Money Isn’t Everything! The Effects of Monetary and Nonmonetary Failure Compensations on Customers’ Complaint Satisfaction and Loyalty: An Abstract

Abstract

Although companies make use of organizational precautions, the relationship between a company and its customer can become problematic. Companies may then face the challenge of handling complaining customers. They have several options to deal with these complaints, such as offering an apology or monetary compensation. Generally speaking, handling complaints is quite important for companies because the way they handle complaints influences customers’ overall satisfaction (Mattila & Ro, 2008; McCollough, Berry, & Yadav, 2000). Furthermore, depending on a company’s complaint handling, customers may decide whether they want to stay loyal or terminate their relationship with the company (Homburg & Fürst, 2005). As acquiring new customers is much more expensive than maintaining relationships with present ones (Kotler & Keller, 2012), investigations about customer complaint management are highly relevant. Complaint studies so far incorporated two different points of view: customer’s perspective by focusing on customer (complaint) behavior including customer complaint satisfaction (e.g., Smith & Bolton, 1998; Tax, Brown, & Chandrashekaran, 1998), and company’s perspective by focusing on requirements or organization of complaint handling (for an overview, see Davidow, 2003). Combining both perspectives, the model of complaint handling introduced by Homburg and Fürst (2005) is of core interest for this paper. Their model focused on explaining complaint satisfaction and the relationship of complaint satisfaction toward customer loyalty after the complaint. This paper seeks to contribute to the research field on customer complaint management by partially adapting Homburg and Fürst’s model and testing in what sense monetary and nonmonetary failure compensations serve to explain complaint satisfaction and loyalty after the complaint within the scope of an experimental approach. Furthermore, the authors extend the research model and investigate boundary conditions of failure compensation types by adding different magnitudes of failure. The authors conducted an online experiment, based on a 2 × 2 between-subjects design with two manipulated factors: type of failure compensation (monetary vs. nonmonetary) and magnitude of failure (high vs. low). A total of 133 undergraduate students completed the study, resulting in four scenarios. The results show that in case of a low magnitude of failure caused by the company and a resulting customer complaint, the better option is to offer monetary compensation to ensure or increase both: complaint satisfaction and customer loyalty. In case of a high magnitude of failure, means pointed in the reverse direction, however, the differences were nonsignificant. Companies should instead focus on being polite, showing empathy and most importantly offering an apology toward the customer. Furthermore, the authors can explain the effect of type of compensation on customer loyalty in the low magnitude of failure condition after the complaint via customer complaint satisfaction. Therewith, the relationship of customer complaint satisfaction toward customer loyalty after the complaint can also be traced (Homburg & Fürst, 2005). © 2017, Academy of Marketing Science.