Service guarantee

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A service guarantee is a marketing tool service firms have increasingly been using to reduce consumer risk perceptions, signal quality, differentiate a service offering, and to institutionalize and professionalize their internal management of customer complaint and service recovery. [1] By delivering service guarantees, companies entitle customers with one or more forms of compensation, namely easy-to-claim replacement, refund or credit, under the circumstances of service delivery failure. Conditions are often put on these compensations; however, some companies provide them unconditionally. [2]

Consumer Person or group of people that are the final users of products and or services; one who pays something to consume goods and services produced

A consumer is a person or organization that uses economic services or commodities.

Risk perception is the subjective judgement that people make about the characteristics and severity of a risk. The phrase is most commonly used in reference to natural hazards and threats to the environment or health, such as nuclear power. Several theories have been proposed to explain why different people make different estimates of the dangerousness of risks. Three major families of theory have been developed: psychology approaches, anthropology/sociology approaches and interdisciplinary approaches.

At common law, damages are a remedy in the form of a monetary award to be paid to a claimant as compensation for loss or injury. To warrant the award, the claimant must usually show that a breach of duty has caused foreseeable loss. To be recognised at law, the loss must involve damage to property, or mental or physical injury; pure economic loss is rarely recognised for the award of damages.

Contents

Benefits of service guarantee

According to Christopher Hart, [3] service guarantees provide the following powerful platforms for promoting and accomplish service quality:

Service quality (SQ), in its contemporary conceptualisation, is a comparison of perceived expectations (E) of a service with perceived performance (P), giving rise to the equation SQ=P-E. This conceptualistion of service quality has its origins in the expectancy-disconfirmation paradigm.

For customers, service guarantees play an important role in alleviating perceived risks of the purchase. [4] The guarantees also facilitate more ease and more likelihood for customers to complain, since they expect the front-line staff to be ready with resolutions and appropriate compensations. From companies’ perspectives, according to the vice President of Hampton Inn, “Designing the guarantee made us understand what made guests satisfied, rather than what we thought made them satisfied.” [5]

Designing service guarantee

While no conditions are imposed on some guarantees, others have apparently been drafted by lawyers and cover many restrictions. Christopher Hart states that the following criteria should be met in designing service guarantees: [6]

A service provider (SP) provides organizations with consulting, legal, real estate, communications, storage, processing. Although a service provider can be an organizational sub-unit, it is usually a third party or outsourced supplier, including telecommunications service providers (TSPs), application service providers (ASPs), storage service providers (SSPs), and internet service providers (ISPs). A more traditional term is service bureau.

Types of service guarantee [8]

TERM GUARANTEE SCOPE EXAMPLE
Single-attribute specific guarantee One key attribute of the service is covered by the guarantee “Any of three specified popular pizzas is guaranteed to be served within 10 minutes of ordering on working days between 12 A.M. and 2 P.M. If the pizza is late, the customer’s next order is free.
Multi-attribute specific guarantee A few important attributes of the service are covered by the guarantee. Minneapolis Marriott’s guarantee: “Our quality commitment to you is to provide:
  • A friendly, efficient check-in
  • A clean, comfortable room, where everything works
  • A friendly, efficient check-out

If we, in your opinion, do not deliver on this commitment, we will give you $20 in cash. No question asked. It is your interpretation.”

Full-satisfaction guarantee All aspects of the service are covered by the guarantee. There are no exceptions. Lands' End’s guarantee: “ If you are not completely satisfied with any item you buy from us, at any time during your use of it, return it and we will refund your full purchase price. We mean every word of it. Whatever. Whenever. Always. But to make sure this is perfectly clear, we’ve decided to simplify it further. GUARANTEED. Period.”
Combined Guarantee All aspects of the service are covered by the full-satisfaction promise of the guarantee. Explicit minimum performance standards on important attributes are included in the guarantee to reduce uncertainty. Datapro Information Services guarantees “to deliver the report on time, to high quality standards, and to the contents outlined in this proposal. Should we fail to deliver according to this guarantee, or should you be dissatisfied with any aspect of our work, you can deduct any amount from the final payment which is deemed as fair.”

Managerial implications

According to study by Wirtz (1998), [9] a guarantee can be introduced for many different operations/quality and marketing objectives. A company with poor quality may want to focus primarily on causes of existing quality gaps, whereas a firm with high quality standards but limited market presence and quality reputation may want to focus mainly on transforming potential customers into loyal ones.
Additionally, the impact of an explicit guarantee on purchase intent was strong for the good quality provider, but there was no change in the purchase intent for the outstanding provider. There are two plausible reasons for this. First, purchase intent was already high for the outstanding provider; hence it might have been difficult to boost the ratings much further. Second, the outstanding provider might have already captured the high-end of the market, even when it did not offer an explicit guarantee. Thus, the impact of providing an explicit guarantee would be minimal and it would be difficult for, for example, a highly rated hotel to attract new customers by signaling higher quality. [10]

Considerations in the introduction of service guarantees

Companies should conduct careful analysis about their strengths and weaknesses in the decision of introducing service guarantees. [11] For service providers whose reputations have been strongly established, guarantees may not be necessary since they might be incongruent with their image and might create confusion in the market. [12] On the contrary, firms which are experiencing poor service delivery must improve their quality to the level where customers invoke guarantees on a more regular basis.
In addition, service guarantees are not necessary for companies whose quality is beyond control in the presence of external factors. When realizing that there was a lack of control over its railroad infrastructure, Amtrak decided to drop a service guarantee that included the reimbursement of train fares in the event of unpunctual service.
Service guarantee is also not necessary in a market in which the perceived financial, personal or physiological risk associated with the service is little. Guarantees will then adds minor values, yet still take time and money costs to design, implement and manage. In the case where customers perceive little difference between service quality between competing firms, the first firm introducing service guarantees will be able obtain first mover-advantages and differentiate its service from the others. However, if many competitors have already employed service guarantees, introducing a highly differentiated guarantee beyond the industry’s common practice is the only way to generate an impact. [13]

See also

Related Research Articles

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The subscription business model is a business model in which a customer must pay a recurring price at regular intervals for access to a product or service. The model was pioneered by publishers of books and periodicals in the 17th century, and is now used by many businesses and websites.

Services marketing

Services marketing is a specialised branch of marketing. Services marketing emerged as a separate field of study in the early 1980s, following the recognition that the unique characteristics of services required different strategies compared with the marketing of physical goods.

Market penetration refers to the successful selling of a product or service in a specific market. It is measured by the amount of sales volume of an existing good or service compared to the total target market for that product or service. Market penetration is the key for a business growth strategy stemming from the Ansoff Matrix (Richardson, M., & Evans, C.. H. Igor Ansoff first devised and published the Ansoff Matrix in the Harvard Business Review in 1957, within an article titled "Strategies for Diversification". The grid/matrix is utilized across businesses to help evaluate and determine the next stages the company must take in order to grow, and the risks associated with the chosen strategy. With numerous options available, this matrix helps narrow down the best fit for an organization.

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The loyalty business model is a business model used in strategic management in which company resources are employed so as to increase the loyalty of customers and other stakeholders in the expectation that corporate objectives will be met or surpassed. A typical example of this type of model is: quality of product or service leads to customer satisfaction, which leads to customer loyalty, which leads to profitability.

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Service blueprint

The service blueprint is a technique originally used for service design and innovation, but has also found applications in diagnosing problems with operational efficiency. The technique was first described by G. Lynn Shostack, a bank executive, in the Harvard Business Review in 1984. The service blueprint is an applied process chart which shows the service delivery process from the customer's perspective. The service blueprint has become one of the most widely used tools to manage service operations, service design and service positioning.

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Defensive strategy is defined as a marketing tool that helps companies to retain valuable customers that can be taken away by competitors. Competitors can be defined as other firms that are located in the same market category or sell similar products to the same segment of people. When this rivalry exist, each company must protect its brand, growth expectations, and profitability to maintain a competitive advantage and adequate reputation among other brands. To reduce the risk of financial loss, firms strive to take their competition away from the industry.

References

  1. ↑ Dwayne D. Gremler, “Twenty Years of Service Guarantee Research,” Journal of Service Research, 11, No. 4, 2009, 322–343.
  2. ↑ Christopher Lovelock and Jochen Wirtz (2011), Services Marketing: People, Technology, Strategy. 7th ed., Upper Saddle River, New Jersey: Prentice Hall, 626 pp, ISBN   978-0-13-610721-7
  3. ↑ Christopher W. L. Hart, "The Power of Unconditional Service Guarantees," Harvard Business Review 66, July–August 1988, 54–62.
  4. ↑ L. A. Tucci and J. Talaga, “Service Guarantees and Consumers’ Evaluation of Services,” Journal of Services Marketing, 11, No. 1, 1997, 10–18; Amy Ostrom and Dawn Iacobucci, “The Effect of Guarantees on Consumers’ Evaluation of Services,” Journal of Services Marketing, 12, No. 5, 1998, 362–378.
  5. ↑ Christopher Lovelock and Jochen Wirtz (2011), Services Marketing: People, Technology, Strategy. 7th ed., Upper Saddle River, New Jersey: Prentice Hall, 626 pp, ISBN   978-0-13-610721-7
  6. ↑ Christopher W. L. Hart, "The Power of Unconditional Service Guarantees," Harvard Business Review, July–August 1988, 54–62.
  7. ↑ Tim Baker and David A. Collier, “The Economic Payout Model for Service Guarantees,” Decision Sciences, 36, No. 2, 2005, 197–220
  8. ↑ Jochen Wirtz and Doreen Kum, “Designing Service Guarantees – Is Full Satisfaction the Best You Can Guarantee?” Journal of Services Marketing, 15, no.4 (2001): 282-299
  9. ↑ Jochen Wirtz, “Development of A Service Guarantee Model” Asia Pacific Journal of Management, 15, 1998, 51-75
  10. ↑ Jochen Wirtz, Doreen Kum, and Khai Sheang Lee, “Should a Firm with a Reputation for Outstanding Service Quality Offer a Service Guarantee?” Journal of Services Marketing, 14, No. 6, 2000, 502–512
  11. ↑ Amy L. Ostrom and Christopher Hart, “Service Guarantee: Research and Practice,” in T. Schwartz and D. Iacobucci, eds., Handbook of Services Marketing and Management. Thousand Oaks, CA: Sage Publications, 2000, 299–316.
  12. ↑ Jochen Wirtz, Doreen Kum, and Khai Sheang Lee, “Should a Firm with a Reputation for Outstanding Service Quality Offer a Service Guarantee?” Journal of Services Marketing, 14, No. 6, 2000, 502–512
  13. ↑ Louis Fabien, “Design and Implementation of a Service Guarantee,” Journal of Services Marketing, 19, No. 1, 2005, 33–38
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