have a long-term interest in the quality of the service, and wish to prevent the

incident to occur again. Thus, the customers assessment of the relation whether it is worth

keeping or not influences the outcome of the recovery process, which indicates that neither the

critical incident, nor the recovery situation is to be viewed as isolated from prior experience, or in

other terms, the pre-history of the relationship (Boshoff and Leong, 1998; Tax and Brown, 1998).

To conclude, service recovery literature also states that the kind/type of measures taken

by front-line employees will affect the service recovery outcome. One suggestion is that a positive

outcome will occur if the front-line employees fix the problem (Brown et al., 1996; Boshoff and

Leong, 1998). Hoffman et al. (1995) have, however, shown that customers to restaurants prefer

some kind of economic compensation (free food, discount or a coupon) compared to a

replacement or correction, which is in accordance with Webster and Sundaram (1998) who

demonstrated that customers prefer economic compensation in low-critical situations. In high-

critical situations, however, customer prefers that the service provider fix the problem (Webster

and Sundaram, 1998). Research is concordant on that any effort taken is preferable to no effort at

all. In short, the most important conclusion of the scarce but growing body of empirical service

recovery research is that the behavior of front-line employees will have a great effect on the

outcome of service recovery.

Service Guarantee in a Service Recovery Context

To guarantee a service simply means to present measures for service quality and to offer

compensation1 in cases when the promised quality is not achieved. A service guarantee can thus

serve as a means for service recovery (Tax and Brown, 1998), i.e. fixing or compensating for

service failure (Brown et al., 1996:32).

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To the design, the guarantee is either explicit; put in writing and actively advocated, or

implicit; used only when customers mention that they are not satisfied. The explicit guarantee is

based on knowledge it is marketed and communicates messages displaying that customer

satisfaction is a priority in the organization (Hart, 1998). It also communicates the service quality

level that customers can expect from the provider. The implicit guarantee is based on experiences

the company must teach its customers that it is devoted to customer satisfaction. Ideally, the

implicit guarantee functions as an internal quality statement, that improves the internal quality

and efficiency, which eventually is believed to raise customer satisfaction. Moreover, customers

expectations may also be influenced by another service guarantee design-issue: the terms for

when the guarantee may be invoked. In this respect, the unconditional guarantee is considered

superior, as it does not stipulate when the customer may, or may not, invoke the guarantee

(Maher, 1992; Ettorre, 1994; Hart, 1998). The specific guarantee conditions when the guarantee is

applicable to the service.

Although the comprehensive aim of a service guarantee is to achieve higher rates of customer

satisfaction and to offer compensation, previous research identifies several additional and more

specific purposes of a service guarantee. Firstly, they may be a mean to communicate a certain

quality level to customers, as customers believe that low quality providers cannot afford to honor

a high-quality guarantee (Boulding and Kirmani, 1993; Tucci and Talaga, 1997). Secondly, service

guarantees may reduce the customers uncertainties when purchasing an unfamiliar service or

they may minimize the negative consequences of the dysfunctional service. Here, it clarifies what

customers rightfully can expect of a service, and it presents customers with an incentive to

complain (Barlow and Mller, 1996; McDougall et al., 1998). That is, a service guarantee may have

a risk-reducing function (Berry, 1995). Thirdly, guarantees may serve as an impetus to improve

the internal organizational processes by guiding the service recovery actions taken by the front-

line employees (Maher, 1992; Hart, 1998).

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When set expectations fall short the guarantee may thus serve as a recovery method that

prevents service failures to have fatal impacts on the customer relationship (Zemke, 1995;

Heskett et al., 1997; Tax and Brown, 1998; Hart, 1998). In the next section we outline in what

ways service guarantees may serve as a mean of service recovery from the standpoint of our

relationship approach.

Service Guarantees as a Mean of Service Recovery

We conceptualize service guarantees to function as a means for recovery in two ways: First, it

seems plausible that both the explicit and the implicit guarantee will affect service recovery

because previous research assumes that guarantees will guide the behavior of front-line personnel

when the customer complain (Maher, 1992; Hart, 1998). Such empowerment of front-line

employees will have a positive effect on service recovery (Boshoff and Leong, 1998; Boshoff and

Allen, 2000), as companies should train their people to act on service failures with the help of the

service guarantee. Also the training, or possibly the design of the guarantee may enhance the

ability of front-line employees to act on a service failure. Clearly, the guarantee statement itself

serves as a guideline for employees as it states what is to be delivered to the customer.

According to Tax and Brown (1998), customers should perceive that they receive fair

treatment if the outcome of service recovery is to be satisfactory. A distinction is made between

fair outcomes, fair processes and fair interactions. Outcome fairness concerns the results

customers receive from complaints. Procedural fairness refers to the policies, rules and timeliness

of the complaint process. Interactional fairness focuses on the interpersonal treatment received

during the complaint process (Tax and Brown, 1998:79). Fair outcomes are synonymous with

having the right compensation; depending on the inconvenience caused, the right refund, the

right correction etc. Fair processes are processes that are clear to the customers and that the

actual problem is dealt with quickly. Fair interactions Tax and Brown (1998:81) are described as

demonstrating politeness, concern, and honesty; providing an explanation for the failure; and

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making a genuine effort to resolve the problem. It can be argued that the three types of fairness

will promote the quality factors outlined in the beginning of the theory section responsiveness,

empathy, adaptability trust and reliability and that lack of fairness will not. Possibly, the

utilization of service guarantees in companies will positively affect the three types of fairness

proposed by Tax and Brown (1998).

The second manner in which service guarantees may serve as a means of service recovery is

that they reduce the risk of both the service firm and the customer (Berry, 1995). The risk of the

service firm will be reduced by the mitigating effect that explicit service guarantees may have on

switching from relationships. Singh (1990) has found that high levels of perceived probability of

successful complaint treatment are associated with lower levels of exit, i.e. switching behavior. In

accordance with previous research, the explicit service guarantee will communicate to customer

that the service provider takes complaining seriously and therefore enhance the customers

perceived probability of successful complaint.

Besides the service guarantees effect on switching, it is probable that the explicit guarantee will

lower the customer perceived risk (Barlow and Mller, 1996; McDougall et al., 1998). According

to prospect theory (Kahneman and Tversky, 1979) the degree of risk that customers connect

with a purchase will affect their decision. Customers make their decisions on the basis of

previous experiences in similar, but also different, conditions. Rust et al. (1999:85) question a

number of assumptions from research on perceived service quality with the help of prospect

theory, displaying that subjects did not necessarily choose that brand with the greatest expected

performance. Rather, they balanced the brands expected performance against its variability in

performance. By promising a good service, the explicit guarantee may thus lower the customer

perceived quality variance, which, according to prospect theory, is synonymous with lowering the

customer perceived risk and increasing the likeliness of customer to choose that service provider.

Studying service guarantees effect on service recovery with a relationship approach puts a

focus on perceived behavior of front-line employees in the complaint situation, and on the risk

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reducing effects of service guarantees. Compared to the general definition of service guarantees

outlined above, guarantees are in the present article defined as a means for service recovery in

terms of lowering risk and to guide service recovery actions taken by the front-line employees in

order to preserve relationships.

Method

The aim of this article is to study the possible effects of service guarantees on service recovery.

Focus is on the risk-reducing effect service guarantees and how guarantees influence employee

service recovery behavior. As argued in the introduction, research in this area is lacking, which is

why we choose to conduct exploratory research. To study new phenomena with an exploratory

interest often calls for a qualitative methodology (Alvesson and Skldberg, 2000).

Qualitative methodology and data gathering technique

Within qualitative methodology a division is often made between functionalist and interpretative

approaches of analyzing and interpreting data (Burrell and Morgan, 1979). One important line of

demarcation between these approaches is that a functionalist approach regards the results as

objective truths, but the interpretative approach holds them to be inter-subjective truths

(Alvesson and Skldberg, 2000). Considering the inapt research on service guarantees, and our

explanatory interest, we argue that it is difficult to express objectives about the nature of service

guarantees and its effect on service recovery. Instead, we have conducted in-depth studies of a

specific empirical situation in order to understand the customers subjective perception of the

phenomenon service guarantees. Thus, in this article we draw on the interpretative approach.

As some type of negative incident proceeds the invoking of the guarantee, the critical incident

technique (CIT) was a natural choice to gather data and structure the interviews (Edvardsson,

1988; 1992; 1996; Roos and Strandvik, 1996; Edvardsson and Strandvik, 2000). However, the

presentation of customers behavior subsequent to the incident and the invoking of the guarantee

are inspired by the narrative approach. (Van Mannen, 1988; Czarniawska, 1998; 1999). Besides

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the correspondence with our interpretative approach, we favor a presentation that allows the

opinions of several customers to stand out. Therefore, two stories the comedy and the

tragedy about the effect of service guarantees on service recovery are presented, both inspired

by literary theory and fiction which is consistent with the narrative method (Czarniawska, 1998;

1999). Czarniawska argues that narratives can be used in several manners:

Narrative enters organization studies in at least four forms: organizational research that is written in a

storylike fashion (tales from the field, to paraphrase Van Mannen, 1988); organizational research that

collects organizational stories (tales of the field); organizational research that conceptualizes organizational

life as story making and organizational theory as story reading (interpretative approaches); and a disciplinary

reflection that takes the form of literary critique.

Czarniawska 1998: 13-14

In this article we conceptualize our empirical findings as research presented in a story like

fashion. In this specific approach, the researcher converts stories collected from the field (the

CIT-interviews) to one story, or several, which convincingly reason according to the thesis

presented in the analysis.

A critical incident is defined as a specific, unusual incident or situation which deviates from

how things normally are, or how the customer expects it to be (Edvardsson, 1996:196).

Although critical incidents may be of both positive and negative character, this paper focus on

the negative critical incidents as these incidents are necessary for the service guarantee to be

invoked. The research design is in agreement with the design proposed by Edvardsson (1988;

1992; 1996), Roos and Strandvik (1996) and Roos (1998; 1999).

Practical method and sampling technique

Critical incident interviews were conducted with 19 customers from northern and southern

America, Europe, Asia and Australia. Written documentation of both complaint and

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compensation was available in RadissonSAS database. Several selection criteria determined the

choice of interviewees - the customer had to:

have stayed at RadissonSAS within the last year

have invoked the 100% Guest Satisfaction Guarantee

have been refunded or compensated for their inconveniences

have a good image of the complaint situation that was similar to that presented in the

database

The customers were called either at work or at home and were briefly retold of the negative

critical incident when they had stayed at a Swedish or Norwegian RadissonSAS hotel, and what

inconvenience caused them to invoke the 100% Service Guarantee. This recollection of the

incident was necessary to ensure that the perceptions of the complaint process referred to the

specific incident that resulted in a guarantee reimbursement. Most interviewees were executives

traveling on behalf of their companies and as the respondents had varying origins, the language

used was English, or Swedish when possible. The open questions allowed the interviewees to

describe the course of events in their own terms, only led by areas such as; the nature of their

relationship to the hotel prior to the incident; what they felt was the reason to their complaint;

how the entire process was handled; and what they considered the result of the inconvenience

(Edvardsson and Strandvik, 2000) after the guarantee allowed them a reimbursement.

The CIT-interviews were then transcribed and interpreted by the researchers. After reading

through the 19 transcribed critical incidents it became clear that the customers relationship with

RadissonSAS differed in some respects. The frequency of relationship, i.e. how often the

customers stay at RadissonSAS, was one variable differing and another was the character of the

relationship, i.e. the customers attitude towards RadissonSAS, before and after the critical

incident. The customers answers were placed in a table (table I) that display how the relationship

has changed, to positive/neutral or negative, after the critical incident. Guided by these variables

and results, both authors separately interpreted how each respondent fit the model. The

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transcribed interviews were summed and two narratives, the comedy and the tragedy, were

constructed. Thereafter, the narratives were interpreted and conclusions in relation to previous

research were made.

Empirical case

In the empirical section of the article we introduce the 100% guest satisfaction guarantee at

RadissonSAS. Thereafter two ideal-type empirical stories are created about the two clusters of

respondents that are identified in table I, presented as the comedy and the tragedy.

The 100% Guest Satisfaction Guarantee at RadissonSAS

The 100% guest satisfaction guarantee is marketed to customers on flyers that are placed all

over the hotels; in the rooms, in the restaurants, in the lobbies and so on. The flyers tell the

customers in bold print that Our goal at RadissonSAS is 100% Guest Satisfaction and in small

print that If you arent satisfied with something, please let us know and well make it right or

you wont pay.

A brochure from a three-day training program for personnel that was held prior to the

introduction of the guarantee tells us what it stipulates, who can utilize it and when to use it.

RadissonSAS primary aim with the guarantee is to improve customer retention, satisfaction and

loyalty. In terms of employee performance, the guarantee stipulates that personnel should try to

correct mistakes but if the customer is still not satisfied a refund (some kind of economic

reimbursement) should be offered. All employees are authorized to utilize the guarantee at any

time, but they also have a responsibility to interpret when it is appropriate to apply the guarantee.

Some guidelines are presented in the brochure; the guarantee should be used when a customer

has a serious problem (if the hotel is responsible for the problem) and if the customer cannot be

satisfied through other measures. First, personnel are advised to listen to the customer and

apologize for the caused inconvenience. Second, if the customer still appears dissatisfied,

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personnel should try to find a solution to the problem and if the solution(s) presented does not

satisfy the customer, personnel are advised to present the final step of the guarantee a refund.

The 100% guest satisfaction guarantee is from RadissonSAS standpoint explicit and

unconditional in its character; it aims at satisfying customers, which should be achieved partly

through empowered personnel. Making up for unsatisfactory services by a second try or a refund

seems to be the essence of the guarantee.

Frequency and character of customer relationship before and after a critical incident

In order to understand what characterizes the interviewed customers relationship with

RadissonSAS before and after the critical incident, they were placed in a table. Building on recent

findings from Johnston and Fern (1999), who argue that customers have different expectations

for different levels of failure, and Tax and Brown (1998) that state the importance of the role of

prior experience, we chose to present the customers after their previous level of interaction with

RadissonSAS.

Take in table I here please

The table reveals that frequent and occasional guests of RadissonSAS appear more content after

the critical incident compared to customers staying more seldom at RadissonSAS. There may be

several explanations to this approach. Perhaps frequent and occasional guests have developed

strong and positive bonds with personnel at RadissonSAS and know to tell employees when

problems appear (Liljander and Strandvik, 1995). Another interpretation may be that personnel

are apt to help familiar customers. Or, customers that return may do so because previous

experiences at RadissonSAS were favorable, and those customers are therefore lenient towards a

mishap under fair circumstances (Roos, 1999; Tax and Brown, 1998).

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To learn more about the reasons underlying our findings, two empirical stories are presented

and interpreted. The first story is about the frequent and occasional guests and is named the

comedy, as this story presents a happy end, i.e. customers perceive the relationship with

RadissonSAS as indifferent or more positive, despite the incident. The second story concerns

customers that seldom or never previously have visited RadissonSAS. It is named the tragedy,

because it ends with the customer still being dissatisfied. Both stories present the criticality of the

incident, behavior of front-line employees, and impact of the service guarantee. The former two areas have

proved important in the recovery process, (Bitner et al., 1990; Hoffman et al., 1995; Zemke, 1995;

Webster and Sundaram, 1998) and the latter area has been proposed to systemize and clarify

responsibilities in the recovery process (Tax and Brown, 1998). To interpret the empirical case

from these standpoints is thus in line with previous research and our theoretical discussion.

The Comedy

The comedy is an ideal type story on how interaction between customers and RadissonSAS

develops in relation to the critical incident. In the group of 11 respondents, 4 report a more

positive relation to RadissonSAS after the incident, 5 mentions a relationship indifferent from the

incident, and 2 states that the relationship developed negatively as a result of the incident.

The criticality of the incident - The negativity of critical incidents reported varied in proportions.

Objectively judged, most of them do not seem very negative, i.e. RadissonSAS forgot to dry-clean

a set of clothes, the air condition did not work, or the cleaning of a room was not satisfactory.

These occurrences did not negatively affect customers relationship to RadissonSAS. Thus, if the

proportions of the critical incident are low it can be argued that a critical incident has a positive

or indifferent effect on the relationship. Edvardsson and Strandvik (2000), describing how the

criticality of the critical incident directly influences how customers perceive the situation,

supports this line of reasoning. However, incidents that may seem superficial at a first glance may

have great importance to a specific customer. For example, one incident involved a relaxation

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lounge that was closed, when a customers sole reason for visiting the hotel was the availability of

such a lounge.

I wasnt at all satisfied with the compensation I got. I went there to relax, not to save SEK 2000.

This quotation display the difficulty in labeling an incident as of great importance or as inferior,

as the perception of a situation varies from respondent to respondent. It further displays the

difficulty of turning dissatisfaction into satisfaction without improving the conditions that caused

the incident. In the case of the customer complaint above, the availability of the relaxation lounge

is not measurable in monetary compensation.

The behavior of the frontline employees - The frontline employees actions in connection to the

incident, as well as the criticality of it, have, according to previous research, a large effect on the

success of recovery. It seems important that the front-line employee displays concern for the

inconvenience that customers have experienced. One customer whose room had not been

properly cleaned pointed out that:

I was unhappy about the room, but I was happy with the way it was dealt with afterwards. I wasnt made to

feel like it was my fault. I wasnt looking for compensation, I was looking for satisfaction. To let someone

know that I was unhappy, and I felt that I got that.

Neither this citation, nor the previous example concerning the relaxation lounge, shows any

relation between the scope of compensation and satisfaction. In fact, one customer that

complained about a noisy fan that made it impossible to make phone calls in the room, said:

When I complained the following morning, I said I would move because I was not happy. Then I was told

that if I would stay another night they wouldnt charge me for the room, and so they put me in another

roomthey were very apologetic and I remember being treated very well.

These statements identify the importance that service personnel have empathy with customers

and interpret what kind of reimbursement or measures that should be undertaken, and if an

honest apology would please more than a refund. In addition, the compensation should probably

be adjusted to suit the customer concerned and the criticality of the incident.

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The criticality of the critical incident seems important also when it comes to possibilities of

turning a negative critical incident into an improved relation. When the incident is of little

criticality, it seems quite easy for the front personnel to act in a way that satisfies the customer,

resulting in an unaffected or more positive relationship. The difficulty is how to turn a grave

failure into a satisfying experience.

We have identified that in incidents with high criticality, customers state that the front

personnel did not handle the incident appropriately. This seems to result in a negative customer

relationship. However, most of the critical incidents seem to create positive or neutral outcomes

in terms of customer attitudes to the relationship, something that we argue is the result of the

frequent interaction that characterizes the relationship. Such interaction seems to make the

relationship less vulnerable to service failures.

The Impact of the Service Guarantee - A feature that distinguishes RadissonSAS from other service

providers is that it uses a service guarantee. RadissonSAS guarantees 100% customer satisfaction

- i.e. if customers are not satisfied with any aspect of the service, RadissonSAS will correct the

mistake or reimburse the customer if the solution was not satisfactory. As was mentioned in the

theory section, literature concerning service guarantees states that a primary benefit of a service

guarantee is its great impact on marketing. Interestingly, none of the frequent or occasional

customers knew of the guarantee until they were complaining and were enlightened about it by

front-line employees.

Customers seem to have two basic different attitudes towards the service guarantee: satisfied

customers (positive or indifferent customers) consider a service guarantee to be a positive

strategy for service companies. They believe that the guarantee contributed to the successful

service recovery process.

you know that the company co-operates if any problem should arise. And, if personnel know that the

customers should be 100% satisfied, it puts pressure on them and they must be service minded

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On the other hand, those that state that the relationship was affected in a negative way by the

incident also has a negative attitude towards the service guarantee. These customers state that

they have been inadequately compensated and consider the guarantee to be a rhetorical device.

To sum up, although the comedy often is a happy story the reasons are difficult to

understand - the criticality of the negative critical incident, the front-line employees, the

interaction between service provider and customer all affect the customers, in this case

satisfactory perception of the incident. In addition, these satisfied customers state that the service

guarantee was important for their sense of recovery. All these factors together seem to have

positive effects on the relationship when degree of interaction between parties is high.

The Tragedy

The tragedy is like the comedy an ideal type story about how interaction between the customers

and RadissonSAS develop in relation to the critical incident. As is implied by the name, the

tragedy often has negative outcomes, i.e. customers are dissatisfied with the refund or other

measures of compensation that RadissonSAS provide them with after a critical incident has

occurred. In total 7 respondents experience what we name the tragedy, which have two

distinguishing features: 1) they are dissatisfied with the service provided (one is neutral) and 2)

they seldom interact with RadissonSAS (table I).

The criticality of the incident The negativity of critical incidents varied in proportion also in the

tragedy. A logical hypothesis would be that the criticality of the critical incident is larger for the

customers constituting the tragedy compared to those constituting the comedy. Yet when

examining the critical incidents, this seems only partly to be the case. Some critical incidents

reported seem to be greater than those reported in the comedy. For example, a couple that

went to RadissonSAS to start out their honeymoon straight after the wedding ceremony did not

receive their midnight snack of cheese and wine, nor did they get their breakfast delivered to their

room as ordered in advance. However, other critical incidents are comparable to those reported

18

in the comedy. For example, one customer complained about receiving cold food, which seems

comparable to a suit that had not been dry-cleaned properly (which was reported from one

customer in the comedy). Nevertheless, the former had a negative outcome but the latter a

positive outcome, where the customers attitude towards RadissonSAS was improved. This fact

indicates that customers judgment of the criticality of the incident is rather subjective, but also

that something other than the incident itself influences whether the outcome is positive or

negative. We suggest that the previous relationship history may be one explanation.

Most customers in the tragedy revealed dissatisfaction concerning the compensation, which

seem to influence how they perceive the relationship. Respondents of this group mostly received

refunds, for example a discount on the room or in the restaurant. For example, the telephone bill

was reduced after one customer complained that the pre-ordered breakfast was late, and once it

arrived, it was cold:

I didnt really consider the discount as compensation. I could have gotten an apology instead. That would

probably have been sufficient.

Again, the importance of finding a compensation that satisfies the customer and stands in

relation to the incident seems a very important but difficult task.

The behavior of the frontline employees - Although economic reimbursement seem to dominate how

RadissonSAS make up for failures, the concern and empathy of employees seems to be very

important also for customers experiencing the tragedy. Several respondents mention that a

primary reason for their dissatisfaction with the service provided by RadissonSAS, i.e. the critical

incident itself, were inapt treatment by employees. The CEO of a large company was dissatisfied

after interacting with front-line employees:

They probably thought they only lost one customer, when they in fact potentially lost 150 customers, because

thats the amount of people I could have put in that hotel in a night. They were dealing with somebody that

could have put potentially several hundred thousand pounds worth of business their way, but because of

very, very poor service they now have nothing.

19

Other customers felt that they had to argue with the employee before their inconvenience was

taken seriously. To conclude, improper handling of complaints by the front-line employees seems

to have a large effect on the status of the relationship after a critical incident has occurred.

The Impact of the Service Guarantee None of the customers in the tragedy knew of the

guarantee before complaining. Although this was true also in the comedy, the difference lies in

that there the customers were told about the 100% guest guarantee at the moment when they

complained. Interestingly, the customers that seldom visit RadissonSAS do not recall being told

of the service guarantee. This fact could be the result of the inconvenience of arguing with front-

line employees before their situation was taken seriously, something that most customers stated

as an unsatisfactory experience. Overall, the customers of this group display skepticism or

mistrust towards a service guarantee: at least in comparison to the customers in the comedy.

For example, one customer thinks that RadissonSAS should concentrate their effort on hiring the

right people instead of using service guarantees as guidelines for their behavior. Another

customer believes that the guarantee gives the company a delusive impression RadissonSAS

guarantees 100% satisfaction but cannot keep the promise.

Analysis and interpretation

The aim of this article is to study the possible effects of service guarantees on service recovery. In

the presentation of our empirical findings certain patterns have evolved that may explain whether

the outcome of the recovery process is to be considered positive or negative. Furthermore, based

on previous research, we have argued that it is plausible that the service guarantee can be a means

for service recovery in a relationship context in at least two ways; to serve as a risk-reducer and to

influence the behavior of the front-line employees in the complaint situation. The following

section presents our reasoning on these two issues.

20

The Service Guarantee as a Risk-Reducer

In the theory section we argued that explicit service guarantees could function as a risk-reducer

for both the service provider and the customer. For the service provider, the guarantee would

have a mitigating effect on customers switching from relationships as it would enhance the

customer perceived probability of successful complaint, which according to Singh (1990) are

associated with lower the risk of switching from relationships. In addition, in promising a good

service the explicit guarantee lowers the customer perceived quality variance, which is

synonymous with lowering the customer perceived risk and increasing the likelihood that

customers choose a service provider who guarantees its services (Kahneman and Tversky, 1990).

Service guarantee research (McDougall et al., 1998; Wirtz et al., 2000) led us to believe that only

the explicit guarantee will have these two risk-reducing effects. However, the RadissonSAS case

reveals that the customers were unaware of the guarantee; it was implicit, even though

RadissonSAS thought it was explicit. So, if the guarantee does not seem to fill any of the

theoretically argued benefits, why do we give credence to it affecting the outcome of the recovery

process from a risk perspective?

Because according to the interviewed customers, especially to those represented in the

comedy, the service guarantee seems to be of importance when they complain. These customers

explicitly mention their appreciation of the guarantee. How come customers speak positively of

and say that they benefit from the guarantee although they were not aware of the guarantee? One

customer told us that when he called to complain, the employee told him that there was a service

guarantee for failures such as the one reported by him. He was positively surprised by this fact,

and that he did not have to pay for the service. And more importantly, he said that if there had

not been a guarantee, which contributed to the satisfaction he felt after the complaint, he would

probably not have stayed at the hotel again.

One plausible interpretation is that when the customer is about to complain, the customer

perceives the situation as unpleasant, and perhaps also sees a risk that his or her complaint will

21

not be considered important. In this very moment the employee informs the customer of the

guarantee, and the customer is relieved to hear that the company has a pre-planned procedure for

failures, that in fact others have complained as well, and the company does consider the

complaint important. This interpretation would be supported by the fact that most customers in

the tragedy report that they have not been told of the guarantee, which in part may explain

their perception of not being taken seriously. Also, the frustration of having to argue with

personnel could have influenced the customers not to pay attention to, or care for, the

information about the guarantee. Furthermore, research has shown that customers feel very

vulnerable in the complaint situation (Zemke, 1995; Barlow and Mller, 1996) and service

recovery literature emphasizes the importance of easing this process for the customers (Tax and

Brown, 1998). Thus, the explanation to customer satisfaction with the seemingly unfamiliar

guarantee may lie in the fact that the front-line employee presents the guarantee of satisfaction at

the time when customers need it the most as they speak up against the company.

Hart (1998) argues that customers who are unaware of the implicit guarantees presence, as

well as first-time customers, must experience a failure before learning about the guarantees

existence. We interpret the customers appreciation of a guarantee, which they become familiar

with only in the actual complaint situation, as a sign that the implicit guarantee may serve more

purposes for customers than has been suggested by previous research. It seems that implicit

guarantees have a mitigating effect on the customers interest in switching from a relationship,

because it enhance the customer perceived probability of successful complaint (Singh, 1990)

when they need it the most, that is, when they actually complain.

How the Service Guarantee affect Employee Behavior

The employees at RadissonSAS are instructed to present an apology to complaining customers,

and thereafter try to correct the mistake by replacing, exchanging or reproducing the service that

has failed to please the customer, with the help of the guarantee. According to Tax and Brown

22

(1998:80) the apology is important, as fair procedures begin with the firm assuming

responsibility for the failure. If the measures fail to satisfy the customer an economic

reimbursement, ranging from partial to full reimbursement, would apply. The essence of the

guarantee at RadissonSAS is to compensate customers economically if they cannot be pleased

otherwise. In the theory section we argued that it seemed plausible that both the explicit and the

implicit guarantee will enhance service recovery. The rational for this assumption was that

previous research (Maher, 1992; Hart, 1998) argues that guarantees will guide the behavior of

front-line personnel when the customers complain. It can thus be assumed that customers

perceive that they get a fair treatment which according to Tax and Brown (1998) is important if

the outcome of service recovery is going to be satisfactory if the service provider use service

guarantees. In order to analyze if the service guarantee at RadissonSAS had a positive influence

on the service recovery actions carried out by the front-line employees we use the distinction

between the three kinds of fairness proposed by Tax and Brown (1998) fair processes,

outcomes and interaction which promote responsive, adaptable, trustworthy, emphatic and

reliable behavior by front-line employees.

Interestingly, in several situations where front-line employees act in accordance with the last

step of the guarantee (economic reimbursement), their effort does not satisfy the customer, i.e.

process fairness was low. In fact, the interviews revealed that several customers did not ask for a

refund. Rather did they seem to be satisfied when they perceived the behavior of personnel to be

empathic and responsive what Tax and Brown (1998) name interaction fairness. These findings

imply that the guarantee at RadissonSAS put too much emphasis on compensation and too little

on fair behavior. One plausible interpretation is that the customers in the tragedy were

dissatisfied because front-line employees relied on the refund to solve the problem and satisfy the

customer. If the service guarantee is inadequately designed or not fully understood by front-line

employees, the use of the guarantee lowers customer satisfaction after a critical incident as

personnel seem to forget how they should treat a dissatisfied customer. It also implies that a

23

refund cannot be considered compensation, which only is achieved by added value such as

empathy or compensation beyond what the customer has already invested. According to our

interpretation, the service guarantee at RadissonSAS does not promote process fairness.

Another matter is that the compensation itself seems to influence customers perception of

the recovery process. The standpoint is that RadissonSAS offers an unconditional guarantee,

which is considered superior to other guarantees (Hart, 1988; Maher, 1992; Ettorre, 1994).

However, also this type of guarantee requires employees to be responsive to what best will satisfy

each individual customer. Still, how employees go about to select an appropriate compensation

for dissatisfied customers is not guided by the guarantee. However, the interviews suggest that

customers react negatively to compensation if it does not stand in relation to the service failure,

which indicates that the outcome fairness was low as well. For example, when RadissonSAS had

forgotten to repair the air-conditioning in a room, or delayed the breakfast for a customer, these

customers were offered a reduction on the phone bill to compensate for their inconvenience.

These customers did not appreciate the efforts made by the front-line employees. Nor did

customers appreciate being offered a reduction, but not full refund, for service failures.

One possible interpretation, which is supported by previous research on service recovery

(Brown et al., 1996; Boshoff and Leong, 1998), is that the customers remained dissatisfied as they

were only compensated for the problem; no solution was offered to correct the problem that caused

the dissatisfaction. Upon the question if the personnel was dedicated to his problem, one

customer that was compensated with two nights for free, felt that:

Wellthey did not fix the problem so they werent very committed!

We also found that in several instances, the interaction fairness was unsatisfactory. When the

customer perceived the behavior of the front-line employee as unfair there seems to be a lack of

adaptability. Some customers were satisfied when receiving a price reduction, but others would

have settled with an apology. In the latter cases the employees especially seem to have lacked

empathy and responsiveness. The empirical stories reveal that an outstanding feature to

24

understand how customers perceive the service recovery process is the presence or lack of

empathy displayed by the front-personnel.

We also interpret that fair interactions relates to how employees respond in the situation when

customers complain. Certain customers revealed that they had to argue with the employees

before their inconvenience was taken seriously and said that this had considerable negative effect

on the service recovery process. The last example indicates that lack of responsiveness, and

presumably that presence of responsiveness, have a great effect on the service recovery process.

To conclude, the service guarantees seem to affect the behavior of frontline employees. From

a customer perspective it is, however, a risk that the guarantee affects the behavior in an unfair

manner. From our interpretation it can be argued that the 100% guest guarantee at RadissonSAS

makes the front-line employee more apt to give customer economic reimbursement instead of

individualized care and attention. A service guarantee might, though, direct attention from

empathic, responsive and adaptable behavior, all important for effective service recovery, to

instrumental behavior in the form of economic reimbursement. As Maher (1992) and Hart (1998)

argue, service guarantees clarifies for employees what is expected of them, but it seems that the

service guarantee may stress the economic compensation rather than the empathetic behavior,

and therefore it could complicate, or even prevent an effective service recovery process.

Conclusions and future research

The focus in the article has been on the role of service guarantees in the service recovery process.

More precisely the focus has been on the risk-reducing effects of service guarantees and the

impact they have on service recovery.

One conclusion is that service guarantees seem to have a risk-reducing attribute, which has

not been recognized prior to the research presented here. Previous research has found that

explicit guarantees have a risk-reducing effect while implicit guarantees do not reduce risk (Hart,

1998; McDougall et al., 1998; Wirtz et al., 2000). Our research indicates that none of the

25

interviewed customers were aware of the guarantee although the company believes that its

presence is known. Still, the guarantee serves as a risk-reduction tool. In the moment of

complaining the uncertainty is great for customers, and the guarantee is a signal that the company

takes them and their complaint seriously. Therefore, we have argued that the implicit guarantee

have a mitigating effect on customers switching from relationships.

Another conclusion is that service guarantees can impact the behavior of front-line employees

in the service recovery process. The 100% service guarantee at RadissonSAS emphasizes that the

customer is offered a refund when service failures occur. When employees act in accordance with

the guarantee, customers with a seldom relationship to RadissonSAS perceive such behavior as

unfair the guarantee seems to negatively influence the service recovery process, and thereby the

relationship. Customers with a more frequent and positive relationship to RadissonSAS are not

that vulnerable to this kind of instrumental behavior, meaning that the focus is on economic

compensation, as their relationship is characterized by trust. The customers that already have

seen proof that the company is devoted to service quality seem less annoyed by the fact that they

are compensated economically, than customers that are new to the service and focus on how this

one specific situation is treated. Therefore, one suggestion is that it seems important to consider

what kind of relationship the company has to a dissatisfied customer when initiating the

guarantee and the recovery process. For, our research indicates that the service guarantee may

actually lower customer satisfaction after an incident, if the employee relies too heavily on the

possibility of compensating the customer with economic means.

Therefore, a service guarantee should stimulate fair recovery behavior from the front-line

employee. An important part of the service recovery process is not economic reimbursement, but

empathy and responsiveness of employees. If service guarantees are designed to stimulate

adaptive, empathic and responsive behavior, all-important quality factors (Parasuraman et al.,

1985; 1988; 1994; Edvardsson 1996), it may contribute to improved service recovery processes.

26

Previous research on service guarantees has argued that explicit guarantees encourage

customers to complain, express their dissatisfaction, and that guarantees clarify customer

expectations. Our analysis did not focus on these topics because the 100% guest satisfaction

guarantee at RadissonSAS should be considered implicit, as the customers we have interviewed

are unaware of it prior to the complaint situation. In future research, however, it would be

interesting to study a guarantee that is explicit both to the company and its customers. Answers

to the following questions would further widen the knowledge of how service guarantees affect

customers: How do customers perceive the recovery situation when they have expectations on,

and knowledge of, the guarantee prior to the incident? Does the explicit guarantee encourage

customers to complain and express their dissatisfaction? Does the guarantee clarify customer

expectations? It would also be interesting to deepen the knowledge of service guarantees (both

implicit and explicit) risk reducing effects with the help of switching- and (Forbes et al., 1986;

Singh, 1990) and choice literature (Rust et al., 1999).

27

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Table: I Frequency and character of relationship before and after a critical incident at RadissonSAS.2

1 In this article a distinction is made between compensation and refund. A refund refers solely to economic

reimbursement for a customers expenses. With compensation, we refer to additional efforts, beyond a refund or a replacement, such as empathic behavior of front personnel or services that express condolences to the dissatisfied customer.

2 One interview was deleted because the respondent could not remember the incident reported.

Frequency of relationship

Frequent Occasional Seldom Total Positive 7 2 1 10

Relationship Positive 3 X X 3 change Unchanged 3 1 X 4

Character of relation- Negative 1 1 1 3 ship and relation- Neutral 1 1 6 8 ship change after Relationship Positive X 1X 1 critical incident. change Unchanged 1 X 1 2

Negative X X 5 5 Neagative X X 0 Relationship Positive X X X 0 change Unchanged X X X 0

Negative X X X 3 Total 8 3 7 18