ASIA PACIFIC JOURNAL OF MANAGEMENT, VOL. 15, 5 1-75 (1998)

Development of a service guarantee model

Much has been written about service guarantees and their various pro-

posed benefits. Following the literature, many writers regard a guaran-

tee as a tool to jump-start quality improvements and/or see in them the

ultimate way to gain a competitive edge. The objective of this paper is

to consolidate our understanding of the working of guarantees. Based

on a literature review and an exploratory study, a set of explicit propo-

sitions on the impacts of service guarantees was advanced. These

propositions were then integrated into a single conceptual model. The

model shows the impacts of well-designed guarantees on operations and

service quality, consumer behavior, and finally on business perform-

ance.

1. INTRODUCTION

In a time of increasing competition and more demanding consumers, superior service

quality has become a key determinant of a firm’s success (e.g., Wirtz and Shamdasani

1997). Service guarantees have been advocated by many experts as a powerful tool for

improving service quality (e.g., by forcing the organization to focus on customer needs,

eliminating fail points, and formalizing service recovery) and for building marketing

muscle (e.g., by reducing perceived risk, increasing quality perceptions, and encour-

aging word-of-mouth) {Bateson 1995; Berry 1995; Hart 1988; Schneider and Bowen

1996; Zeithaml and Bitner 19961. However, despite increasing interest from aca-

demics and practitioners alike, a conceptual model that would integrate and summa-

rize the large number of diverse effects generally attributed to the working of good

service guarantees has not been developed. It was the aim of this paper to develop

such a model. The model categorized the impacts of service guarantees into the fol-

lowing four groups: (1) impacts on operations and service quality, (2) impacts on

consumer behavior, (3) potential amplifiers of the impacts on consumer behavior, and

finally, (4) p _ Irn acts on business performance.

The model was developed by reviewing the literature on service guarantees and

drawing on insights obtained from an exploratory study with four firms. The outcome was

a set of propositions, which was then categorized and integrated into the single conceptual

model shown in Figure 1. The objectives of the paper are to consolidate our understanding

of the working of guarantees, and to provide managers with a framework for assessing the

CCC 02 17.45h1/‘)8/020005 1-25

0 1998 BY JOHN WILEY erc SONS (ASIA) LTD

52 J. WIRY’7

types of benefits which the introduction of a service guarantee can have for their own

businesses.

This paper is organized into six sections. Section 2 outlines the method employed

for the exploratory study. Detailed propositions on the links between the variables in the

model are developed in Section 3. Here, the relevant literature is reviewed and findings

of the study are presented. Section 4 summarizes and integrates the propositions in a

single conceptual model. The applicability of guarantees in an Asian context is examined

in Section 5. Managerial implications are discussed in Section 6. The limitations of this

study and suggestions for further research are provided in the last section.

2. METHOD

The main objective of this paper is to develop an integrated model on the impacts

of service guarantees. The proposed model is based primarily on the existing litera-

ture. However, the literature is largely anecdotal and consists mainly of individual

case analyses, which often focus on different aspects or benefits of guarantee pro-

grammes. To supplement the literature and to propose an integrated model, four

cases were analyzed, examining all the impacts of guarantees proposed in the litera-

ture at the same time. Propositions were then advanced when the findings of the

four cases and the literature were in substantial agreement. Substantial agreement

was defined as no case study contradicting the proposition, and at least two support-

ing it. There were only four instances where these conditions were either not fulfilled

(cf. discussion on Ps,), or could not be directly examined as they referred to industry

or service rather than company characteristics (cf. discussions on P.,% to P7,). In total,

18 propositions were advanced in which the literature and case data supported each

other. Another three propositions were advanced based on the literature with only

anecdotal case evidence (P_,, to P7<), but with strong logical support and/or parallel

findings in the goods warranty literature.

Structured interviews with marketing managers and front-line employees from five

service firms in Singapore were conducted. The firms studied were a paint company, a pest

control firm, a pizza restaurant, a slimming center, and an auto center. All firms are based

in Singapore. Apart from providing a convenience sample, these cases are an interesting

addition to the predominantly North American-based literature. As the model strives to

offer a more universal perspective, the Singapore cases provide an international dimension

with increased generalizability of the North American findings.

The literature unanimously contends that only well-designed guarantees give a firm

the desired impacts (e.g., Bateson 1995; Berry 1995; Hart 1988; Mudie and Cottam

1993; Rust, Zahorik and Kleiningham 1996), and all propositions in this paper refer to

the impacts of such guarantees. Service guarantees that satisfy all or most of the following

criteria can be considered well-designed (Hart 1988): A service guarantee should be (1)

I~EVI~I.OI’MEN’l’ OF A SEKVICE GLJAl1AN’I’l~l~ MODE1 53

Implementing and Running a Well-designed Service Guarantee

Required Features: l unconditional l easy to invoke l easy to understand and l easy to collect on

communicate l credible

l meaningful to customers l declaration of- trust

v

Operations &k Service Quality

Service Design l focuses firm on customer needs l prompts firm to understand and

improve service processes

Service Failure & Recovery Mgmt

l forces firm to understand and redut fail points

l encourages firm to seek customer

feedback l encourages firm to formalize servicl

recovery

Personnel Management l encourages firm to hire and train

against guxzzntred standards

l sets clear standards for employees

/ Amplifiers \

l perceived risk l uniqueness of guarantee

v

Consumer Behavior

Potential Customers l reduces perceived risk

l signals quality

Current Customers l increases brand loyalry

l encourages positive word-of mout-h l allows price j’remium

Dissatisfied Customer

l encourages feedback when dlssatisfie l lowers dissatisfaction at service failur l reduces negative word-of-mouth

f Business Performance

\

l Increase in Costs < Increase in Sales f cl~ Market Share

Reinforces l design and implementation

Commitment l operations and quality improvements l payout costs

\ = Increase in Profits

/

Fig. 1 Impact of a well-designed service guxxntce

54 J. WIRT7

unconditional, (2) easy to understand and to communicate, (3) meaningful concerning the

aspects of the service guaranteed and the compensation at service failure, (4) easy to

invoke, (5) easy to collect on, and (6) credible.

The guarantees offered by the five sample firms were assessed along the six criteria.

It was concluded that four guarantees fulfilled these criteria to a large extent and could

therefore be used to assist in the development of propositions. The fifth guarantee, offered

by a slimming center, appeared doubtful. The only aspect of the service that is guaranteed

is ‘a visible reduction in weight’. Other aspects of the service, such as customer satisfaction,

waiting times, and friendly service were not included in the guarantee. The guaranteed

outcome rests mainly on customer performance, and the guarantee can only be invoked

under the following conditions: first, the dietary instructions of the beautician have to be

followed, and second, a full treatment cycle has to be completed. The guarantee seems to

be self-fulfilling, as either customers lost weight, or they did not fulfil these two condi-

tions. Perhaps as a consequence, the guarantee had never been invoked, although it had

been in existence for several years. Therefore, it seems that the guarantee is merely used

as a communications tool to attract customers rather than truly guaranteeing service

quality. The firm was therefore not included in the analysis. Descriptions of all five

guarantees are provided in the appendix.

It has to be acknowledged that much of the case information is based on subjective

perceptions of the people interviewed. To somewhat reduce potential biases, the perspec-

tives from both top management (usually the marketing manager or managing director)

and front-line employees were obtained. Front-line employees in general have a good

understanding of customers as well as the actual delivery process, and were therefore

considered able to complement the more strategic and global outlook provided by top

management. To reduce potential rater bias, the interview transcripts were independently

coded by two different researchers.

3. PROPOSITIONS AND MODEL DEVELOPMENT

The large number of benefits discussed in the literature were categorized into the

following four groups: (1) impacts on operations and service quality, (2) impacts on

consumer behavior, (3) potential amplifiers of the imlyacts on consumer behavior,

and (4) impacts on business performance. In the following sections, propositions are

derived for each of these four areas based on the literature and case evidence.

IMPACTS ON OPERATIONS G- SEWICE QUALITY

The proposed impacts on operations and quality can be categorized into the follow-

ing three subcategories: (1) Service design, (2) service failure/recovery management,

and (3) service personnel management. They are discussed in the subsections below.

I~IIVI~LOI’MBNT OF A SERVICE GLJARANl‘l:l~ ,MOI)l:L 55

Service Design. Hart (1988) suggests that developing a well-designed service

guarantee requires the firm to identify the performance expectations of its customers,

and the importance they attach to all parts of the service process. In other words, the

formation of a service guarantee forces the firm to orientate on the customers’ defini-

tion of good service (e.g., Ettorre 1994; Marvin 1992; Skellett 1995). In fact, all firms

in the sample set up special tasks forces and conducted market research to better

understand customer needs before designing and implementing a guarantee. In addi-

tion to the one-off research during the design phase, an unconditional guarantee forces

a firm to constantly focus on customer needs and expectations (Rose 1990). A service

performance that did not keep up with changing customer needs over time would lead

to dissatisfaction and increased guarantee payouts. A focus on customer needs becomes

a driving force that naturally keeps performance at the standards expected by consum-

ers (Marvin 1992). For example, the pest control firm in the sample realized an

increasing need of its customers for environmentally friendly pest control services.

Now, the firm uses only biodegradable products of the best quality and thereby further

increased customer satisfaction.

A guarantee forces an organization to understand and improve its service delivery

process. Hart (1993a, p. 85) found that many companies actually re-engineer their processes

from top to bottom in order to bring quality up to the requirements of their guarantees.

This could be observed to some extent in all cases. For example, the pizza restaurant

realized that one reason for its slowness was the need to serve freshly baked pizzas, which

obviously takes more time than serving reheated ones. Substantial time savings were

achieved by changing the production process. Rather than topping pizzas on order, they

are now pretopped and then baked when ordered. This way, customers receive freshly

baked pizzas much faster. Together with a number of other changes in kitchen routines,

the total process time from taking the order to serving the pizza is now less than the

guaranteed 10 minutes. This is achieved although the baking time alone takes almost

seven minutes.

Service Failure and Recovery Management. Frequent service performances below

guaranteed standards result in a large number of payouts. As Hart (1993a, p. 28) ex-

pressed it, service guarantees turn up the pressure, and like turning up the pressure on

a garden hose, leaks become more apparent. This means a firm is forced to ensure that

the basic service delivery system, including its support functions and procedures, is geared

towards meeting guaranteed standards (Marvin 1992). Th e f Irm is encouraged to thor-

oughly examine its entire service delivery system for potential f&l points and work t(>-

wards eliminating them (Hart 1993b). Furthermore, every time a guarantee is invoked,

it provides an opportunity for the firm to learn about potential fail points, track errors and

use it as a feedback system assisting in continuous improvement (Everett 1990; Firnstahl

1989; Gooley 1993; Morrissey 1994). This ease of obtaining feedback and the pressure to

eliminate fail points together encourage a firm to actively solicit feedback from dissatisfied

customers (Marvin 1992).

Three of the four firms felt that the introduction of a guarantee helped them to

identify fail points, and induced them to introduce formal procedures for gathering regular

customer feedback. For example, the pest control firm realized that the quality of the

communication between the customer and the technician (the firm’s field staff) is crucial

for a successful completion of a job, and that this was poorly managed in the past.

Therefore, the first visit to the clients site is now always a meeting of three parties: the

client, the technician in charge of the site, and a sales executive. This procedure allows the

client to better understand the problems, the technician can identify exactly what treat-

ment to use and has an opportunity to educate the customer on how to prevent further

site infestations. The sales executive acts as a facilitator for the two parties and closes the

deal with the client.

Even after elaborate efforts to eliminate fail points, service breakdowns cannot be

totally avoided due to the interactive nature of services. When a service failure occurs,

successful recovery is crucial for customer satisfaction and retention (Bitner, Booms and

Tetreault 1990). Guarantees push a firm to formalize the service recovery process either

to avoid its guarantee being invoked, or alternatively, to use the guarantee itself to recover

the service. Often, a guarantee represents in itself an opportunity for effective service

recovery, as it compensates customers for the failure. The implementation of a guarantee

includes the setting ~113 of a clear and inviting mechanism for customers to trigger the

guarantee, as well as training and empowering employees to deal with invoked guarantees

(Hart 1993a, p. 117-133). For example, the pizza restaurant developed explicit recovery

procedures, which include front-line staff invoking the guarantee on behalf of the cus-

tomer if the pizza is late, apologizing and immediately presenting the guest with a

voucher for a free pizza (as promised in the guarantee). The autocentre implemented a

recovery procedure, whereby the car is picked up from the client by the salesman in charge

of the particular account. At pickup, any problems and complaints are discussed, and a

return date is agreed. After reservicing, the same salesman will drive the car back to the

client and report on the work conducted.

Personnel Munugement. An unambiguous, easy-to-understand guarantee sets clear

standards of performance for employees to adhere to and that customers can consequently

expect (Al 1993; Rose 1990). Such a guarantee tells employees what the company stands

for, and ensures a firm defines each employee’s role and responsibilities in delivering

quality service (Hill 1994; Hart 1988). Management is encouraged to set internal stand

ards for all Parts of the operation to ensure that the level of guaranteed service performance

is met (Marvin 1992). Rose (1990) suggests that this process induces firms to hire and

train employees against guaranteed service levels. For example, the four firms studied

found it increasingly necessary to hire better quality staff in terms of service attitudes,

motivation and education to meet guaranteed service standards. Rose (1990) further

argues that firms with guarantees would not let people start working without training,

because of the real danger of guarantees being invoked. In fact, new and existing employ-

ees of all firms in the sample received training on the guaranteed performance standards

I~EVELOPMFNT 01: A SERVIC:E GlIAKANl‘~l: MODEL 57

and how to consistently meet them. Examples range from detailed process standards such

as ‘no customer should be kept waiting at the door for more than 30 seconds’ in the pizza

restaurant, to wider ranging policies as in the case of the paint firm. The paint firm sets

exact standards for its paint jobs of exterior walls, which include the application of one

coat of oil-based sealer and two coats of paint. Previously the firm did not apply oil-based

sealers (many competitors are still not doing it), which caused the paint to absorb moisture

from the wall and allowed fungal growth - a main worry of house owners in the humid

and warm climate of Singapore.

The setting of standards and the often substantial compensation promised to cus-

tomers at service failure communicate to employees strong management commitment to

customer satisfaction. This gets reinforced, as employee performances which are up to

these standards become highly visible internally due to low payout costs, and vice versa

for performances below standards. For example, the paint firm works mainly with inde-

pendent applicators (self-employed subcontractors) who execute the paint jobs. Five years

after the introduction of the guarantee, the firm reduced the number of applicators from

15 to only 6, mainly because of performances below guaranteed standards. The remaining

applicators have consistently met the standards, expanded their capacity aggressively, and

are highly motivated to deliver excellent quality. According to the marketing manager of

the paint firm, the consistent meeting of a stringent but achievable guarantee has moti-

vated its applicators. It gives them pride in their work and makes them feel more

professional and superior to employees of other firms. Similar cases have also been reported

in the literature. For example, Hampton Inn introduced a service guarantee, and subse-

quent employee surveys showed that the guarantee increased employee morale. This was

also reflected in a drop of employee turnover from 117% to 50%~ within three years

(G&sing 1774).

Propositions I to 3. The preceding discussion is summarized in the following set

of propositions:

Pl : Service Design

Pla: A service guarantee forces firms to obtain and maintain a focus on customer

needs.

Plb: A service guarantee prompts an organization to understand and improve its

delivery process.

P2 : Service Failure and Recovery Management

P2a: A service guarantee forces management to identify, understand, and reduce

potential fail points in the operation.

P2b: A service guarantee encourages firms to actively seek customer feedback in

order to identify fail points and to improve performance.

P2c: A guarantee encourages firms to formalize service recovery procedures.

P3 : Personnel Management

58 J. WIRTL

P3a : A service guarantee encourages firms to hire and train employees according to

guaranteed performance standards.

P3b: A service guarantee sets clear performance standards for employees, communi-

cates management commitment to customer satisfaction, makes employee per-

formance internally visible and increases employee pride in their work. This

motivates employees to perform according to guaranteed service standards.

IMPACTS ON CONSUMER BEHAVIOR

The behavior of three groups of consumers is proposed to be affected by well-

designed service guarantees. They are potential, current and dissatisfied custom-

ers. The impacts on the behavior of each group are discussed in the following

subsections.

Potentiul Customers. It is widely accepted that service guarantees can have impact

on various aspects of consumer behavior. Examples are, increased likelihood of first time

purchase, willingness to pay a price premium and brand loyalty (Firnstahl 1989; Hart

1988). Many of the impacts can be explained by using a perceived risk framework.

Consumer decision making involves risk, because any action a customer takes can have

unpleasant consequences which cannot be predicted with certainty (Guseman 1981), and

services are often perceived as more risky than goods (Murray and Schlachter 1990; Wirtz

and Bateson 1998a). A service guarantee can reduce risk in a number of ways. First, an

unambiguous guarantee clarifies the standards of performance the customer can expect,

and thereby reduces consumer uncertainty. Second, a well-designed guarantee promises

high quality performance in those service elements which are perceived as important by

the consumer. Finally, if the consumer is dissatisfied with the performance, the promise

of a substantial payout and/or rework of the service further reduces perceived risk. The

consumer is reassured that even if the service fails, he can invoke the guarantee and the

magnitude of any negative consequence is reduced (Berry 1995, p. 117).

All four guarantees in our study are perceived as reducing customer risk. For exam-

ple, the pizza restaurant managed to attract more time-sensitive lunch business through a

10 minute from order to serve guarantee, and the paint firm succeeded in reducing uncer-

tainty on how much and in what time fungus could grow on painted walls (no fungus

growth is guaranteed for five years). Both attributes are considered important by the target

markets, and consumer uncertainty is reduced on the performance of these attributes.

Perceived risk is only one aspect of consumer behavior. Other underlying processes

by which a guarantee impacts on consumer behavior have not been fully explored in the

literature. Belief and attitude formation are used in the following section to explain

consumer intentions and actions.

Consumers can be expected to reason that if a company had not already achieved

high levels of service quality, it would not be able to offer a well-designed guarantee. Here,

DEVELOPMENT 01; A SERVI(:F (;IIAI<ANTEE MOIIFI. 57

the appeal to consumers does not lie with the fact that they will be compensated if the

product fails; rather, consumers are attracted because the guarantee signals high quality

and convinces them that the service will not fail (Hart 1773a, p. 17).

According to the theory of reasoned action, this increased strength of the belief that

buying the service will lead to a favorable outcome induces the customer to form a more

favorable attitude towards buying, which in turn leads to a stronger behavioral intention

towards buying. This strengthening of behavioral intention has a direct impact on actual

purchase behavior (cf. Sheppard, Hartwick and Warshaw 1788). The result is an increase

in new customers (Maher 1992). All firms in the sample were convinced that their

guarantees had a positive impact on customer beliefs, attitude, purchasing intentions and

number of customers actually buying.

Current Czcstomers. The impact of a guarantee on consumer beliefs and intentions

does not only arise from the guarantee directly. A guarantee has a favorable impact on

operations and service quality as outlined in propositions 1 to 3. These improvements

contribute to an increase in satisfaction and brand loyalty of existing customers (Firnstahl

1989; Heskett, Sasser and Hart 1990). Furthermore, consumers may reduce perceived risk

by remaining loyal to a brand that is tried and found satisfactory (Wirtz and Bateson

1798b). For example, the pest control firm managed to win the business of all sites of a

large organization after the first contract was executed well.

The improvements in operations and service quality not only increase brand loyalty,

but also generate more positive word-of-mouth (Marvin 1992; Reichheld and Sasser

1990). Furthermore, well-designed service guarantees have a high communications quality

in themselves and may induce customers to talk about them (Heskett, Sasser and Hart

1770). All firms examined perceived higher levels of word-of-mouth. An extraordinary

example was reported by the paint firm. It painted one house on a particular road in a

residential area. Recommendations by friends and neighbors resulted in the painting of

the entire row of houses within a few years.

The improvement in the beliefs, attitudes and behavioral intentions of the potential

consumer also plays a part in boosting a firm’s marketing muscle. Consumers are by nature

risk-averse and tend to develop decision strategies to reduce risk (Guseman 1781). The

improved service quality and the impact of a guarantee on quality beliefs reduce perceived

risk. Since the perceived probability of a favourable outcome is increased and the potential

negative consequences are reduced, the expected value of a service is enhanced, and there-

fore, consumers are likely to be willing to pay a price premium for the service (Hart,

Schlesinger and Maher 1792). In the sample, the paint firm could observe this directly,

as quotations are often requested from several firms. The paint firm often quotes prices

of up to 8% over its nearest competitors and can still secure the jobs.

There are a number of feedback loops or secondary impacts of the proposed effects

on consumer behavior discussed so far. For example, the increase in word-of-mouth has a

number of further marketing implications. Positive word-of-mouth markets the service

quality to potential customers and reduces perceived risk, which can increase the number

of new customers trying the service. To keep the proposed model parsimonious, potential

feedback links between the various aspects of consumer behavior are not included in

Figure 1.

So far, only the impact on potential customers or satisfied current customers have

been discussed. In the following paragraphs, propositions of the impact of guarantees on

consumer reactions to service failure are presented.

Dissatisfied Cmtorners. A well-designed guarantee provides customers with

clear standards against which to assess service performances (Hart 1988). For example,

without the guarantee, a restaurant patron might feel that his lunch took a long time

to be served, but he may not be confident about his assessment and therefore reluctant

to complain. But when the lunch is served 15 minutes after an explicitly guaranteed

time, then the same customer might feel justified to complain. The guarantee also

promises the customer a meaningfill compensation (e.g., a free pizza), if guaranteed

standards are not met. Providing customers with a clear basis for performance assess-

ment in full satisfaction guarantees, whether explicit standards or implicit, and prom-

ising compensation if standards are not met, increases the strength of the customer’s

belief that complaining leads to a favorable outcome. That is, there is no need for

a confrontation with service personnel concerning performance standards and the level

of appropriate compensation. This in turn leads to a more Favorable attitude and

intention towards complaining, which has a direct impact on actual complaining

behavior. The pizza restaurant observed that a substantial proportion of diners invoke

the guarantee, if the delivery time is longer than 10 minutes. When invoking the

guarantee, customers fill in ‘goof’ cards, which are used to monitor service quality

and tackle any potential causes of performance shortfalls.

Past research has shown that consumers who complain to the firm are less dissat-

isfied, are less likely to engage in negative word-of-mouth, and are more likely to buy

again, even when the complaint is not resolved (Sellers 1988). Furthermore when dissat-

isfied customers complain, the firm has an opportunity to recover the service and/or to pay

out the guaranteed compensation. This is important, as satisfaction and customer reten-

tion are further increased when the complaints are resolved through service recovery (Gilly,

Stevenson and Yale 1991; Sellers 1988) and/or guarantee payouts are made (Berry 1995,

p. 117; Hart 1988). Three of the four firms reported these effects. In fact, much emphasis

was placed on service recovery facilitated through an increased proportion of dissatisfied

customers who complain.

Propositions 4 to 6. The preceding discussion is summarized in the following

propositions:

P4 : Potential Customers

P4a: A guarantee reduces the risk consumers perceive when deciding on the pur-

chase of a service.

P4b: A service guarantee signals high service quality and increases the strength of

the belief that purchasing the service will result in a favorable outcome. This

leads to the formation of a more favorable attitude, a stronger intention

towards purchasing, and to more customers actually buying.

P5 : Current Customers

P5a: Improvements in operations and service quality caused by the guarantee in-

crease brand loyalty.

P5b: The communications content of the guarantee and improvements in service

quality increase positive word-of-mouth.

P5c : The increase in the strength of the belief that purchasing the service will lead

to a favorable outcome enables the firm to charge a price premium over its

competitors.

Pb : Dissatisfied Customers

Pba: A service guarantee increases the strength of the belief that complaining if

dissatisfied, will result in a favorable outcome. This leads to the formation of

a more favorable attitude, a stronger intention towards complaining, and to

an increase of the proportion of dissatisfied customers who complain. The

outcome for the firm is an increase in useful customer feedback.

Pbb: The increased proportion of customers who complain when dissatisfied leads

to a decrease in dissatisfaction, less negative word-of-mouth and an increase

in customer retention. These effects are further enhanced when the service can

be recovered and/or guarantee payouts are made.

POTENTIAL AMPLIFIERS OF THE IMPACT ON C’ONSlJbIER BEHAVIOR

So far, this section developed propositions on the impacts of guarantees on consumer

behavior. In the following paragraphs, the literature is reviewed for factors that

mediate those impacts. However, these propositions cannot be tested conclusively by

the cases examined, as they refer to industry or service rather than company specific

characteristics. The propositions are advanced based on a combination of the follow-

ing factors: the service guarantee literature, anecdotal case data, parallel findings in

the goods warranty literature, and logical arguments.

It has been suggested that the guarantee’s impact on consumer behavior is in-

creased under one or more of the following conditions (Hart 1 c)S8; Hart, Schlesinger and

Maher 1992): when the price of a service is high, when the negative consequences of

service failure are high, when a service is ego-involving, when a customer knows little

about a service, when brand recognition is low, when word-of-mouth is important for

consumer decision making, when the service is highly customized and therefore past

performance with other customers does not provide reliable cues on its quality, and when

62 J. WIRT%

the industry’s service failure rate is high. As all of these conditions are directly related to

perceived risk, it is suggested that the impact of a well-designed guarantee increases

with increasing levels of risk perceived by consumers. An example is the paint firm,

which operates in an industry with high performance heterogeneity between service pro-

viders, high service failure rates (the paint peels, grows fungus, and becomes patchy,

etc.), and high financial risk (a paint job of a residential house is considered a major

expense by most households). By introducing its guarantee, the paint firm generated

major impact on customer behavior (e.g., increasing sales, market share and word-of-

mouth). Parallels can be drawn from the goods warranty literature, which has shown

that risk is a key mediator of the impact of warranties on consumer behavior (Shimp and

Bearden 1982).

Rose (199(j), and Hart, Schlesinger and Maher (1992) suggest that an unconditional

service guarantee could be the ultimate point of differentiation in a service industry. But

obviously such differentiation can only be obtained if either competitors do not offer a

guarantee or their guarantees are not as good. When most firms in the industry offer a

guarantee with similar terms, then the guarantee offered by any one firm is no longer a

differentiating factor, assuming equal bond credibility of all firms. In fact, if many firms

offer it, it may become a minimum criterion, which customers expect when buying this

type of service. Therefore, it seems necessary that the glydrantee be unique for greatest

impact on consumer behavior. This uniqueness can either mean that the guarantee is

exclusive to the firm, or that the design of the guarantee is special, i.e. better than those

of competitors.

The paint firm, the pizza restaurant and the auto center were the first to introduce

their guarantees in Singapore and could enjoy strong marketing impact. In contrast, the

pest control firm launched its guarantee into a market where many players offered guar-

antees, and its marketing impact was somewhat less spectacular than for the other three

firms. It seems, the guarantee served more as a reassurance for potential and current

customers rather than as an aggressive selling tool. In other words, the guarantee helps

to reduce perceived risk, but this may apply industry wide, rather than providing any

individual player with a competitive edge.

Perceived risk and uniqueness of the guarantee are proposed to mediate the impact

of a well-designed guarantee on consumer behavior only. It is suggested that the benefits

of a well-designed guarantee on operations and service quality can still be obtained

independent of these factors. Even if consumers perceive little risk and the guarantee is

not unique, a well-designed guarantee still induces a firm to focus on customer needs

(Pla), to reduce fail points (P2a), to formalize service recovery procedures (P~c), etc.

Proposition 7. The preceding discussion is summarized as follows:

P7 : Amplifiers of the Impact on Consumer Behavior

P7a: The potential impact of a guarantee increases with increasing levels of per-

ceived risk related to the service offering.

I~HVIiLOI’MEN’I’ 01: A SERVICE GUARANTEE MOIIIIL 63

P7b: The potential irnlyact of a guarantee increases with its uniqueness. A guarantee

is unique, if it is either the only guarantee in the industry, or its features are

better than those offered by competitors.

P7c : A guarantee has positive impact on operations and service quality, independ-

ent of the level of risk perceived by its consumers and the uniqueness of the

guarantee.

IMPACTS ON BUSINESS PERFORMANCE

The impact of a guarantee on consumer behavior implies that sales and market share

would increase. For example, the attraction of new customers, higher customer re-

tention rates, increased brand loyalty, and the ability to charge premium prices

translate into higher sales (Hart 1988; Heskett, Sasser and Hart 1990). Furthermore,

it was proposed that the guarantee increases the level of service quality and reduces

risk perceived by consumers. These translate into higher market share if the price

is kept constant, or the increase in utility through better quality and lower risk more

than offsets the lower utility of a higher price.

All firms unanimously agreed that the guarantee increased their sales. They believe

that their market shares also increased as all firms perceived themselves as growing faster

than the market.

Setting up and implementing a guarantee brings not only benefits, but also incurs

costs. For example, a well-designed guarantee contains promises that are meaningful to

customers. Research needs to be conducted to understand which service elements are

important to customers and should be covered, and what type and/or amount of payout

would be meaningful to customers. Features of the guarantee have to be determined, its

presentation to consumers has to be designed, and legal aspects may have to be considered.

All these activities incur costs.

Furthermore, services are real-time performances and cannot be executed a hun-

dred per cent failure-free all of the time, i.e. occasional service failures are unavoidable

(Wirtz and Bateson 1998a). Given the more positive attitude of dissatisfied consumers

towards complaining and invoking the guarantee, payout costs will be incurred (Maher

1991) and overall expenses increased.

Finally, guarantee related improvements in operations, such as efforts to eliminate fail

points, typically incur costs (Firnstahl 1989). The magnitude of the cost burden depends

on how poor the original standards of service are, the nature of the firm’s relations with

employees and customers, and the nature of the business (Heskett, Sasser and Hart 1990).

The impact of guarantee programmes on operating costs in the long run is less clear.

On the one hand, a guarantee programme can increase costs, because money is constantly

spent on upkeeping and continuously improving service quality (Heskett, Sasser and Hart

1990). On the other hand, Hart (1993a) found in his work that well-designed guarantees

64 J. WIKTL

often lower operating costs. Ensuring customer satisfaction while under the gun of guar-

antee payouts means working towards getting everything right the first time and provid-

ing employees with the necessary training and tools. As an organization works harder and

smarter, it may find that it can reduce rework and inspections, and increase productivity.

Significant cost savings can emerge, even though they were not the initial motivation for

the introduction of the guarantee (Firnstahl 1989; Hart 1993a, p. 32).

In the study, all firms experienced the short-term cost increases suggested in the

literature. Market research, design and legal costs were mentioned by most firms. In

contrast to Hart’s observations (1993a, p. 32), none of the firms believe that long-term

operating cost have or will come down. In fact, all firms experienced increases, such as

higher material costs, due to the use of more and higher quality paint in the case of the

paint firm, higher training and salary expenses in the case of the pest control firm, and

of course, guarantee payout costs. Also, the case data do not only suggest that overall cost

(e.g., for salaries and training) went up, but that even unit costs increased. Increases in

efficiency were not perceived to match the higher cost incurred.

The introduction of a guarantee probably increases both sales and guarantee related

costs (at least during the implementation phase). It is the general view that the benefits

of the guarantee easily outweigh the costs in the long run (Firnstahl 1989; Hart 1988;

Rust, Zahorik and Kleiningham 1996). This perception was shared by all firms who

consider their guarantee programmes as definitely improving the bottom line.

The positive impact of a guarantee on profits and market share provides positive

feedback to management and further reinforces its commitment to the guarantee. This

increased commitment is proposed to lead to a careful monitoring and improving of the

features of the guarantee. The firms in the sample consider their guarantees a core part

of their marketing and operations strategies. In fact, two of the firms are currently work-

ing on extending the guarantees to other services currently not covered by the guarantee.

For example, the paint firm will also introduce the same guarantee currently covering

residential houses to industrial buildings.

Proposition 8. The preceding discussion is summarized in the following proposi-

tion:

P8 : Impact on business performance and management commitment.

P8a: Service guarantees result in an increase in sales by attracting new customers,

increasing customer retention and brand loyalty, and/or by allowing price

premiums to be charged.

P8b: Increased utility through higher quality and reduced perceived risk result in

higher market share if the price is kept constant, or if the increase in utility

is not more than offset by a potential price increase.

P8c: The design and development of a guarantee, efforts made by the firm to

improve operations and service quality, and guarantee payouts increase costs

in the short term.

DEVELOPMENT OF A SERVICE GUARANTEE MODEL 65

PSd: The increase in contribution through higher sales and market share outweighs

the increase in guarantee related costs and results in an increase in profits.

P8e: An increase in profits reinforces managements’ commitment to the service

guarantee, and to careful monitoring and improving of its design and admin-

istration.

4. OVERVIEW - THE SERVICE GUARANTEE MODEL

The model in Figure 1 is the outcome of structuring and categorizing the dynamics

of the service guarantee as proposed in the literature, and evidence from the four case

studies.

The literature suggests a large number of potential benefits of guarantees. The

direct benefits can be grouped into two main categories: (1) impacts on operations and

service quality, and (2) impacts on consumer behavior. The impacts on operations and

quality are a direct outcome of work related to the design and introduction of a guar-

antee (e.g., prompting a firm to understand and improve its service processes), and of

having a guarantee operational (e.g., keeping the firm on its toes by monitoring per-

formance against guaranteed standards). Consumer behavior is driven both directly by

the guarantee (e.g., reduction of perceived risk) as well as indirectly via improvements

in operations and service quality (e.g., higher customer retention as service recovery

procedures become formalized).

The impacts on operations and quality can be grouped into the following three

subcategories: (1) Service design, including matching the service delivery process against

customer needs, and encouraging the firm to fully understand and improve its produc-

tion processes; (2) service failure and recovery management, such as forcing the firm

to understand and reduce fail points, as well as to formalize service recovery proce-

dures; (3) personnel management, e.g., encouraging the firm to hire and train against

guaranteed standards.

The effects on consumer behavior can be grouped into impacts on: (1) Potential

customers during the decision-making process, such as reducing perceived risk; (2) current

customers, for example increasing brand loyalty and positive word-of-mouth; (3) dissat-

isfied customers, e.g., increasing their propensity to complain when dissatisfied and thereby

creating opportunities for the firm to recover the service, to lower dissatisfaction and

switching propensity, as well as to reduce negative word-of-mouth.

It is suggested that there are two amplifiers of the impact of guarantees on consumer

behavior. These are perceived risk and uniqueness of the guarantee. The higher the risk

perceived by consumers, and the higher the degree of uniqueness of the guarantee (i.e.,

better than competitors’ guarantees), the higher is the potential impact of a guarantee. It

is noteworthy, that these amplifiers are proposed to mediate the impact of guarantees on

consumer behavior only, and not on operations and service quality. In other words, the

66 J, \YJl11?‘/

beneficial impacts on operations and service quality can be achieved even when consumers

perceive little risk or other firms offer similar guarantees.

Finally, better operations and service quality, and positive impacts on consumer

behavior are proposed to improve business performance. Higher profits in turn are sug-

gested to reinforce management commitment to the guarantee.

Of course, there are a number of potential secondary links between the variables in

the model. For example, positive word-of-mouth caused by a service guarantee can reduce

perceived risk. To keep the model parsimonious, the large potential number of such

secondary links were not included in the model.

5. OTHER FINDINGS: GUARANTEES IN AN ASIAN CONTEXT

Participants in executive development and MBA programmes from Southeast Asia,

who have been presented with almost exclusively North American examples of suc-

cessful service guarantees in their Service Marketing classes, have been sceptical

whether guarantees would work in Asia. Their concerns center around their percep-

tions that Asian customers are much more likely to show opportunistic behavior

than, for example, American customers. The reasons for their beliefs seem to be

based on lower household incomes and education levels in comparison to North

America. As a consequence, the executives had two main questions which triggered

the research reported in the present paper: (1) Are there any firms who have success-

fully implemented service guarantees in Asia, and (2) Do these firms experience a

lot of customer cheating on guarantees or, in the eyes of management, unreasonable

invocations of their guarantees.

The answer to question one is simply ‘yes’. The four cases examined show that at

least in Singapore and perhaps also in other Asian countries, service guarantees can be

successfully implemented. Responding to question two, none of the four companies re-

ported excessive opportunistic behavior, although all admitted that a minority of their

customers does take undue advantage of their guarantees. For example, the pizza restau-

rant reported that groups of students changed the clocks between two tables so that one

of the tables would be able to invoke the ten minutes guarantee. However, all four firms

reported that unreasonable invocations or opportunistic behavior are exceptions and by no

means numerous enough for revoking their guarantees. In conclusion, the fear of excessive

opportunistic behavior of Asian customers seems unfounded.

The literature review served as a main guiding tool for proposing the model. Almost

all literature was based on North American cases and anecdotal evidence. The cases

examined in this paper are from an Asian context and served more as a hygiene check

before links and variables were actually included in the final proposed model. However,

it is noteworthy that the large majority of the model impacts coming from the literature

were also supported by the Asian data. As Asian values are often seen as almost contrasting

DEVELOP,MENT OF A SEItVl(:E (;l!ARANTEE MODEL 67

American values along many dimensions (e.g., along Hofstede’s dimensions of individu-

alism, power distance, uncertainty avoidance and masculinity-femininity) (cf., Bond 1996,

p. 212), it seems therefore that the model proposed here may be robust across at least these

two cultures, and may in fact even be culture independent.

It has frequently been proposed that Asians are more trusting and relationship-oriented

than, for example, North Americans. However, much of the data these ,assumptions are

based on are dated (e.g., Hofstede 198(I), and do not control other potentially important

variables. This is partly due to the questionable assumption of parity within communi-

ties and cultures (Goodwin and Tang 1996). For example, Zhang and Bond (1993) have

argued that the degree of industrialization serves as the critical factor, with people in Hong

Kong and the US (both highly industrialized societies), demonstrating lower trust towards

strangers than those in the developing People’s Republic of China. One could argue that

the data collected for the present study are from an industrialized country [Singapore ranks

number nine in the world in terms of purchasing power per head (World Bank 1995)],

and therefore further research may be necessary to extrapolate the findings to less devel-

oped countries. Furthermore, it may be that customer demographics (income and edu-

cation) and psychographics [e.g., attitude towards non-monetary costs, such as those related

to service failure (lost effort, going through a repeat service production, etc.) or poor process

quality (e.g., long waiting times)] may be stronger determinants of the perceived value

of an guarantee and potential opportunistic behavior than culture or nationality itself. Should

this be the case, service firms in any country may be able to implement service guaran-

tees targeted at those customers that value high service quality, and perceive high disutility

of non-monetary costs. These customers are unlikely to show opportunistic behavior, due

to the perceived costs of switching to less reliable service providers. The desire for qual-

ity is somewhat independent of their cultural background. However, these lines of thought

are largely speculative and require further research.

6. MANAGERIAL IMPLICATIONS

From the model, two conclusions can be drawn. First, the model shows that a

guarantee can be introduced for many different operations/quality and marketing

objectives. A company with poor quality may want to focus primarily on causes of

existing quality gaps, whereas a firm with high quality standards but limited market

presence and quality reputation may want to focus mainly on transforming potential

customers into loyal ones.

Second, perceived risk and the uniqueness of the guarantee are proposed to medi-

ate the impact of guarantees on consumer behavior only. The beneficial impacts on

operations and service quality can be achieved even when consumers perceive little risk

or other firms offer similar guarantees. This means, firms which do not perceive any

benefits from introducing a guarantee in the marketplace, and therefore have so far

68 J. WIRTZ

rejected the notion of introducing a guarantee, may still benefit enormously on the

operations side.

The model aims to provide managers with a more holistic view on the impacts of

a service guarantee and to give them a framework for thinking about the types of benefits

an introduction of a service guarantee can have for their own businesses. Using the model

as a basis for brainstorming and a guide for conceptualizing effects may help in defining

and perhaps broadening the objectives to be pursued with the introduction of a guarantee.

For example, the firms in the sample introduced service guarantees solely to gain market-

ing leverage, and none of the firms initially aimed at improving its service quality.

Managers often realized during and after implementation that there were in fact substan-

tial benefits on the operations side. It seems that the service guarantee as a tool to improve

and deliver superior service quality has not yet received its just place in the applied world,

and firms can gain much by looking at guarantees from an operations perspective. In the

academic world, this view has received increased attention in recent research on internal

guarantees which focus entirely on the operations side, to the extent of ignoring direct

marketing benefits (Epelman 1994; Hart 1994).

Finally, the four cases demonstrate that service guarantees can be successfully imple-

mented in an Asian context. In fact, as service guarantees are still the exception, oppor-

tunities for achieving significant marketing impact and service differentiation may exist

in a large number of service markets in Asia.

However, it should be noted that none of the cases examined started out with low

quality in the first place. Although none of the firms was a quality leader in its market,

they all probably were in the top 25% in their respective markets. From this level, it was

possible to make a leap to quality leadership by providing clear service and performance

targets through the impending guarantee introduction (i.e., ‘our customers want no fun-

gus for at least five years. How do we achieve this in the next twelve months until we

launch our guarantee?‘). It seems doubtful that firms with severe quality problems may

overcome the challenges of achieving those guarantee standards desired by the market

place. An effective service guarantee may be out of their reach for a long time, and more

traditional tools for improving quality to acceptable levels may have to be applied first.

7. LIMITATIONS AND FURTHER RESEARCH

LIMITATIONS OF THIS STUDY AND WHAT ARE WELL-DESIGNED

SERVICE GUARANTEES?

There are a number of limitations related to the proposed model and the exploratory

study which may provide inputs for further research. First, the model assumes the

introduction of a well-designed service guarantee. Although there are guidelines for

designing good guarantees (e.g., Hart 1988), no empirical research has yet addressed

DEVELOPMENT OF A SERVICE GUARANTEE MODEL 69

this issue. Most likely, there is a continuum from extremely poor to extremely well-

designed guarantees. The case studies selected for this study are towards the well-

designed end of the scale. However, where the cut-off point is for guarantees to have

the proposed benefits, which of the conditions proposed by Hart (1988) are neces-

sary, and what else to consider, are interesting issues for further research.

Furthermore according to Hart (19SS), full satisfaction guarantees and attribute

performance specific guarantees (e.g., no fungus for five years) can both be the core of a

well-designed guarantee. However, when presented with a full satisfaction guarantee,

questions are raised such as ‘What does full satisfaction mean?’ or ‘Can I invoke a guar-

antee when I am dissatisfied, although the fault does not rest with the firm?’ It seems that

one of the underlying themes of these questions is a high degree of ambiguity inherent

in full satisfaction guarantees, which may result in discounting of the expected value of

a guarantee. Wirtz (1997) showed that the discounting can make a full satisfaction

guarantee less attractive than a guarantee with less scope but more certainty of what is

covered and what is not. It was also shown that specific attribute performance guarantees

(e.g., overnight delivery) combined with a full satisfaction guarantee (e.g., should you be

dissatisfied for any other reason) significantly outperformed all other designs. The study

concluded that firms can design better guarantees than merely promising full satisfaction.

It seems that adding specific performance standards to a full satisfaction guarantee reduces

customer uncertainty about the intended coverage of ‘full satisfaction’ and thereby reduce

discounting of the expected value of a guarantee. Further research is needed on the impact

of alternative guarantee designs on their perception. Furthermore, what a good guarantee

is may depend on the specific industry. Firnstahl (1989, p. 31) shows this in relation to

determining appropriate guarantee payouts: ‘it is easier to give someone a bowl of clam

chowder than a free.. industry marketing study.’

MORE LIMITATIONS AND RELATED RESEARCH IDEAS

The propositions and the model are purposefully left at a general level covering main

effects. However, this makes many of the propositions general and difficult to be

tested directly. Therefore, future work may consider taking parts of the model and

expanding them into more detailed submodels, which can then include all the sec-

ondary links (such as links between word-of-mouth, perceived risk, quality signal

and price premium), which have been omitted here for reasons of model parsimony.

Finally, the case data rest heavily on self-reported perceptions of the four firms.

There may have been biases due, for example, to a desire to have had implemented a

successful guarantee or a reluctance to admit failure (although the researchers believe that

this was not the case). Future case studies may want to supplement interviews with more

objective data such as sales growth, customer loyalty, etc. in comparison to the industry

or closest competitors who have no guarantees.

70 J. WIR-K%

Two almost completely ignored areas in the literature are: firstly, what type of

organizational environment is required for a successful guarantee implementation, and

secondly, what are the potential drawbacks of service guarantees. Some suggestions for

further investigation are presented in the following two sections.

ORGANIZATIONAL REQlJlREMENTS FOR

SUCCESSFUL GUARAN?-EES

Although there are some case descriptions on how successful guarantees were imple-

mented (e.g., Al 1773; Hunter and Raffio 1772), no conceptual or empirical research

has examined the interplay between organizational structure, job designs, culture

and the success of service guarantees. It is quite likely that successful service guar-

antee programmes require empowered rather than non-empowered employees. Cus-

tomers prefer an easy invocation and payout of guarantees (i.e., ideally front-line staff

handles this), rather than having to go through supervisors. Hunter and Raffio

(1772) described vividly how important it was for the successful introduction of

their Delta Dental Plan guarantee to obtain commitment and employee participa-

tion in the guarantee design, and have employee task forces evaluate alternative

guarantee types. These examples seem to suggest that for implementing and running

successful guarantees, we require empowered employees, with interest in the devel-

opment of a guarantee. However, there are successful firms that employ a produc-

tion-line approach to services with closely supervised employees and high process

control orientation (Bowen and Lawler III 1772). Does this mean these organizations

would not be good candidates for implementing service guarantees, or would they

simply require different types of guarantee programmes? It is imaginable that less

empowered, motivated and trained employees would have more problems with a full

satisfaction guarantee, but perhaps might be perfectly fine working with specific

attribute performance guarantees (e.g., 24hour delivery guarantee). Further research

is needed on these issues.

THE DARK SIDE OF SERVICE GUARANTEES

The service literature and this paper focus on the benefits of service guarantees, and

almost all published cases report success stories. However, there are potential draw-

backs of guarantees, which may include: (a) customer cheating, (b) raising doubts

about the service quality rather than reassuring customers, (c) demotivating employ-

ees, and (d) uncontrollable factors affecting service quality and customer satisfaction.

First, one reason why managers may be reluctant to adopt guarantees is their

perception that customers may behave opportunistic and misuse it (Hart 1773a, Hill

1775, Information World 1775). It would be of managerial relevance to gain an under-

DEVELOPMENT 01: A SERVI(:E GIJARANTEI‘ MODEL 71

standing on how, under what conditions and why customers may cheat, and what man-

agement can do to prevent or contain it. There are some anecdotal evidence and sugges-

tions (e.g., Hart 1993a), but no systematic investigation. There is much literature on

cheating, fraud and opportunistic behavior in fields such as social psychology, organiza-

tional behavior, criminology, income tax and insurance fraud. It would be an interesting

and potentially rewarding research avenue to examine those issues in a services guarantee

context. Variables of interest may include situational and personality dependent motiva-

tors and inhibitors of cheating behavior (e.g., Carson 1989; Kenrick and Funder 1988;

Scott and Grasmick 1981).

Second, there are suggestions but no systematic research that service guarantees may

tarnish the image of some service firms in at least three circumstances: (1) Service guar-

antees may be seen as an acknowledgement by a service provider that problems occur and

increase perceived risk of its target group. For example, ‘a priceless oriental rug that has

been destroyed.. .cannot be replaced with the promise of ‘your money refunded, no ques-

tion asked’ (George, Weinberger and Kelly 1985, p. 97). Similarly, if something funda-

mental is guaranteed, such as hygiene in a hospital, it can also raise doubts about service

quality (Hill 1995). (2) A firm known for excellent service quality may be perceived as

offering an implicit guarantee. For example, one would take it for granted that Ritz Carlton

or McKinsey offer first class service. In the unlikely event of a service failure, recovery is

fully expected. An explicit guarantee may puzzle clients on why it is now necessary to

explicitly specify a guarantee and whether this is a signal that quality problems do exist.

(3) Finally, when a firm withdraws a service guarantee regardless of the reason, customers

may interpret this as the firm not being able to meet its guarantee (Hill 1995).

Third, marketing has placed little emphasis on potential negative impacts of guar-

antees on service staff. Al (1993) found when he introduced a guarantee to outpatient

clinics that service employees became demotivated because of the constant flow of negative

feedback through guarantee invocations. This problem was solved by adding a compli-

ment scheme to the guarantee, resulting now in much more positive than negative

feedback with a strong positive impact on employee morale. It would be of interest to

examine whether motivational drawbacks for employees may be a more widely spread

problem neglected by the literature but requiring a solution.

Finally, some service providers such as schools, airlines and hospitals are subject to

many uncontrollable factors that may prevent them from offering meaningful guarantees

(Ettorre 1994). No research has yet addressed how consumers perceive guarantees offered

under such circumstances, and what designs are workable and effective.

One interesting first step to at least partially uncover drawbacks and pitfalls of

service guarantees would be to investigate unsuccessful service guarantees. They may

include cases where guarantees were revoked or where programmes had to be redesigned

to address problems.

72 J. WIRTZ

ACKNOWLEDGEMENTS

The author thanks Rachel Koo Li Chuen for valuable research assistance, and par-

ticipants of the 4th International Research Seminar in Service Marketing, organized

by IAE, Aix-en-Provence, France, for constructive feedback on a presentation of an

earlier version of this paper. Finally, the author would like to acknowledge insightful

suggestions and constructive criticism provided by the two anonymous reviewers

and Kulwant Singh, co-editor of APJM.

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DIiVI:LOI’MIINT OF A SERVICE GLJARANTEE MOL~EL

APPENDIX

GUARANTEES OFFERED BY FIRMS INCLUDED IN THE STUDY

75

Case

Paint Firm

Description of Guarantee

A five-year guarantee 1s provided on paint jobs on building exteriors by Its subcontractors. The guarantee covers paint cracking, peeling, uneven fading,

and fungus and algae growth. If any of these problems arises, the firm sup- plies the paint free-of-charge and pays one of its subcontractors to repamt the building.

Conditions: on the first visit to the site, a sales executive examines the walls for defects. Should there be any problems, they are discussed with the customer. A guaranter is issued when, if any, wall de-

fects are rectified before the punt job is executed.

Pest Control Firm Pest eradication is guaranteed for all services except soil treatments. Any complaint and/or dissatisfaction, whatever the cause, IS met with free reservicing within 3 hours (if the guarantee is Invoked between 9 am and 3 pm) or within 24 hours (if the guarantee is Invoked after 3 pm).

Conditions: none

Pizza Restaurant Any of three specified popular pizzas is guaranteed to be served within 10 minutes of ordering on working days between 12 am and 2 pm. If the pizza

is late, the customer’s next order is free.

Conditions: none

Service Center for

Automobiles

The purchase of a Type A car provides the owner a three-year guarantee which

covers, among other things, the mamtenance and servicing of the car.’ Any problem that arises is covered by reservlcing.

Conditions: the car is not to be used for commerrlal passenger transportation and is serviced exclusively by the firm.

Slimming Center Visible results are guaranteed. If the treatment does not seem to work, the

client’s money is refunded.

Conditions: the client must follow the consultant’s dietary instructions, regu- larly attend the prescribed salon sessions and complete a full

treatment cycle.

’ The service is bundled with a product (an automobile) and cannot be purchased by Itself. It was

decided to still include it into the study, as it is after all a maintenance and repair service that is

guaranteed. When the service fails, the firm recovers it at no extra costs to the customer (e.g., the

car is picked up from the customer and delivered back after redoing the repair).