Effects of compensation for service recovery: From the equity theory perspective

Using equity theory, this study investigated the importance of consumers' entire history of shared interactions with service organizations, in addition to fairness perceptions, when evaluating recovery efforts following service failure. Specifically, this study empirically tested the different consequences of compensation by manipulating the consumer relationship level. The relationship level determines the perspective of equity (transactional equity perception versus cumulative equity perception) and motivates consumers to follow different psychological processes to redress service failure. An online survey using hypothetical scenarios manipulating recovery efforts and relationship level conditions was conducted to collect data. Mediation tests showed that perceived equity fully mediates the effect of compensation on a consumer's future behavioral intentions. The results of analysis of variance (ANOVA) showed that when additional compensation is offered after a service failure, perceived equity was found to increase regardless of the consumer's relationship level. However, enhanced equity perception does not automatically mean that corresponding future behavioral intentions are also enhanced. When consumers have a high customer-organization relationship, there is no difference in behavioral intentions between those who are compensated and those who are not. Managerial implications for restaurant operations are also discussed.