Understanding the Mechanisms behind the Influence of Service Guarantees

Jens Hogreve, University of Paderborn
Dwayne D. Gremler, Bowling Green State University

Although service guarantees have received increasing attention in literature, surprisingly little is known about the extent to which they influence consumer behavior and even less about how they generate such effects. Economic theory suggests guarantees can have as many as four objectives incorporated in their design; they can be a quality signal, insure against losses, reduce search costs, and provide an incentive to coproduce the service adequately. In Study 1 all four warranty objectives are found to be frequently used in practice and Study 2 examines the extent to which these objectives have an impact on consumers. The objectives signal of quality and insurance against losses are found to be the primary service guarantee mechanisms affecting consumer behavior. Moreover, the objectives can be controlled by varying the amount of compensation or the ease of invoking the guarantee. The results provide insights how to design and manage service guarantees effectively.

 

This is currently a working paper.