Do Service Guarantees Guarantee Greater Market Value?

Jeffrey Meyer, Bowling Green State University
Dwayne D. Gremler, Bowling Green State University
Jens Hogreve, Catholic University of Eichstaett-Ingolstadt, Germany

Although service guarantees have been an often studied topic, no research has examined the return on service guarantee investments. The authors fill this gap by examining the effects of service guarantees on firm market value by identifying new service guarantee announcements and using these announcements as the events for an event study. The results show that simply offering a service guarantee does not necessarily result in greater market value for the offering firm. Instead, the market value of a service guarantee depends on the scope of the guarantee and the process required for invoking the guarantee. In particular, guarantees that are specific in scope and automatically-invoked lead to greater market value than unconditional guarantees and customer-invoked guarantees, respectively. In addition, these differences are moderated by firm size. The research extends signaling theory as an explanation for the differential effects of service guarantees based on the design of the guarantee. The findings also suggest managers in smaller firms should lean towards using specific guarantees when possible, while managers in larger firms may have more flexibility in the design of their service guarantees; similarly, managers in smaller firms should choose automatically invoked service guarantees to increase their firm’s market value.

 

Meyer, Jeffrey, Dwayne D. Gremler, and Jens Hogreve (2014), “Do Service Guarantees Guarantee Greater Market Value?Journal of Service Research, (forthcoming).