Developing effective service compensation strategies

Purpose – The purpose of this paper is to gain some insight into the effectiveness of different types of tangible compensation strategies for two different types of services: utilitarian and hedonic.Design/methodology/approach – The hypotheses are investigated using a 2×2 between‐subject experimental design and two factors: service type (utilitarian vs hedonic) and compensation type (utilitarian – a price reduction vs hedonic – a free gift).Findings – The results show that customers prefer to receive a form of compensation that matches the type of service involved. For example, customers who receive a utilitarian compensation (e.g. a price reduction) after experiencing a failure in utilitarian service (e.g. at a bank) report higher levels of satisfaction and repurchase intention than they would after experiencing a failure in hedonic services (e.g. at a restaurant), but that the reverse is true for a hedonic‐type compensation (e.g. a free gift).Practical implications – The offering of either a price reduc...