Compensatory Solution: Can it Save a Company from a Service Failure?

ABSTRACT

This article develops a framework incorporating the relationship between service failure and customer behaviors, as well as moderation effects of compensatory mechanism. Based on 321 responses from two cultures (United States = 180, Indonesia = 141), using the partial least squares path modeling approach, we found that service failure severity was negatively associated with customer loyalty and positively associated with customer's need for avoidance and need for revenge. The findings also suggest that the impact of service failure severity on customer loyalty is mediated by the need for avoidance, but not revenge. Theoretical and managerial implications are also discussed.

KEYWORDS:

• Customer behaviors
• customer loyalty
• Indonesia
• service failure
• United States