Investigating Customer Loyalty in Service Failure-Recovery Encounter: The Moderating Role of Customer Coproduction

Abstract

More and more customers nowadays play an active role in service encounters in which they are engaged in service production process to co create value. For instance, customers can enjoy service either by cooperating with service firms or by having the firms do all the production work. The benefits of customer value co-creation in service context are well studied. However, little attention is given to examine customer co creation under service failure-recovery situation. Service failure and recovery are two important topics among academics and business leaders. Service failures occur when performance of service providers falls below customer's expectations, causing customers to elicit negative feelings and this ultimately leads to unfavorable behavioral intentions, and reduced re-patronage rate. Following service failure, recovery is as an essential mean to regain customer satisfaction. Prior studies have mainly focused on effects of service failure and recovery efforts on shaping customer perception and evaluation towards firms in service context. To advance our knowledge, this research will take an integrated approach to see how recovery (level of perceived justice and recovery effort) interacts with service failures in shaping customer responses towards service firms in a co-creation context. Customers can either co-create service or participate in service recovery. In the research, we propose that the level of customer co creation moderates the interactive effect of service failure and recovery on customer value, and in turn leads to customer loyalty. We argue that, following service failure, customers who are involved in service co creation will attribute blame for the failure to the firm less strongly than those who are not involved at all, as they partly hold responsibility for the failure. They are more likely to be satisfied with recovery of service firm. Second, when customers participate in recovery co-creation, they are more likely to be satisfied and perceive high level of value from recovery, and this leads to customer loyalty.