Customer perceptions of guarantee policies and employee behaviour in service recovery: an investigation of justice, signaling and attributions

Firms frequently experience service failures, wherein performance is below customer expectations. Seeking to address service failures, firms deliver service recovery. Extant research suggests that service recovery leads to customer satisfaction and repatronage when perceived to be fair (or just). Prior studies emphasise the role played by employees in delivering fair service recovery. By contrast, the literature overlooks situations where organisational policies such as service guarantees pose a constraint to employee recovery efforts. Service guarantees are widely used across several service sectors, and these policies are invoked when services fail. Hence, service guarantees can be employed as recovery strategies along with employee behaviour, both influencing customer perceptions of fairness, post-recovery attitudes and behaviour. Empirical research that explores customer perceptions of service guarantee and employee behaviour used as recovery strategies is, therefore, topical. This thesis examines the impact of two guarantee terms - payout and ease of invocation - and two types of employee behaviour - concern and communication - on customer post-recovery trust in the firm and in the employee, and in turn, commitment and loyalty. The thesis is theoretically underpinned by three well-established theories - Justice and Attribution Theories from social psychology, and Signaling Theory from information economics. Justice Theory explains how service guarantee and employee behaviour elicit perceptions of recovery fairness. Signaling Theory elucidates how fair service guarantee and employee behaviour influence post-recovery trust, by signaling the trustworthiness of the firm and of employees. The dual lens of Signaling and Attribution Theories explains how a firm's characteristic of reputation for fairness, and customer attribution of inferred motive influence perceptions of service guarantee and employee behaviour employed as recovery strategies. A scenario-based experiment was conducted in two service contexts - banking and car repair. The data were collected via an online self-completion questionnaire embedding hypothetical scenarios of service failure and recovery. The sample was randomly selected from a consumer panel owned by a reputed UK-based market research agency. The conceptual framework of the thesis was tested by using Partial Least Squares Structural Equation Modeling (PLS-SEM). The moderating effects of firm reputation for fairness and inferred motive were tested by using the product indicator approach in PLS-SEM. Two pre-tests and a pilot study established the ecological validity of findings and the psychometric properties of the measures. In the main study, 658 valid responses were obtained. Results show that procedural fairness elicited by the ease of invoking the guarantee leads to post-recovery trust in the firm, but distributive fairness elicited by guarantee payout does not. Further, the effects of guarantee payout and ease of invocation are contingent upon the firm's reputation for fairness. Interpersonal and informational fairness elicited by employee concern and communication at the recovery stage lead to post-recovery trust in the employee. The effects of employee treatment and communication on post-recovery trust are contingent upon inferred motive. Post-recovery trust in the firm and in the employee, in turn, impact customer commitment and loyalty. Consistency of results across banking and car repair enhances the generalizability of findings. This thesis extends knowledge in the domain of service recovery research and broadens understanding of the employed theoretical precepts. First, the thesis establishes that service guarantees employed as recovery strategies elicit perceptions of recovery fairness. Such knowledge offers conceptual development of the Justice Theory framework by enhancing understanding of what fair service recovery constitutes. Second, the thesis introduces a new perspective to signaling research that considers how service guarantee and employee behaviour, with related interplay with firm reputation for fairness, signal the trustworthiness of the firm and of employees, and thus influence customer trust. Third, the thesis contributes to the understanding of the impact of perceived recovery fairness on trust by distinguishing between two trust referents - firm and employee. Fourth, the thesis demonstrates how customer perceptions of service recovery are contingent upon the firm's reputation and inferred motive.