Does the customer-firm relationship affect consumer recovery expectations?

Ma, Jun

INTRODUCTION

In the past century, exchanges of tangible goods dominated business- and customer-based relationships. After entering the twenty-first century, the marketing concept evolved into a new dominant logic (Vargo & Lusch, 2004), also called the service-dominant logic (Vargo & Lusch, 2008). According to the service-dominant logic, the fundamental unit of exchange is the application of specialized skills and knowledge. Goods are considered only the distribution mechanisms for service provisions. Likewise, the customer is always considered a co-producer. The service dominant logic focuses on the customer-firm relationship.

Once the importance of forming the relationship with customers is realized, companies design various forms of loyalty programs to build the customer-firm relationship. Since service is essentially the exchange between business and customer, providing a customer with a satisfied experience is the key to building loyal relationships between the service provider and the customer. Quality relationships can bring about many advantages for service providers such as increased profitability, reduced service cost, and increase in positive word-of-mouth advertising (Ostrowski, O'Brien, & Gordon, 1993; Terrill & Middlebrooks, 2000). However, one characteristic of any service is that it involves human endeavor and that "zero defect" is virtually impossible. Once a service failure occurs, a service recovery provides organizations with an opportunity to resolve the problems that led to the service failure in the first place. As such, a service recovery strategy is a significant determinant of customer satisfaction and loyalty (Mattila, 2001; Maxham & Netemeyer, 2002; McCollough, 1995).

In order to recover appropriately from a service failure, service providers must be able to understand consumer recovery expectations. Previous studies have identified several antecedents of consumer recovery expectations such as consumer-perceived quality and customer organizational commitment (Kelley & Davis, 1994), severity of failure and service guarantee (Craighead, Karwan, & Miller, 2004; Hess, Ganesan, & Klein, 2003; Miller, Craighead, & Karwan, 2000), and attribution of failure (Hess et al., 2003). This study is focused on identifying various forms of relationship between the firm and the customer, and identifying various forms of relationships that affect consumer recovery expectations.

LITERATURE REVIEW

Expectation-Disconfirmation Paradigm in the Service Failure and Recovery Context

The expectancy-disconfirmation paradigm is probably the most recognized model in consumer behavior literature for understanding customer satisfaction/dissatisfaction (Bearden & Teel, 1983; Oliver, 1980, 1981, 1993; Oliver & Bearden, 1985; Swan & Trawick, 1981). The expectancy-disconfirmation paradigm states that consumers compare their prior expectations to post-performance perceptions (Bearden & Teel, 1983; Churchill, 1982; Oliver, 1980). Disconfirmation strongly determines consumer satisfaction. Even though support for the disconfirmation model is mixed, no study has shown convincing evidence to reject disconfirmation as a general model of customer satisfaction/dissatisfaction. It is generally agreed that disconfirmation is an antecedent of consumer satisfaction/dissatisfaction.

In service encounters involving failure and recovery, the service encounter satisfaction should include disconfirmation and expectations in both failure and recovery phases. Therefore, there are two sets of disconfirmation in failure/recovery encounters. Service encounter satisfaction is determined not only by the disconfirmation of service performance (failure), but also by the disconfirmation of service recovery (Smith & Bolton, 1998). In the first phase of service delivery, consumers hold pre-consumption expectations of service performance, and compare the perceived performance with their expectations. In the recovery phase of service encounters, consumers evaluate redress efforts against their expectations of appropriate recovery efforts, which results in a second disconfirmation judgment (Oliver, 1981). This is termed "secondary satisfaction" and is combined with the original dissatisfaction in order to determine customers' overall satisfaction toward a service encounter. Singh and Widing (1991) suggest that service encounter satisfaction should be determined by consumers' perception of recovery efforts and their recovery expectations. Thus, recovery expectations should be modeled as a separate factor for service encounter satisfaction. Factors that affect recovery expectations should also be identified to help service providers to make recovery decisions for service failures.

Antecedents of Service Recovery Expectations

Several studies have examined antecedents of customer service recovery expectations. Kelley and Davis (1994) proposed that consumer-perceived service quality and customer organizational commitment are the determinants of consumer recovery expectations. In their study, organizational commitment is defined as an individual's identification with and involvement in an organization (Kelley & Davis, 1994). In addition to consumer-perceived service quality and customer organizational commitment, severity of failure and service guarantee were also identified as antecedents of service recovery expectations (Craighead et al., 2004; Miller et al., 2000). Hess et al. (2003) also found that consumer attribution of service failure affects consumer recovery expectations.

The aforementioned studies commonly agree that consumer organizational commitment is a factor that affects consumer recovery expectations (Craighead et al., 2004; Hess et al., 2003; Kelley & Davis, 1994; Miller et al., 2000). Consumers who have a strong commitment to an organization expect the relationship to be maintained. They are more likely to anticipate impressive responses to service failures as a means of maintaining the equity of the customer-organization relationship.

However, in aforementioned studies, consumer organizational commitment is operationalized as a unidimensional construct. These studies did not distinguish between different types of commitment with service providers, and the manner in which these different types of commitment affect consumer recovery expectations. Consumers choose to be committed to a service organization for different reasons. It is possible that consumers will have different levels of recovery expectations if they have different types of relationships with service providers.

HYPOTHESES DEVELOPMENT

Commitment

Commitment is an important concept that has been studied in various disciplines such as the interpersonal relationship in sociology, organizational commitment in management, and buyer-seller relationship in marketing. In relationship marketing, consumer commitment leads to various types of loyal behaviors, which further benefit organizations in terms of profitability (Garbarino & Johnson, 1999; Gundlach, Achrol, & Mentzer, 1995; Morgan & Hunt, 1994; Pritchard, Havitz, & Howard, 1999).

Morgan and Hunt (1994) define relationship commitment as "an exchange partner believing that an ongoing relationship with another is so important as to warrant maximum efforts at maintaining it; that is, the committed party believes the relationship is worth working on to ensure that it endures indefinitely" (p. 23). Increasingly, marketing scholars recognize the multifaceted nature of commitment. Building on theories in organizational behavior, many marketing studies borrowed the structure of commitment from Allen and Meyer (1990), and treated commitment as a multidimensional construct (Brown, Lusch, & Nicholson, 1995; Fullerton, 2003; Gruen, Summers, & Acito, 2000; Gundlach et al., 1995; Harrison-Walker, 2001; Kim & Frazier, 1997; Kumar, Scheer, & Steenkamp, 1995). Based on Allen and Meyer (1990), there are at least three types of commitment in employment relationships: affective, continuance, and normative. Affective commitment refers to an affective or emotional attachment to the organization. Continuance commitment "is viewed as a tendency to 'engage in consistent lines of activity' based on the individual's recognition of the 'cost' (or lost side-bets) associated with discontinuing the activity" (Allen & John, 1990). The least common is normative commitment, which is viewed as a belief about one's responsibility to an organization.

In the customer-service provider relationship, affective commitment and continuance commitment are more salient than normative commitment when such a relationship is based on the exchange rather than employment relationship. Consumers are less likely to assume any responsibility to a service provider. Affective and continuance commitment also appear more in marketing studies than does normative commitment (Fullerton, 2003; Kumar et al., 1995).

Affective Commitment and Consumer Recovery Expectations

In this study, affective commitment is defined as an affective or emotional attachment to the service provider. The affective commitment represents an enduring desire to maintain a valued relationship (Morgan & Hunt, 1994). Such emotions or attachment are built on trust (Morgan & Hunt, 1994; Pritchard et al., 1999; Sargeant & Lee, 2004). In explaining the relationship between trust and commitment, Gabarino and Johnson (1999) stated that "Because commitment involves potential vulnerability and sacrifice, it follows that people are unlikely to be committed unless trust is already established" (p. 73). Building trust between customers and service providers requires service providers to provide high-quality services (Caceres & Paparoidamis, 2007; Chiou & Droge, 2006). In other words, service quality affects affective commitment. Customers are affectively committed to a service provider when they believe that the service provider has the ability to perform the promised service dependably and accurately, is willing to help customers, provides prompt service, has knowledgeable employees who can inspire trust and confidence, and cares about and provides individualized attention to customers (Parasuraman, Zeithaml, & Berry, 1988). Therefore, if a service failure occurs, customers will expect the service provider to promptly take action to fix the problem. Therefore,

Hypothesis 1: Affective commitment is positively related to consumer recovery expectations.

Continuance Commitment and Consumer Recovery Expectations

Continuance commitment is defined as the degree to which a customer is psychologically bonded to a service provider on the basis of the perceived costs associated with switching service provider (Gruen et al., 2000). From an economist's view, consumers enter the exchange relationship and choose to be committed to the relationship with the service provider because of utilitarian principles. Consumers' motivation to be committed is to seek an optimization of some deterministic utility function. In other words, the consumer is committed to the firm to avoid potential risks such as high switching cost (Aydin & Ozer, 2006; Bell, Auh, & Smalley, 2005; Burnham, Frels, & Mahajan, 2003; Caruana, 2004; Lam, Shankar, Erramilli, & Murthy, 2004; Lee, Lee, & Feick, 2001; Neeru & Paul, 2000; Ruyter, Martin, & Josee, 1998; Yang & Peterson, 2004). Continuance commitment, which is attributed to high switching cost, dependence, and lack of choice, is more likely to create feelings of dependence and entrapment (Fullerton, 2003), which will lead to loyal firm behavior (Fullerton, 2003; Gruen et al., 2000).

Service failure in a service encounter, based on an economist's view, is defined as "cost" or "loss" to the customer in the form of money or time. Therefore, the subsequent recovery actions taken by the organization would be treated as "value" or "gain" to the customer's overall utility function. The "cost" or "loss" caused by service failure should lead to switching behavior if continuance commitment does not exist. Due to the high switching cost and/or lack of choice, the consumer would expect the service provider to restore "the justice" between the exchange parties (Smith, Bolton, & Wagner, 1999). To continue the relationship with the service provider, the committed customers are more likely to have higher recovery expectations.

Hypothesis 2: Continuance commitment is positively related to consumer recovery expectations.

Interpersonal Relationship with Service Employees and Consumer Recovery Expectations

One type of relationship between service providers and customers is customers' interpersonal relationship with service employees. This type of interpersonal relationship could be attributed to social bond (Bendapudi & Berry, 1997), which is different from business-customer relationships. This type of interpersonal relationship allows service providers and customers to share a general sense of the content of what they label commercial friendship, for which affection, intimacy, and loyalty constitute the substance of these friendships. However, whether this type of relationship is good for a business remains to be established. Previous studies have shown differing results. For example, Guenzi and Pelloni (2004) found that customer-to-employee relationship closeness promotes overall customer satisfaction and behavioral loyalty. However, Grayson (2007) found that combining friendship and the business relationship can also create conflict. This conflict is caused by incompatible relational expectations. Further, Grayson (2007) concludes that friendship can have both positive and negative influences on business. Hansen, Sandvik, and Selnes (2003) also examined the impact of the interpersonal relationship between customers and service employees on customer intention to stay. They suggested that such personal commitment is the antecedent of commitment to service firms. Nevertheless, commitment to service employees also leads to loyal behaviors (Hansen et al., 2003).

What is not clear is whether the interpersonal relationship and commitment to service employees will lead to forgiveness when a service failure occurs. Building on interdependence theory, this article provides evidence to help understand consumers' reaction to service failures if the customer has a close relationship with service employees.

Interdependence theory states that reactions to the close relationship depend on two matrices: given matrix and effective matrix (Kelley & Thibaut, 1978). The given matrix represents partners' feelings about the joint outcomes. According to the norm of reciprocity viewpoint, given matrix leads to a similar action resulting in a destructive act (Gouldner, 1960). Social exchange theory also suggests that individuals who are involved in an exchange relationship obtain not only economic benefits but also social benefits, including esteem, respect, friendship, and love (Foa, Tornblorn, Foa, & John Converse, 1973; Thibaut & Kelley, 1959).

Based on interdependence theory, a close interpersonal relationship between customers and service employees may lead to a high level of consumer recovery expectation because consumers devoted not only economic efforts but also social efforts to the relationship. Therefore,

Hypothesis 3a: The closeness of the interpersonal relationship between customers and service employees is positively related to consumer recovery expectations.

However, the given matrix is only part of the interdependence theory. An individual does not necessarily behave according to the given matrix. The other matrix introduced in interdependence theory (mentioned earlier), the effective matrix, represents feelings about joint outcomes at the time that partners actually react to the situation. In such a close relationship, an individual's primitive impulse may be reacting destructively in turn, but she or he may consider the situation and decide not to react destructively toward the relationship. The effective matrix is the theoretical foundation of interpersonal forgiveness (McCullough, Worthington Jr., & Rachal, 1997). Rusbult and Verette (Rusbult & Verette, 1991) called it "accommodation". Rusbult and Verette (1991) also found that the less social concern a person has, and less interdependent the relationship is, the lower the willingness to accommodate will be. Further, partners' relationship satisfaction, overall relational functioning, and commitment to the relationship also promote forgiveness between partners (Rusbult & Verette, 1991). McCollough et al. (1997) defined interpersonal forgiveness as "a set of motivational changes that a person may become (1) decreasingly motivated to retaliate against an offending relationship partner, (b) decreasingly motivated to maintain estrangement from the offender, and (c) increasingly motivated by conciliation and goodwill for the offender, despite the offender's hurtful actions" (p. 321). Additionally, they proposed that empathy also facilitates forgiveness for the offending partner because empathy incorporates concepts such as sympathy, compassion, and tenderness (Batson, 1991; Batson & Shaw, 1991).

Based on the given matrix, a customer's first reaction to a service failure should boost a high level of recovery expectation. However, due to the closeness of the interpersonal relationship between the customer and service employee(s), the customer may consider other factors, such as the long-term relationships and affective commitment with service employee(s), and reduce the expectation of service recovery. Therefore, the competing hypothesis is:

Hypothesis 3b: The closeness of the interpersonal relationship between customers and service employees is negatively related to consumer recovery expectations.

METHODOLOGY

Data Collection and Procedure

This study utilized the survey approach to investigate the impact of customer relationship with service providers on consumer recovery expectations. Students from an undisclosed Midwest university were recruited to participate in the survey. The students were asked to record a detailed service encounter that occurred recently. They then subsequently evaluated their satisfaction level relating to that particular service encounter. Next, the students answered a series of questions regarding their relationship with that particular service provider, including their affective commitment, continuance commitment, and interpersonal relationship with employees of the service provider. At the end, the students were asked about their recovery expectation if a service failure occurs.

A total of 617 usable service encounters were collected. The students answered all questions regarding their relationship with that particular service provider.

Measurement of Variables

Affective commitment, continuance commitment, and closeness to service employees were measured in this study as independent variables. Consumer recovery expectation for service failure was measured as the dependent variable. Affective commitment was measured with three items adapted from Verhoef, Franses, and Hoekstra (2002). Continuance commitment was measured with three items adapted from Allen and Meyer (1990). The closeness to service employees was measured with three items previously employed by Guenzi and Pelloni (2004). Consumer recovery expectations for service failures were measured with three items employed by Hess et al. (2003). Table 1 provides the measures used in this study along with the scale reliabilities. All scales show acceptable reliabilities, ?>.80 (Nunnally, 1978). All items were measured on a 7-point Likert scale.

Confirmatory factor analysis (CFA) was used to evaluate the measures. The confirmatory factor analysis was completed with maximum likelihood estimation. The measurement model offered an acceptable fit to the data (?2 = 170.262; df = 48; p<.05; AGFI = .930; CFI = .983; RMSEA = .065). Item factor loadings, composite reliability, and average variance extracted (AVE) from the confirmatory factor analysis are also shown in Table 1.

Tables 1 and 2 provide support for discriminant and convergent validity of the study constructs. Without exception, the estimated loadings are large and significant (t-values >8, p<.05). All composite reliabilities are above .80, exceed .70, the commonly used norm for acceptable psychometrics. All constructs provide evidence of acceptable discriminant validity. The highest intercorrelation among the composites in Table 2 is .699, indicating that no two constructs share more than 49% of their variance.

RESULTS

The hypotheses were tested using the Structural Equation Modeling approach. The SEM model allows us to account for the error terms of the measurements of continuous variables. The hypothesized model moderately fit the data shown in Figure 1 (?2 = 860.35, df = 51, CFI = .886, AGFI = .719, RMSEA = .161). All hypothesized paths were significant at the .05 level.

The results from SEM analysis show that affective commitment and continuance commitment have a positive impact on service recovery expectations (?ac = .108, ?cc = .092), which support hypotheses 1 and 2. The closeness between customers and service employees also has a positive impact on service recovery expectations (?ce = .093), which supports hypothesis 3a. In other words, even though the consumer may develop, to a certain extent, an interpersonal relationship with service employees, they still expect the firm to recover their loss due to the failure.

[FIGURE 1 OMITTED]

DISCUSSION AND CONCLUSION

In the service-dominant economy, customer satisfaction is the focus of service organizations. However, service encounters involve human endeavors and service failures often occur. Service recovery becomes an important strategy to keep the customer satisfied. Based on the expectancy-disconfirmation paradigm, understanding and gauging customer recovery expectations is necessary in order to implement an appropriate recovery strategy. In addition to factors identified by previous studies, which may affect customer recovery expectations, we examine how various forms of customer relationships with service providers affect consumer recovery expectations. The results provide strong evidence that suggests that service providers need to make a decision concerning whether they should prioritize customers when recovering a service failure.

The results of this study show that consumers who have a higher level of affective commitment and continuance commitment will have a higher recovery expectation after a failure occurs. Even though consumers may develop a certain interpersonal relationship or friendship with service employees, they still expect the firm to recover their loss created by the failure. A closer relationship between the customer and the service employees will lead to higher recovery expectations on the part of the customer. This is also intuitively appealing, as the consumers who are committed to the firm will expect that relationship to continue. Once a failure occurs, consumers are likely to expect the firm to restore the justice between the two parties regardless of how close they are with service employees.

The managerial implication of this study is also significant. To increase the customer retention rate and reduce customer switching behaviors, managers must treat loyal customers who are committed to the firm differently from disloyal customers, because loyal customers will have a higher recovery expectation than disloyal customers. If customer expectations are not accurately gauged and are disregarded, customers are likely to reduce their commitment level and eventually switch to competitors.

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Jun Ma, Indiana University-Purdue University Fort Wayne

Table 1: Results from the CFA of Study Constructs

Items                                Loadings   t-Value   Reliability
                                       (a)                    (c)

Affective Commitment (AC)                                    .898

* AC1. I am a loyal customer           .662      _ (b)
  of this service provider.

* AC2. I feel emotionally              .948     20.270
  attached to this service
  provider.

* AC3. I feel a strong sense           .957     20.360
  of belonging with this
  service provider.

Continuance Commitment (CC)                                  .848

* CC1. It is very hard for me          .923      _ (b)
  to switch from this service
  provider right now even if
  I wanted to.

* CC2. My life would be                .795     22.463
  disrupted if I switched from
  this service provider.

* CC3. It would be too costly          .689     18.812
  to switch from this service
  provider right now.

Closeness with Service                                       .977
Employees (CE)

* CE1. The employees of this           .959      _ (b)
  service provider know me
  well.

* CE2. I have developed a good         .982     67.752
  relationship with employees
  of this service provider.

* CE3. There is a friendship           .960     58.426
  between me and employees of
  this service provider.

Service Recovery Expectations                                .908
(SRE)

* SRE1. If I encounter a service       .974      _ (b)
  problem, I expect the service
  provider to do something in
  its power to solve the problem.

* SRE2. If I encounter a service       .749     24.265
  problem, I do not expect the
  service provider to exert much
  effort to solve the problem.

* SRE3. If I encounter a               .894     33.936
  service problem, I expect the
  service provider to try to
  make up for my loss.

Items                                Variance
                                     Extracted
                                        (d)

Affective Commitment (AC)              .751

* AC1. I am a loyal customer
  of this service provider.

* AC2. I feel emotionally
  attached to this service
  provider.

* AC3. I feel a strong sense
  of belonging with this
  service provider.

Continuance Commitment (CC)            .653

* CC1. It is very hard for me
  to switch from this service
  provider right now even if
  I wanted to.

* CC2. My life would be
  disrupted if I switched from
  this service provider.

* CC3. It would be too costly
  to switch from this service
  provider right now.

Closeness with Service                 .935
Employees (CE)

* CE1. The employees of this
  service provider know me
  well.

* CE2. I have developed a good
  relationship with employees
  of this service provider.

* CE3. There is a friendship
  between me and employees of
  this service provider.

Service Recovery Expectations          .770
(SRE)

* SRE1. If I encounter a service
  problem, I expect the service
  provider to do something in
  its power to solve the problem.

* SRE2. If I encounter a service
  problem, I do not expect the
  service provider to exert much
  effort to solve the problem.

* SRE3. If I encounter a
  service problem, I expect the
  service provider to try to
  make up for my loss.

(a) The estimates are standardized coefficients (all p<.05) and
t-values from maximum likelihood solution using EQS.

(b) The corresponding coefficient was fixed to set the metric of
the latent construct.

(c) Estimated composite reliability in line with Fornell and
Larcker (1981).

(d) Estimated variance extracted by the corresponding latent
construct from its hypothesized indicators in line with Fornell
and Larcker (1981).

Table 2: Summary Statistics and Intercorrelations for the Study
Constructs (AVE) (N=617)

Constructs                           Mean    (SD)     1      2

1 Affective Commitment               3.464   1.859   .751
2 Continuance Commitment             2.458   1.639   .548   .653
3 Closeness with Service Employees   2.499   2.014   .699   .462
4 Service Recovery Expectations      5.328   1.648   .286   .202

Constructs                            3      4

1 Affective Commitment
2 Continuance Commitment
3 Closeness with Service Employees   .935
4 Service Recovery Expectations      .214   .770