Where service recovery meets its paradox: implications for avoiding overcompensation

Abstract

Purpose: The service recovery paradox (SRP) is the phenomenon that happens when customer satisfaction level post-service failure and recovery surpasses the customer satisfaction level achieved at error-free service. The aim of this study was to identify how large the size of compensation has to be at recovery for customer satisfaction to surpass that of error-free service (i.e. to identify a threshold value for SRP). The purpose of this is to inform managers how to restore customer satisfaction yet avoid overcompensation. Design/methodology/approach: The paper covers two studies. Study 1 used the novel approach of asking participants who had experienced a service failure in the hotel industry what amount of money (recovery) would make them more satisfied than in the case of error-free service. Study 2 then tested the compensation levels expressed by Study 1 participants to be sufficient for the service recovery paradox to occur. Findings: Study 1 indicated that the threshold for the SRP was (on average) around 1,204 SEK, or just over 80% of the original room reservation price of 1,500 SEK (approx. $180). Study 2 found that (on average) the customer satisfaction of participants who received 1,204 SEK in compensation for service failure marked the point where it surpassed that of error-free service. Participants who received 633 SEK were less satisfied; participants who received 1,774 SEK were more satisfied. Research limitations/implications: The findings are context-specific. Future research should test the findings' generalizability. Practical implications: The approach used in this paper could provide managers with a tool to guide their service recovery efforts. The findings could help hotel managers to make strategic decisions to restore customer satisfaction yet avoid overcompensation, given a legitimate service failure in which the organization is at fault. Originality/value: Numerous previous studies have investigated the occurrence or absence of the SRP at predetermined compensation levels. This paper used a novel approach to find a quantitative threshold at which the magnitude of the recovery effort makes customer satisfaction surpass that of error-free service.