| When a firm fails its customers, how should it best compensate them? Traditional wisdom leans toward overcompensation. The expectancy disconfirmation paradigm suggests that heightened satisfaction and delight occur when a customer's expectations are exceeded and, thus, one might reasonably expect that, in a service failure context, customer satisfaction should be greatest when the compensation received to remedy a failure is greater than the compensation expected by the consumer.; This work holds that the opposite may be true; specifically, that giving an individual more than he or she expects as compensation for a firm's error (e.g., product or service failure) may have negative effects. This may happen through either a social or economic (signaling) process. First, when consumers are able to judge the proper level of compensation expected to remedy a failure, overcompensation may engender consumer-felt guilt due to perceived inequities in the distribution of resources between the customer and the firm. Second, when consumers are not able to judge the proper level of compensation expected to remedy a failure, overcompensation may act as a signal of the severity of the failure event. In both cases, attitude toward the firm may decline after overcompensation.; Five scenario-based experiments were conducted to test these assumptions. The results suggest that overcompensation can lead to consumer-felt guilt and that this is particularly likely when the relationship between the customer and the firm is close. The impact of guilt on attitude toward the firm is dependent on the guilt reduction mechanism chosen by the consumer. When consumers perceive opportunities to reduce guilt via prosocial means (e.g., increased loyalty), attitude toward the firm is likely to improve. Conversely, when perceived opportunities are nonexistent, attitude toward the firm is likely to decline. In these situations, overcompensation may negatively impact profits both through the cost of the compensation and through the negative impact on future sales. |
