Service guarantee as a recovery strategy : The impact of guarantee terms on perceived justice and firm motives

Purpose – When a service fails, the guarantee policy of the firm can be employed as a recovery strategy. The terms of the guarantee determine the amount of payout and the ease of invoking the policy. The guarantee terms can, therefore, influence customer perceptions of recovery fairness and inferences about the firm’s intentions to provide fair recovery. The purpose of this paper is to examine the impact of guarantee terms on customer perceptions of justice, motive inferences, and repatronage intentions. Design/methodology/approach – A between-subjects experiment was conducted in parcel delivery services. Findings – Customer perceptions of justice vary across guarantee payout levels. Payout in the form of a discount does not restore justice perceptions, and leads to inferences that the firm offered the guarantee to maximize its profits. Conversely, full refund restores justice. Full refund plus discount is perceived as undeserved, and does not enhance justice perceptions. A moderately easy-to-invoke guarantee is perceived as fair, when it includes full refund. Inferences of negative firm’s motives, however, diminish perceived fairness of easy-to-invoke guarantees. Research limitations/implications – Future research could examine the interaction of guarantee scope with payout and ease of invocation, and how types of motives differentially impact justice perceptions. Practical implications – Full refund can enhance justice perceptions, whereas discount is perceived as unfair. Firms should offer full refund as guarantee payout, but refrain from offering a discount. Flexibility should be embedded in guarantee invocation procedures. Originality/value – This study demonstrates that service guarantees employed as recovery strategies signal justice and the firm’s motives.