“If only…”: customer counterfactual thinking in failed recovery

Purpose - Our goal is to examine counterfactual thinking as a key mediator of effects of failed recovery (vs. failed delivery) on negative electronic word-of-mouth (eWOM). We further investigate the effectiveness of using recovery co-creation in minimizing customers’ counterfactual thinking. Design/methodology/approach - This research includes textual analysis of online reviews (Study 1) and three scenario-based experiments (Studies 2, 3a, and 3b). In addition to using item-response scales, we analyze negative online reviews and participants’ open-ended responses to capture their counterfactual thinking. Findings - Failed recovery (vs. failed delivery) increases counterfactual thinking, which in turn increases negative eWOM. These mediating effects of counterfactual thinking are consistent across textual analyses and experimental studies, as well as across different measures of counterfactual thinking. Counterfactual thinking also impacts customer anger in experiments; however, anger alone does not explain the effects of failed recovery on negative eWOM. Counterfactual thinking can be minimized by co-created recovery, especially when it is used proactively. Practical implications - Our findings demonstrate the detrimental effects of counterfactual thinking and offer managerial insights into co-creation as a strategy to minimize customers’ counterfactual thinking. We also highlight the importance and ways of tracking counterfactual thinking in digital outlets. Originality/value - We contribute to counterfactual thinking and service recovery research by demonstrating the effects of failed recovery on counterfactual thinking that in turn impacts negative eWOM and offering a novel way to measure its expression in online narratives. We provide guidance on how to utilize co-creation in the service recovery process to minimize counterfactual thinking.