Examining the Effectiveness of Service Guarantees: the Role of Process, Compensation, and Prior Experience

Citation:

Walfried Lassar, Howard Marmorstein, and Dan Sarel (1995) ,"Examining the Effectiveness of Service Guarantees: the Role of Process, Compensation, and Prior Experience", in E - European Advances in Consumer Research Volume 2, eds. Flemming Hansen, Provo, UT : Association for Consumer Research, Pages: 359.

European Advances in Consumer Research Volume 2, 1995      Page 359

EXAMINING THE EFFECTIVENESS OF SERVICE GUARANTEES: THE ROLE OF PROCESS, COMPENSATION, AND PRIOR EXPERIENCE

Walfried Lassar, University of Miami

Howard Marmorstein, University of Miami

Dan Sarel, University of Miami

INTRODUCTION

It has long been recognized that consumers tend to face risk and uncertainty in purchasing services. Because of the intangible and experiential nature of services, the task of evaluating quality prior to purchase is generally quite difficult. Additionally, variability in service quality is often quite high. The real time nature of service delivery and the reliance on the human factor tend to contribute to inconsistencies and poor quality. This in turn creates significant burden on consumers trying to assess quality and value (Hart 1993).

To reduce the risk and uncertainty associated with purchasing services the concept of service guarantees has been advocated. The concept of service guarantees has been similar to that of product warranties.

WARRANTY CHARACTERISTICS

Warranties are a well established and an important marketing tool. Consumers think of warranties as a type -of insurance policy (Cooper and Ross 1985; Grossman 1981; Heal 1977; Priest 1981), one which offers protection against unsatisfactory product performance, particularly the cost of repairs in case of product failure (Lutz 1989).

As such, product warranties serve basically two functions, risk reduction and quality communication. For complex products where it is difficult for consumers to assess quality and reliability, which increases the purchase risk, the risk is lessened if the consumer knows that breakdowns occurring shortly after purchase are covered by warranties. Product warranties also act as a communication device to signal product quality (e.g., Lutz 1989, White and Truly 1989). Because consumers infer that firms do not wish to pay for breakdowns in the warranty period, the presence of a warranty suggests a high quality product (e.g., Gemer and Bryant 1981; Kelley 1988; Lutz 1989; Wiener 1985).

In addition, specific warranty attributes can further influence perceptions of product quality and risk. Longer warranty coverage, stronger warrantor reputation and degree of warranty coverage positively influence consumer perceptions about product quality or value and inversely influence perceptions of financial risk (Shimp and Bearden 1982; White and Truly 1989; Wiener 1985).

EXTENDING THE TRADITIONAL WARRANTY CONCEPT IN THE SERVICE ENVIRONMENT

Historically, guarantees were designed to alleviate the customer's loss in case of a service failure. More recently, the concept of an extraordinary guarantee has been recommended (Hart 1990, 1988). It promises exceptional, uncompromising quality and customer satisfaction and backs this promise with a payout that has very few strings attached. This unconditional guarantee goes beyond risk reduction and shifts the emphasis from minimizing risk to communicating quality and value. While conceptually service guarantees seem like a good idea, the empirical question of potential impact on consumers remains largely unanswered. Under what conditions are guarantees likely to make a difference? What type of guarantees are likely to work and what communication elements may increase the effectiveness of service guarantees? The purpose of this study is to begin investigating these issues.

STUDY

Specifically, this study examines three factors hypothesized to effect consumers' perception of guarantees and ultimately consumer propensity to use the firm's service: (1) prior experience with the service, (2) communications about service processes, and (3) compensation levels.

We hypothesize that firms who communicate to their prospective customers some action to ensure correct service process will increase customers' perception of guarantee and service quality. Similarly, increased levels compensation in case of service failure and good prior experiences with the service are hypothesized to increase customers' perception of guarantee sincerity and service quality. Finally, process communications on how the firm tries to ensure service quality is hypothesized to mediate the effects of compensation levels on consumer perception of guarantee sincerity, quality expectations and consumer propensity for action.

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