Reaching the Service Recovery Paradox : Using the Anchoring Effect to Reduce Required Monetary Compensation

Abstract: Aim: When service failures occur, companies must use service recovery actions to recover customer satisfaction. The service recovery paradox refers to the paradox which occurs when a customer is more satisfied after successful service recovery, than they would have been if no failure had occurred. The purpose of this thesis is to examine the effectiveness of using the anchoring effect to lower the threshold value for service recovery paradox occurrence in a specific service failure scenario in the hotel industry. I.e., using the anchoring effect, this thesis aims to reduce monetary compensation required for the service recovery paradox to occur in the specific scenario. Method: 225 respondents were given a survey based on a scenario of a service failure in the hotel industry. The method used was a between-subject experimental design survey, manipulating anchor size, with 5 conditions; SEK 200, SEK 450, SEK 700, SEK 950, and no anchor, to see if the different conditions affected requested compensation whilst customer satisfaction remained constant. Gender and age of the participants was also measured to see if the requested compensation rates depended on these variables. Results: Results showed that it was possible to reduce monetary compensationrequired to reach the SRP by using anchoring values. The control group, which was given the scenario without any anchors, rendered a higher requested compensation than all groups which were given anchors. Furthermore, results showed that the mean compensation required to reach the SRP for the scenario decreased as the anchor values decreased, which indicates that the lower the anchor is set the lower the claim for requested monetary compensation becomes. Finally, the results indicated that age was a relevant variable whilst gender was not a relevant variable regarding compensation requirements. Contribution: Reaching the SRP can sometimes be expensive, especially when it comes to major service failures such as double-booked hotel rooms as is analysed in this thesis. The main contribution of this thesis is to provide an instrument for managers with which they might reach the SRP at lower costs. The results from this research can be directly implemented by managers in similar situations in the hotel industry and may also be used as a foundation for reaching the SRP in other industries as well as other scenarios. Suggestions for future research: As this survey only analyses Swedish participants, results may not be directly applicable to hotels in other cultures. Future research should, thus, focus on examining whether results vary depending on geographic and cultural factors. Other aspects that should be further investigated are what causes the differences in answers between different age groups and if gender displays any differences in other cultures, as it does not seem relevant with Swedish participants. Furthermore, the same surveys, with adjustments, could be used to conduct similar research on other scenarios and in other industries. Finally, researching whether anchoring levels below the lowest anchor used in this thesis, SEK 200, could further lower the required compensation would provide a more complete framework for this research.