The effect of guarantee terms on service recovery fairness

Delivering fair recovery following a service failure is crucial for a firm for restoring customer satisfaction, repatronage, and perceptions of fairness. In addition to the recovery efforts by employees, organizational policies, such as guarantees, are argued to impact fairness perceptions. Given that businesses extensively use service guarantees, research on perceptions of fairness towards such policies is relevant for designing effective guarantee policies. In this study, service guarantees are contended to function as service recovery tools, and signal the firm‘s intentions to deliver justice/fairness. Drawing on signaling, attribution and justice theories, the study investigates the impact of guarantee terms on recovery fairness perceptions and attributions of negative motive. Employing a scenario-based experiment, this study shows that customer perceptions of recovery fairness vary according to the type of guarantee payout. Payout in the form of a discount does not restore fairness perceptions, and it even increases attributions of the firm‘s negative motive for offering the guarantee. When combined with refund, discount generates positive inequity and related feelings of guilt. The study contributes to knowledge by showing that service guarantee policies function as service recovery tools. Importantly, the interface of signaling, attribution and justice theories explains how customers form perceptions of justice towards service guarantees. Implications for management comprise the need to avoid overcompensation in order to restore fairness perceptions and lower attributions of negative motive.