Service Guarantees

Last updated on February 19th, 2020 at 03:19 pm

A service guarantee is a marketing tool service firms have increasingly been using to reduce consumer risk perceptions, signal quality, differentiate a service offering, and to institutionalize and professionalize their internal management of customer complaint and service recovery. By delivering service guarantees, companies entitle customers with one or more forms of compensation, namely easy-to-claim replacement, refund or credit, under the circumstances of service delivery failure. Conditions are often put on these compensations; however, some companies provide them unconditionally

Features of a Good Guarantee

(i) Easy to Collect: The remedy should be supplied immediately. For example, a dis-satisfied customer at Hampton Inn should receive an immediate credit for the price of the dissatisfying service. The customer should not have to drive across town to obtain payment, nor should the customer have to fill out a laborious form or accumulate a tedious amount of documentation.

(ii) Easy to Invoke: Let us consider the Hampton Inn guarantee, for example – Suppose the customer’s air conditioning did not work on a hot summer night, and the problem could not be rectified, in spite of bringing it to the management’s attention. For the guarantee to be effective, management should make that night free, without waiting for the customer to ask. If it evident that the customer is dissatisfied, and the problem has not been solved, then management should invoke the guarantee itself.

In most cases, management does not really trust the guarantee, and, therefore, puts up barriers to invoking it. Management may be concerned about loss of revenues, which may be linked to management compensation. This creates a natural tension between the intended corporate culture, as desired by top management, and the actual corporate culture, as implemented by middle management, may be the front line. Counteracting an employee’s natural reluctance to invoke or carry out the guarantee requires careful training.

(iii) Easy to Understand: If the customer does not understand the guarantee, then that customer will not see any benefit. For maximum effectiveness, the guarantee should be specific. For example, Domino’s pizza guaranteed delivery in 30 minutes. That is much better than guaranteeing “fast delivery,” which is hard to pin down. Be specific.

(iv) Meaningful: The guarantee must be about things that customers care about. A fast-food restaurant guaranteeing 10-minute service at lunch will probably do better than one guaranteeing to address customers by their first name. This is because fast service at lunch is important to fast-food customers, whereas personal familiarity is not.

(v) Unconditional: If a guarantee applies only to left-handed people on Friday in a leap year when there is a full moon, few customers will be very interested. By comparison, consider the Hampton Inn guarantee. It says simply, “If you’re not completely satisfied, we don’t expect you to pay.

This is unconditional and you don’t need to be a lawyer to understand it. A guarantee loses power as conditions are placed on it. Consider the Lufthansa on-time guarantee, for example. The conditions exempted 95% of the cases to which it might be applied, reducing its effectiveness by at least that percentage.

Benefits of Service Guarantee

(i) Sets Clear Standards for the Organisation:  It prompts the company to clearly define what it expects of its employees and to communicate that to them. The guarantee gives employees service-oriented goals that can quickly align employee behaviours around customer strategies.

(ii) Forces the Company to Focus on its Customers: To develop a meaningful guarantee, the company must know what is important to its customers — what they expect and value. In many cases “satisfaction” is guaranteed, but in order for the guarantee to work effectively, the company must clearly understand what satisfaction means for its customers (what they value and expect).

(iii) A Good Service Guarantee Studies the Impact on Employee Morale and Loyalty: A Guarantee generates pride among employees. Through feedback from the guarantee, improvements can be made in the service that benefits customers, and indirectly employees.

(iv) Immediate and Relevant Feedback from Customers: It provides an incentive for customers to complain and, thereby, provides more representative feedback to the company than simply relying on the relatively few customers who typically voice their concerns. The guarantee communicates to customers that they have the right to complain.

(v) Reduces their Sense of Risk and Builds Confidence in the Organisation for Customers: Because services are intangible and often highly personal or ego involving, customers seek information and cues that will help reduce their sense of uncertainty.

Types of Service Guarantees

Further, previous research has identified four types of service guarantees:

(i) Specific

(ii) Unconditional

(iii) Implicit and

(iv) Internal

(i) A Specific Guarantee: Signals firm commitment on specific attribute performance such as delivery time or price. Specific guarantees allow customers to evaluate service by disconfirming attribute performance expectations. From the firm’s perspective, a specific guarantee can serve not only as a benchmark to guide employee efforts and firm process design, but also as a performance measure. However, the narrow focus on some attributes may not be highly valued or appreciated by a heterogeneous customer base, although it may appeal to certain segments.

(ii) An Unconditional Guarantee: Promises performance on all aspects of service, and “in its pure form, promises complete customer satisfaction, and at a minimum, a full refund or complete, no cost problem resolution for the payout.” Unconditional guarantees require a slightly different firm approach since variables that determine customer satisfaction such as effect and cognitive evaluations of attribute performance (Oliver) are not within the firm’s control.

Implementation of unconditional guarantees requires firms to focus efforts on managing customer interactions instead of specific service attributes. The distinction between specific or overall (unconditional) performance is important as it defines the scope of the marketing effort required to communicate and support the guarantee, and has widely different implications for service guarantee design and management.

(iii) Implicit Guarantee: As the term suggests, it is an unwritten, unspoken guarantee that establishes an understanding between the firm and its customers. Customers may infer that an implicit guarantee is in place when a firm has an outstanding reputation for service quality. The focus of an implicit guarantee is customer satisfaction. Previous research suggests that customers are more likely to rely on explicit firm promises instead of implicit cues to make inferences about the firm.

(iv) An Internal Guarantee: It is “a promise or commitment by one part of the organization to another to deliver its products or services in a specified way or incur a meaningful penalty, monetary or otherwise.” Since implicit guarantees are unconditional guarantees (without formal expression of explicit commitment) and the focus of internal guarantees is limited to coordinating functions and employees, the subsequent discussion includes only specific and unconditional guarantees.