Overcompensating for severe service failure: perceived fairness and effect on negative word‐of‐mouth intent

Abstract

PurposeThis study aims to examine the perceived fairness of overcompensation for severe service failures. The mediating effect of perceived fairness in the overcompensation‐negative word‐of‐mouth (NWOM) intent relationship is also explored.Design/methodology/approachAn experimental design approach was utilized to test the study's hypotheses. Overcompensation amount was manipulated at three levels (50 percent, 100 percent, 200 percent of purchase price), with two forms of overcompensation (cash or credit) tested.FindingsCash‐based overcompensation yielded higher perceptions of distributive justice than full compensation, with no significant difference in distributive justice perceptions across cash amounts. Credit‐based overcompensation was perceived as no fairer than full compensation. Perceived distributive justice fully mediates the overcompensation‐NWOM intent relationship.Research limitations/implicationsThe study's findings are based on a single service context. Further research across different service environments is needed to confirm the robustness of the results. The results are based on scenarios rather than real events. A longitudinal field study that examines consumer reaction at the point of service recovery and tracks actual subsequent behaviors is merited.Practical implicationsThe study's findings suggest that, when a severe service failure occurs, service firms should consider going beyond full compensation, offering the consumer an additional cash amount. However, more is not necessarily better – a small additional cash amount may induce similar perceptions of fairness to larger amounts.Originality/valueThis study yields insights into the perceptions of distributive justice associated with different amounts and forms of overcompensation for severe service failure, and demonstrates the mediating effect of perceived distributive justice in the overcompensation‐NWOM intent relationship.